BRIAN O’HARA President and CEO XL Insurance Limited

What competitive advantages does Bermuda have over other jurisdictions? What makes it the World's Risk Capital?

Today Bermuda is an important player in the world's insurance and reinsurance markets. It's an ideal headquarters for a global organisation as it has a neutral position in the world; we aren't really American, we aren't really UK or Continental, but have a presence and operate in all those places. I like to think of Bermuda as a gateway to the rest of the world. Bermuda treats capital more efficiently, providing large amounts of risk capacity and getting the most mileage out of the capital return which is essential to this industry. When you add technical infrastructure and a highly skilled workforce, it all comes together as a natural centre for a large risk business. The actual business that is done in Bermuda is more wholesale; we are not close to the retail customer and to do commercial retail business you have to be present in those territories. A lot of companies that are headquartered here have operations all round the world. XL has ninety offices in thirty countries. We have capital in all of those places but it is backed up by the mother-ship here in Bermuda. I never look at Bermuda in terms of competition between London and New York - we have 500 people in London, 400 in NY, 200 in Connecticut and sizeable operations in Zurich and Paris. And in Bermuda, we have 350 people; it is not a brass plate, which most people associate with an offshore company in Bermuda.

There must be some challenges the Island is facing in maintaining this leading position. What would you say these challenges are?

The challenge is that it is a very finite physical place and it will run out of room, which is another reason why companies like ours have expanded globally. We have to be more efficient in what we have to do physically in Bermuda. We try and encourage Bermudianization, in which we make sure every job is first satisfied by local capability. We also support developing local talent by offering scholarships and funding other educational programs.

Our readers are probably not fully aware of the importance Bermuda has to the rest of the world. Could you please explain what Bermuda means to the world today and has meant for the past 40 years?

Bermuda's impact on the insurance market has been substantial, responding to a series of major catastrophic events. For instance, the Bermuda market responded to a severe shortage of liability insurance in the United States with the formation of ACE and XL. Hundreds of companies went bankrupt and as a result, ACE and XL were the solutions to the problem. In 1992, Hurricane Andrew collapsed the property casualty market, sending dozens of companies into liquidation and shattering reinsurance results around the world. A wave of capital companies came in to address that side of the equation. Then there was September 11, which cost the industry $40 billion, decimating capital and the ability to respond to commercial insurance needs. Bermuda responded with the formation of a handful of companies who have become solid players in the market. So there were three distinct waves that really formed the foundation of what Bermuda is about. I think if a fourth wave were to occur, Bermuda would be the chief responder and will weather it in very good shape.

How would you say that each of these waves has learnt from each other?

We have learned more about assuming and managing risk. For instance, there was a series of unprecedented catastrophes, like we had in Florida last year, which certainly impacted our earnings but not our capital. Shareholders understand that we take these risks which do affect earnings, but not our capital that is in the investment equation. We have all kinds of risk models, both internally and externally, that we use to run scenarios of 'what if'. What happened in Florida last year was not in the models. Each time the industry faces a new challenge, we try and recreate our models to learn from them and prepare for events that could occur similarly again.

XL's 2004 results were outstanding to say the least, despite the many hurricane catastrophes in Florida in 2004.

Even though we had $500 million dollars of hurricane loss we still made over a billion dollars. We have a good spread of business now so a bad year in one segment does not affect our business overall.

Success within the insurance and reinsurance sector cannot be measured by looking at the annual results. Difference can only be established over a period of years. What would you say it is that differentiates XL from other insurance companies, what makes it a unique business partner?

There are two fundamental aspects to a large commercial risk taker - first is capital. Companies must have substantial capital and a high credit rating to respond to major events. The other aspect is intellectual capital. We put a lot into developing our people - we have currently three training programs running that continuously upgrade the knowledge and skills sets of our employees so they can better understand our customer's needs. Respect, along with ethics, excellence, teamwork and development, is among our core values at XL. Customers will want to do business with people they respect and who have integrity. Given the nature of several investigations currently going on in the insurance industry, we feel confident in how we have been conducting our affairs throughout. We think in time that these attributes will be meaningful to our customer's decision-making in who to do business with. These fundamentals never go out of style. There was a PWC survey conducted with CEOs who said that reputation was of major concern for them. As long as our core values are in place, for the most part, reputuational risk can be managed.

XL has an AA rating. How readers are keen to understand the importance of these ratings and the role the rating agencies play?

Ratings are critical. Companies conducting multi billion dollar businesses want to make sure that the company they are doing business with will be there even in the most adverse of circumstances. They are relying on us to keep them in business when everything goes wrong, so they are going to make a decision very often based on a very strong credit rating. We feel that AA- is the sweet spot in what we do - we have an AA rating from Standard & Poor's (S&P) and an A+ rating from A.M. Best. Our financial guarantee business is rated AAA.

The rating agencies are the principal regulator and therefore hyper critical to the larger commercial insurance industry. You can satisfy a geographical regulator much more easily than you can a S&P or A.M. BEST ratings agencies to obtain a good rating. Bermuda is much less vulnerable to insolvencies than almost any other jurisdiction because property/casualty companies require more capital and a high rating to do their business. In other jurisdictions, you can do business under the regulatory regime with a BB or BBB rating. In the property/casualty business, if you get below A, you are out of business - no one will give you premium for risk. The great majority of large companies here are publicly held and have to satisfy the Securities and Exchange Commission. We have to file our 10Ks and 10Qs which details all of our financial information. I think what we are doing results in more efficiency.

XL is celebrating its 20th anniversary and during especially the last ten years it has grown into one of a handful of truly global players. How are you marketing XL internationally? What special attention is given to the European market?

We have been doing business in Europe for some time, going back to our Dublin office in 1990, which was our only office outside of Bermuda until the mid 90s. We made progress there but we knew that to really have a presence in Europe, we had to acquire a company with a substantial European platform. We finally did by purchasing Winterthur International - an international, large commercial account property and casualty insurance business - in July 2001.

In recent years, we conducted an active branding and advertising campaign and held a global risk conference called XL Capital Congress in Montreux, Switzerland, two years ago. That event centered on the theme 'Thought Leadership for a World at Risk' and featured international speakers and panelists who debated the major risk challenges of our day, including social risk. We are going to celebrate our 20th anniversary next year with two XL Capital Congresses - one in Berlin in May and one in Boston in October.

Having led XL to where it is today, what still gives you satisfaction?

I hope that XL will live up to its potential and the people who work at XL will live up to their personal potential, doing the best job we can for our customers. I believe that our people can thrive and prosper at XL, which is basically what it's about for me. It makes me enjoy my work that much more.

The President invited you to the White House after 9-11. What was your experience like?

It was riveting. I was among a group of CEOs from the property/casualty business and it was the morning after he had given an address to the nation, rallying everyone together after the September 11 attacks. He was in the same mode that he was the night before. I will never forget it. We were there to discuss the magnitude of losses affecting the industry and how we were going to respond. This was how TRIA (Terrorism Risk Insurance Act) began and which is coming up for expiration about this time. I believe, especially in light of the July terror attacks in London, that TRIA will be renewed. We do need a backstop against future attacks, in particular for Nuclear, Biological, Chemical losses, which are uninsurable; we cannot cope with that type of event. At a recent meeting of 35 (re)insurance CEOs, I asked who thinks there will be another major attack on the US in the next five years, and almost everyone raised their hands. There is no question that now is the time to address this issue.