Executive Questions Bermuda’s Future

December 12, 2011

While a recent report A.M. Best report gave a “cautiously optimistic” appraisal on the state of the Bermuda re/insurance market, there may be deeper concerns on the horizon for the island a leading industry executive has said.

In an interview with the “Insurance Journal”, Chief Executive of Bermuda’s Torus International Dermot O’Donohoe provided a more downbeat assessment on current conditions in the local market.

Although Torus — the holding company — remains domiciled in Bermuda, the firm does little business on the island and its operating companies are now located mainly in Europe and the US.

“[This] more or less typifies a number of companies that are located on the island,” reports the leading industry trade paper today [Dec.12]. “In that regard O’Donohoe said ‘we are reviewing that position to see whether in the longer term if we want to maintain that status’ …”

Torus’ upcoming decision on redomiciling will follow on the heels of a number of re/insurance companies that have either moved their corporate domiciles or shifted a large amount of their operations from Bermuda – mainly to continental Europe, Ireland, the US and the UK — including ACE, Flagstone Re, Canopius, Allied World and XL.

Mr. O’Donohoe singled out “market conditions” as the principle reason for the shift, indicating that “a lot of the Bermuda companies set up in Bermuda because they felt it was a favourable regulatory regime.”

Bermuda’s regulators largely welcomed new companies and the firms were “settled in Bermuda to deal with a particular market situation that tended to be focused on providing capacity in an area where there was market demand,” he said.

“So, with a small number of people and a large amount of capital, you could effectively set up an operation – typically a reinsurance operation, or a small insurance operation – and you could sit in Bermuda and write the business,” he told “The Insurance Journal.”

Mr.O’Donohoe explained that “what’s happened now, both with the issue of FET [foreign equalisation tax] from US insurance, who want to buy policies from Bermuda carriers, and, I suppose, the whole uncertainty over tax future of Bermuda relative to US carriers; plus the changing market conditions” have raised questions about a Bermuda presence.

“Now you have London and the other major insurance centres; there’s ample capacity for all the clients, so it’s [Bermuda] less attractive for all the product lines; plus it’s a pretty expensive place to have an operation and to maintain people.

“So, in fact there’s less demand for a lot of the core products that Bermuda offers, other than certain special lines, where maintaining a small team in a tax efficient location still makes sense.”

Bermuda has in effect been hit by the ongoing trends towards a worldwide economy.

“More and more the companies have also become part of global operations, Mr. O’Donohoe said. “In other words their own success has spawned their expansion elsewhere, and, as a result the original Bermuda base becomes an increasingly smaller part of their overall operations.

“Even in our own case, we don’t write excess casualty there any more, we’ve sort of exited that, and, following so many ‘cats’ this year, we’ve exited catastrophe reinsurance out of Bermuda, and for the most part opened a ‘play’ with Montpelier [Re],” and otherwise “exited catastrophe reinsurance full stop.”

Mr. O’Donohoe said Torus’ “Bermuda presence is pretty modest now.”

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Comments (17)

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  1. navin johnson says:

    They were in and essentially out of the Bermuda market in less than 3 years…factor in what companies like ACE and XL look like compared to 3-4 years ago with staffs that are 60-70% of what they were and its easy to see why we are feeling the effects of a retracting IB presence….unlikely to get any better….

  2. Mad Dawg says:

    They pulled out of Bermuda on the excess casualty side because they had disastrous insured losses. It was huge money-loser.

  3. navin johnson says:

    Ryan not sure how much the local arm can make when they have pulled out of much of what they did and did not do that much to begin with

    • Mad Dawg says:

      Casualty and specialty reinsurance, on the other hand…

      …was so ‘profitable’ that they sold the renewal rights…?

    • navin johnson says:

      Sigh Ryan…..I guess my view would be that if you exit excess casualty and eliminate the staff associated with it and sell rights to part of your book to Montpelier,who themselves are not that committed to Bermuda, and Dermot is stating they are examining Bermuda you feel gung-ho about the Torus prospects here?

  4. Guest Who? says:

    So what’s your point?
    I guess what is true is that if business is “flat” one must cut the overly expensive operations and become more cost conscious.What that means is that companies can no longer justify having functional business units in Bermuda where a loaf of stale bread costs $6.50 and one organge %1.50.
    IB continue moving huge and expensive business units off the island.
    XL,ACE,MontRe,RenRe have moved at least 250 IT jobs and those jobs will never return.
    I am someone (very) familiar with this fact!!

  5. Foolishness says:

    I sure hope government decide to open town cut and allow gambling on board the ships. I’m sick of these companies dictating to us and not giving Bermudians a chance at jobs within their companies. Let’s go tourism!!!!!

    • Guest Who? says:

      @foolishness…the name befits the writer.
      Did you forget the government has taken all your money and put you in debt to the tune of 2 billion dollars!!
      Who then shall pay for opening the cut,and don’t forget the cruise lines are rapidly moving their passengers elsewhere??

    • Chart says:

      Seriously? The cruise companies are 1) low margin for us, 2) known for being seriously mercenary. They have zero commitment.

    • Truth (Original) says:

      I have a great job in IB. Who are you referring to when you say “..not giving Bermudians a chance at jobs within their companies”

      I know a ton of bermudians in the Industry, in meaningful positions

  6. Failed says:

    Agree, they did exit the casualty business because of the losses to that platform, disagree why they did an exit on Prop Cat. The truth of the matter is yes there were loses to that Platform as well but the difference with this company than with others is that other companies are well aware of what type of business they are involved with or ‘purchased’ and they understand and know there will be losses at some point so you invest and plan accordingly…..you don’t use the profits from this platform to 1) fund the entire organization and 2) play monopoly when you really cannot afford to do so.
    This company did not and repeat did not have a good strategy from day one and probably one of the most bureaucratic companies out there.
    Prop Cat was abandoned because the main players left, they left to join companies they were and have been established longer than this group and that know what they are doing.
    This company bought a platform (a Mercedes) and left it on bricks!

  7. Truth (Original) says:

    I would like to hear the views from a CEO of a company that is run well. Torus has had a litany of issues. He makes some solid points but I would like to see a contrast on some of his point from the CEO of a Company that is doing well.

  8. anon says:

    Dermot O Donohoe is not the CEO of Torus…

  9. LOL says:

    This entity continues to lie to thier funders and whomever will listen bah ha

  10. VOTT!! says:

    Torus’s presence in Bermuda was a speculative play that did not work out for the financial backers of that particular company. Hedge fund managers do not understand long tail insurance business. Fund managers want a quick return on their investment which was not the case with Torus Bermuda, hence they cut their losses and pulled the plug.