Danish Iqbal, Chief Executive Officer at Somerset Re, said the life reinsurer is uniquely positioned in the market, being highly rated with a very strong balance sheet among players focused on smaller blocks of business, while also having the expertise, track record, and financial strength to focus on larger transactions.
In an interview with Reinsurance News at Somerset Re’s headquarters in Bermuda, Iqbal said that the company is not solely focused on large opportunities, stating that the firm pursues deals in the range of a few hundred million, while also doing much larger deals up to several billions of dollars.
He said, “The newer players coming in who are looking for reinsurance support are going to bring in smaller deal sizes, and they want to work with companies that have a strong balance sheet and track record. Amongst the smaller players who are interested in focusing on the small transactions, we feel like we are the best positioned both in terms of ratings and a strong balance sheet.
“The larger players who have really strong balance sheets are generally focusing on bigger opportunities, so they don’t really have the time to focus on the small transactions. We like the niche of the smaller blocks, and with our skill set of looking at larger blocks, I think we are uniquely positioned in the market.”
Iqbal also outlined the key advantages of operating in Bermuda for Somerset Re, noting that it has reciprocal reinsurance status with NAIC, so direct companie s trust Bermuda and the entities there.
“The regulatory regime is a principles-based regime, so our assets and liabilities are both on a market value basis. So, it’s a pure, true economic view of both assets and liabilities, and they can both move in sync with each other, which allows us to have better ALM so we can protect our balance sheet much more easily, and we are not bound by the prescribed rules that would impact us.
“The BMA is very responsive and in tune with the needs of the businesses here. If you want to get something approved, you can go and talk to them, and they’ll try to move on that quickly. They try and make it easy to work with them.
“There’s a lot of access to talent here because the market is mature, there are a lot of people here now. Also, the service providers are right here, and they have developed a decent amount of knowledge so you can reach out and tap into them, alongside proximity to the US, and ease of even coming from the UK. So, Bermuda is a pretty optimal location,” said Iqbal.
He also noted that there has been an increase in life reinsurers and insurers establishing operations in Bermuda, which reflects the continued validation of the jurisdiction. However, he noted that many new entrants are now realising the operational complexity involved in running an entity there, with Iqbal expecting there to be eventual consolidation in the market.
“We’ve seen a lot of new players coming in. The BMA is very focused on protecting the jurisdiction, so they have changed and enhanced their regulatory regime, and that does mean a fair amount of overhead and governance responsibilities for these new entrants, and they may not have expected that when they set their entities up.
“It’s not easy to just set something up in Bermuda. We are starting to see some retail players who set up a reinsurance operation here start recognising the level of operational overhead involved. That, coupled with broader enterprise capacity considerations, can still lead them to seek third-party reinsurance. In some cases, that results in partnerships with established players like Somerset Re. As a result, we expect there could be some consolidation in this market over time. If we stay disciplined and measured and continue executing on our strategy, we believe we will be well positioned to benefit from that dynamic.”
He added, “There are not only new reinsurers being set up; I would say there also a lot of insurers that weren’t focused on doing asset-intensive reinsurance in the past that are now open to it. They’re seeing competitors execute reinsurance transactions and create value on their books, and need it to be able to compete when it comes to new business.”
In terms of particular regions where Iqbal expects to see the most growth, he said a meaningful amount is still coming from the US, and Somerset Re is well positioned to service that with its broad liability expertise, solutions, and structural flexibility.
He underlined that the firm is also seeing increasing interest from a range of other jurisdictions, including Japan following regulatory changes, as well as Hong Kong and Singapore, although he noted that these markets have higher barriers to entry and are focused on relationship building, and therefore it takes more time to break in and scale there.
On the outlook for the next 24 months, Iqbal said the focus for Somerset Re will be on balancing continued growth with discipline following a period of strong expansion with back-to-back record years for premium growth and deal count.
“I think we will continue to be measured as we build on the growth achieved, allowing us to continue executing while maintaining our strong balance sheet and disciplined underwriting capabilities,” Iqbal concluded.
