Bermuda is home to about 1,500 insurance and reinsurance companies, about 400 of which maintain a physical presence in Bermuda. The financial heft of these companies is disproportionate to Bermuda’s physical size and population. At the close of 2008, the Bermuda companies had an estimated capital and surplus — their operating capital — in excess of $120 billion. They managed assets worth about $400 billion.

The first international insurance company formed in Bermuda was American International, in 1947. In the mid-1950s, American International ran a sizeable life insurance marketing operation from its Bermuda offices. By the mid-1960s, a small number of other companies had been domiciled in Bermuda. Captive insurance, a form of self-insurance, remained the primary Bermuda practice for 25 years.

Following a severe crisis in the provision of high-level liability insurance in the US in the mid-1980s, two companies, ACE and Exel (now XL Capital) began operating in Bermuda. Both have thrived since and grown to be numbered among the world’s largest insurance and reinsurance companies. They both have large offices offices in Bermuda and employ as many as 600 people between them on the Island, and thousands more worldwide.
           
In 1992, Hurricane Andrew, which hit southern Florida, caused the greatest insured loss to that point in history. In response, 10 companies were formed in Bermuda in 1993 to provide property catastrophe reinsurance, which is insurance provided to insurance companies against such disasters as earthquakes and hurricanes. The new companies brought with them $4 billion in capital and the Bermuda commercial reinsurance market quickly became a world leader.
           
In the intervening years, those companies have largely been bought and subsumed into ACE and XL Capital, but at the close of 2008, three of the companies remained in operation on a stand-alone basis: IPC Re Holdings, PartnerRe and RenaissanceRe Holdings.
           
In the late 1990s, several more major companies were attracted to Bermuda, among them Everest Re Group and White Mountains Insurance Group. Max Capital Holdings and the Island’s first major Japanese company, Tokio Millennium Re, were formed in Bermuda in 2000, as the number of Bermuda captive companies topped 700 for the first time.
           
The shock caused by the events of September 11, 2001 in the United States caused the almost complete shutdown of the global insurance industry for close to two weeks. When the companies re-opened their doors, insurance, and especially reinsurance, were in very short supply. Many companies had exhausted their capital following the events of 9/11, or decided to pursue other lines of business.

Once again, Bermuda was the locus for the revival of the industry’s fortunes. By the end of 2001, some $25 billion in new capital had been raised, the great majority of which came to Bermuda. A dozen new companies raised about $9 billion, and existing Bermuda companies raised a like amount to recharge their capital. The new companies have all done well since and many are becoming household names — such as Allied World Assurance Company Holdings, Arch Capital Group, AXIS Capital Holdings, Endurance Specialty Holdings and Montpelier Re Holdings.

The reasons why every company formed that year chose Bermuda were complex, but included: regulations calibrated to a global standard based on an understanding of the nature of the risk; a neutral taxation environment; a geographic location at the crossroads of Europe and North and South America; proximity to the US, the primary insurance market; an educated and willing workforce; and market momentum.
           
In 2004, four major hurricanes battered the US and, before the insurance could execute its response, Hurricane Katrina hit New Orleans in August 2005. Added to the losses caused by Katrina, Hurricanes Rita and Wilma, which followed later that year, caused a massive disruption in the global supply of both insurance and reinsurance.

For the third time in 12 years, a new wave of companies was formed in Bermuda. Funded this time in good part by hedge fund managers, the companies began to underwrite niche insurance and reinsurance lines. Names such as Flagstone Reinsurance Holdings, Lancashire Holdings and Validus Holdings joined the Bermuda pantheon.

Today, the Bermuda market is the most dynamic insurance and reinsurance market in the world. An extraordinary pool of executive and underwriting talent has assembled in Bermuda, and grows almost daily. After seven of the 10 most expensive storms in history had occurred since 1993, the Bermuda market met all claims and continued to grow.

The years 2006 and 2007 saw relatively low Atlantic hurricane activity, which gave the Bermuda companies a breathing space and the chance to grow earnings. 2008 was a tougher year, with the global financial crisis affecting the companies’ investments; nonetheless, the future looks bright for the Island’s insurance and reinsurance sector.