Q4: WILL MOVES BY OTHER JURISDICTIONS TO GRAB ILS MARKET SHARE IMPACT BERMUDA?
“My co-panellists have noted Bermuda’s forward-thinking and commercial approach.”
Wojciechowski: A number of things have made Bermuda very successful, from which ILS has benefited. The first that comes to mind is longevity in the business and knowing your market. It’s about having all the pieces in place not only to support products and services but to help solve new problems, support their evolution and drive innovation.
Bermuda’s unique geographic position between two of the deepest capital markets on the planet, and two of the biggest insurance markets in the world doesn’t hurt either.
Bermuda has been in the insurance space for over 70 years and having that in its DNA means that it has created a ‘Silicon Valley’ effect with a focus on innovation in risk transfer. Whether it’s about supporting insurance structure evolution, or modernising commercial processes through advancements in technological applications and the creation of new products, Bermuda continues to be the ‘world’s risk capital’.
During our discussion, my co-panellists have noted Bermuda’s forward-thinking and commercial approach that can be seen in the BMA’s regulatory framework created to support the ILS asset class.
As well as the BSX, as a smaller national market pivoting to support an indigenous asset class—it’s extremely hard to replicate that overnight.
When we talk about a flight to quality, that plays right into Bermuda’s value proposition. Others have tried, but the critical mass is in Bermuda. Investors are comfortable in Bermuda. The largest investment funds are in Bermuda.
In short, Bermuda’s experience is tried and tested—there will always be pressure in respect of competition, whether from London, Singapore, Hong Kong or elsewhere. Now the US is also looking at the tax treatment of structures and streamlining the process to provide an onshore platform for ILS securities..
What’s important is that Bermuda remains vigilant, leverages its extensive knowledge and expertise in key business areas and the strength of the organisations and service providers that support businesses.
It’s essential that we remain nimble and innovative to respond to changing market conditions and the needs of our global clients
“I don’t see any convincing business need to move from Bermuda.”
Hughes: The Hiscox Bermuda office was opened two decades ago, because it was a centre for reinsurance. OK, it’s traditionally a Lloyd’s business, but we take it to the ILS side of things.
I don’t see any convincing business need to move from Bermuda. And that’s really what has to change if any other jurisdiction is going to stand a chance.
Manning: Peak Re is a Hong Kong-headquartered company founded on the premise of underlying growth in insurance across the Asia-Pacific region.
That underlying growth and the subsequent concomitance of growth is what gives Peak Re its raison d’être.
The company does see the advantages to operating in the Bermuda market to source business that is not easily accessible in Hong Kong.
“We are trying to optimise between Hong Kong and Bermuda.”
Conversely, there is untapped potential in Asia on the investor side. The penetration of ILS into the Asian investor universe has been limited to date, but there is an enormous amount of potential there for the industry.
Hong Kong is one of those jurisdictions that is currently interested in exploring the options in the ILS space, and their access to some of that capital is arguably better than other jurisdictions around the world. As a business, we are trying to optimise between Hong Kong and Bermuda, and we’re looking to extract the benefits from both.
One of the things that Bermuda has done well historically is to make itself open and available to other markets.
Although we’re arguably beginning to see a plateau in growth rates across the developed western world, we will continue to see exponential growth elsewhere—and Bermuda has the ability to capture at least some part of that market. In short, Bermuda will continue to be a viable jurisdiction for ILS.
“Every week we hear about new tech stuff.”
Adderley: We obviously need to be flexible because what we’ve done traditionally is play in our sandbox and develop new toys. This is exactly what’s happening with the special purpose insurers, cat bonds, collateralised cat bond lites and rated carriers.
We now have the new concept of a collateralised insurer, which is a bit more flexible, so you might find future rated reinsurers being collateralised insurers rather than class 3As.
It’s just another example of the BMA being innovative, although all the talk is about tech, tech, tech, tech. Every week we hear about new tech stuff, and most of it is being done in Bermuda. Then you have the insurance market, which is also talking about tech stuff. All of which feeds into the marketplace.
Something else we have seen in the last two years is an increase in Bermuda’s broker community. Five or six new brokers are being formed here, which will hopefully bring new risk to the Island and help us to create more business. It’s almost like a snowball effect.
“We expect to see a further inflow of business from our colleagues in the US.”
We keep on building, and as we keep building, more and more people will come. For example, a broker setting up a new office of 15 or 20 people in under a year and a half. That has to be good for the marketplace, right?
We have to keep on making sure that the regulation is sensible and not too cumbersome, so that we can form lots of new entities here.
Mills: Bermuda’s track record of raising capital following large loss events in the past has served it well and continues to do so with the ILS market playing a large part in that. With regard to brokers setting up here, we’re now wholly owned by Gallaghers and we expect to see a further inflow of business from our colleagues in the US looking to access Bermuda capacity.
In addition to this, we have always seen ourselves as an access point to the Bermuda market, not only on the property side but also in the cyber and mortgage space.
This is just another example of where Bermuda is forging a path forward in terms of being a capacity provider.
“It is very easy to do business here.”
Bardon: We will stay here unless the Bermuda environment changes dramatically. First of all, it is a tax-efficient location. And the location is convenient, given that we deal a lot with US entities, Bermuda and Europe counterparties.
It’s also a business-friendly environment so we have close proximity to a lot of high-quality, like-minded people.
As well as the regulatory regime, it is very easy to do business here, what with the Solvency II equivalence, the Council structures and special purpose insurers.
BMA has made this a convenient place to do our kind of business and hopefully that will continue.
Libassi: For us, this is home. Bermuda will be vital to us, but given today’s environment, the ability to innovate is going to be essential.
Other jurisdictions will be aggressively courting people to try and get them out of Bermuda, but the location is great, you couldn’t ask for a better business environment and I don’t see us moving any time in the near future at least.
“You couldn’t ask for a better business environment.”
Redcliffe: A few have mentioned that the landscape is now more competitive than ever before. A number of new jurisdictions are out there recruiting ILS managers, so I would say it’s certainly no time for complacence.
I think Bermuda needs to continue to focus on the things that have made it successful in the past—especially its innovation and regulatory flexibility.
ILS requires an asset management focus and a reinsurance focus. So the convergence of those two industries into one and the fact that Bermuda does have both of those core competencies, sets it apart from a lot of other jurisdictions and makes us uniquely positioned to be the sector leader.
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