Bermuda’s insurance market is described as being “long on capital and short on talent” in a report by analysts Stifel Nicolaus.

The term is used to summarise opinions voiced to Stifel Nocolaus researchers during a round of interviews with insurance and reinsurance managers and brokers in London.

The report, a copy of which was obtained by The Royal Gazette, also suggests that Lloyd’s of London is quickly becoming a “market of choice again” after years of restructuring and the pattern of capital moving out of the UK and into Bermuda is showing signs of being reversed.

“A prominent undertone to our meetings was that the London markets are now far more vibrant than just a few years ago and reports of their demise at the hands of the Bermudans [sic] were quite premature,” the Stifel Nicolaus report states.

After former Lloyd’s insurers Hiscox and Omega relocated to Bermuda this year, some analysts were predicting that a string of others would follow.

But after their semi-annual visit to meet with leading lights in the British capital’s insurance market, the Stifel Nicolaus analysts concluded that “London’s back”.

“One recent catalyst for this change has been Berkshire Hathaway’s recent agreement to ultimately assume Lloyd’s asbestos liabilities, removing what had been a persistent overhang on the market,” Stifel Nicolaus reported. “More important, though, have been the very solid earnings produced in London over the past few years.”

And the report went on to predict that more capital from Bermuda would be diverted to Lloyd’s insurers as Island companies sought to diversify in order to impress the ratings agencies.

“The Bermuda market (which was described, not without some justification, as being somewhat ‘long on capital and short on talent’) will probably be very interested in mergers and acquisitions as a means of penetrating Lloyd’s and the London insurance market,” the Stifel Nicolaus report said.

“We find this phenomenon quite surprising given the mass exodus out of the Lloyd’s market and into Bermuda over the past several years. On the other hand, the pressure to diversify ... will be significant for several of the Bermuda companies looking to get the ‘extra credit’ from the ratings agencies.

“The problem is that the Bermuda companies, which have historically been mostly monoline, have no underwriting acumen in the casualty space. Hence the best way to diversify, in the terms of the London players’ description of Bermuda is to use the ‘long on capital’ to acquire the ‘long on talent’.”

Bermuda has an advantage over the London market, not only in terms of tax (the British corporate tax rate is 30 percent, while Bermuda’s is zero), but also in terms of technology. But the report highlighted that London players were conscious of this and striving to change it.

“A number of our hosts commented on the obvious inefficiency of having individual brokers lug accordion portfolios full of papers around the Lloyd’s floor, when clearly not every piece of business written in Bermuda is physically delivered to the underwriters,” Stifel Nicolaus reported, adding that Aon was the broker taking the lead in bringing a wider use of technology to London.

Despite the quiet hurricane season in the US, Stifel Nicolaus also found evidence to suggest that the US-exposed catastrophe prices were likely to be firmer at January 1, 2007 than they were at the start of this year.

Among Stifel’s basic conclusions was: “Supply / demand dynamics are still favourable for the reinsurers — for now US wind-exposed business is the ‘hardest market of all time’.”

The Stifel Nicolaus analysts met with managers from Lloyd’s, as well as from insurers Ambac, Brit, Cathedral, Catlin, Kiln, MAP, Swiss Re and Talbot, and brokers Aon, Gallagher, Oxygen and Towers-Perrin.