The first Bermuda reinsurers were established in the 1960s as captive insurance companies, followed by a boom of new commercial general (P&C) reinsurers starting up over the next few decades. It was not until 1998 that the first significant monoline life reinsurer was formed, a startup called Annuity & Life Re. This was the company that brought me to the Island in 1999.

Life insurance companies are a vital part of the protection customers globally require, paying out benefits to heirs upon death or paying an income stream to support policyholders during their lifetime. These tend to be very long-term contracts, over 50 years long in some cases. The long duration nature of the business requires a specialised skillset to handle the asset-liability management.

The sector also requires different regulations and significantly more capital than other types of insurance risk. This explains the long lead time for the life reinsurance sector to become well-established in Bermuda.

As a testament to the innovative DNA of the island, life business is now the fastest-growing sector in Bermuda, accounting for over $500 billion in assets under management. The life sector adds some much-needed economic diversity to the Island, with different risks and drivers than its P&C counterparts.

Even within itself, the life sector’s risk exposures vary widely. A pandemic event impacts some life reinsurers while a life-lengthening cure impacts others. The concept of exposure to a singular event, such as massive storm, is much reduced for the Bermuda life space.

Dynamic regulations

Bermuda’s world-class insurance regulator, the Bermuda Monetary Authority (BMA), has recognised the significance of life business and has developed a fit and proper regulatory framework which supports growth while protecting consumers. This robust approach resulted in the Bermuda Economic Balance Sheet regime being granted full Solvency II (SII) equivalence in 2016, providing permanent access to the large European market for Bermuda reinsurers.

Since the introduction of SII regulations, some European insurers have opted to seek to de-risk their exposure to capital-intensive life products, creating an opportunity for Bermuda companies to acquire significant closed blocks of European life business.

Most life reinsurance transactions require Bermuda reinsurers to post collateral to their cedants, as additional security to their policyholders. For US-facing reinsurers, Bermuda’s status as an NAIC ‘Reciprocal Jurisdiction’ is particularly beneficial because it provides Bermuda-licensed reinsurers with the opportunity to obtain “covered agreement” status. Qualifying reinsurers will not be required to post collateral when reinsuring risk from US cedants.

NAIC Reciprocal status allows Bermuda life reinsurers to transact more efficiently in the US, which improves the diversification of risk and reduces premiums for cedants and their policyholders.