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Alterra Capital CEO Sees Market "On the Cusp of Change"

Source: A.M. Best

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Posted on 06 Jun 2011

Marty Becker, president and chief executive officer of Alterra Capital Holdings Ltd., during an interview with Best Week, said the insurance market is "on the cusp of change," which is a good thing for underwriters like his company.

From his office, which overlooks the Hamilton Harbor, Bermuda, Becker said property-catastrophe rates were up some 10% to 15% for most companies at June 1 renewals. "And if you had asked what people thought rates would be back in January, they'd have said down 5% to 10%, so that's a pretty big shift," Becker said, adding some companies are still working to fill out their June 1 programs.

Rates for even nonproperty cat business are no longer declining, and tougher accounts and loss-impacted accounts are probably up 5% to 10%, Becker said.

Driving the change is frequency of severe catastrophe events, historically low interest rates and investment income, and the tailing off of any reserve redundancies that companies might have to release in respect to past years, Becker said.

Change is something that Alterra and Becker are used to. Alterra was created in May 2010 as the result of a merger between Max Capital Group Ltd. and Harbor Point Ltd. Becker had been at the helm of Max since October 2006, and on the board since 2004.

"Since then, it's been business as usual, but we are now a larger, stronger company with a new brand," Becker said.

Max had planned to merge with another company, IPC Re, in 2009. But after the deal was announced, a rival Bermuda reinsurer, Validus Holdings Ltd., stepped in with an unsolicited counteroffer, and ultimately successfully wooed IPC away from Max Capital.

"Fate's a funny thing," Becker said. "We ended up much better off. It's always difficult in the middle of a transaction to see what comes next, but in hindsight, we are so much better off for having done the transaction than we would have been had we done the IPC deal."
He said the Harbor Point transaction was "not only a better price, but we brought on true diversified intellectual capital, which we weren't going to get

with IPC, which was a 100% property/cat company," Becker said.

The Harbor Point reinsurance portfolio helped to diversify the newly created Alterra, he said. "We are well diversified both between reinsurance and insurance, between product lines and geography," Becker said, noting the company's book is about 60% reinsurance and 40% insurance.

While Becker said there no immediate plans for another merger or acquisition, "I think at the moment the industry would probably benefit from a little M&A. We have a lot of players doing the same thing."

Becker feels optimistic the change on the pricing side may also help the M&A side, "because the price-to-book multiples ought to start to improve," he said.

Alterra is positioning itself to take advantage of the hardening property catastrophe retrocession market with the launch of its new side car, New Point IV. The new vehicle was formed to write collateralized property catastrophe retro coverage, and was sponsored by Alterra and Stone Point Capital LLC through its private equity fund, Trident V. Alterra and Stone Point have each committed up to $100 million to capitalize New Point IV.

"We really feel there's going to be a strong opportunity, particularly in the retro cat market," Becker said. "We would like to take advantage of that, but we also want to continue to be very conservative with our own balance sheet. A side car is a nice blend because we can write retro business through the side car that we could not write on our own balance sheet."

Unlike many Bermuda companies, Max was not launched to take advantage of a hard market in the wake of a major catastrophe. The company was formed in 1999 as "more of an asset play, not much of an underwriting play," Becker said.

That changed after Sept. 11, 2001, when the company started to morph into a traditional underwriter. The company still had a more aggressive stance on investments, with about 30% of the assets invested in alternative investments, such as hedge funds, when Becker moved into the corner office in 2006. He worked to de-risk that portfolio -- stepping up the transformation in 2008 after the financial crisis.

Alterra has about 500 employees in offices in Bermuda, London, the United States, Ireland, continental Europe, Japan and Latin America, where Becker sees great potential. Latin America is a "vibrant market," Becker said. "Where all of your economic discussion in the U.S. and Europe is about no growth, all of your discussion down there is about managing growth."

The company has offices in the three largest markets there: Brazil, Colombia and Argentina.

Other pressures on the primary insurance industry include possibly increased capital demands due to Solvency II in Europe and catastrophe modeler RMS' latest update.

Solvency II is not expensive from a capital standpoint, but rather from documentation and consultation ones.

Same, too, for the new RMS model, which impacts smaller primary writers more so than reinsurers, which tend to use more than one single catastrophe model. "To primary companies, it will likely affect their catastrophe aggregates and if rating agency requirements go up materially as a result, they'll either need to use more capital or buy more reinsurance.


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