READY FOR THE FUTURE
The Bermuda life insurance market is an exceptional growth story for the Island’s international business sector and an increasingly significant contributor to its economy, says Sylvia Oliveira, chair of Bermuda International Long Term Insurers and Reinsurers.
“The life sector’s risk exposures vary widely. A pandemic event impacts some life reinsurers while a life-lengthening cure impacts others.”
Sylvia Oliveira, BILTIR
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.
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.
“The diversity of the talent in Bermuda is one of its strengths, enabling innovation as a constant flow of fresh ideas enters the system.”
The protracted low interest rate environment has put increasing pressure on investors to seek out stable long-term returns on capital. Investors have been entering the Bermuda life reinsurance market, pursuing the higher returns that arise due to the complexity and long duration of life risks.
The new capital has supported the growth of existing life reinsurers and has led to a significant number of new life reinsurers being established on the Island.
The sector continues to grow even during the pandemic, with the licensing of eight new Bermuda life companies in 2020, including Pac Life Re, Protective Life Re, and Canada Life Re.
Talent and expertise
The growth in the life sector in Bermuda has been possible due only to Bermuda’s ability to attract talent in this industry. Bermuda has a deep pool of life reinsurance specialists who are drawn from around the world. The diversity of the talent in Bermuda is one of its strengths, enabling innovation as a constant flow of fresh ideas enters the system and they are transformed to create solutions for customers.
Built for the future
It is clear that the Bermuda life sector is “future-ready” in many ways, creating confidence for providers of capital and purchasers of reinsurance alike. This signals a bright future of continued growth for the market, under the very watchful eye of the BMA.
The COVID-19 pandemic serves to highlight the importance of the protection life insurers and reinsurers provide, guaranteeing a bedrock of financial security for millions around the world whose lives may have been impacted by the virus.
In addition to providing financial protection, life reinsurers have a vital role to play in contributing to the understanding of the risks caused by pandemics and other perils globally. This will become increasingly important as the world continues to evolve and new risks emerge.
To find out more about Bermuda International Long Term Insurers and Reinsurers visit: www.biltir.bm
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