ROUNDTABLE: LONG-TERM REINSURANCE
Q2: HOW WOULD YOU CHARACTERISE THE HEALTH OF THE LONG-TERM SECTOR ON BERMUDA?
“High net worth clients and their advisors are looking for top insurers.”
Martin Laframboise
Laframboise: In terms of SLFI’s sector, which is individual life, high net worth wealth, it’s been growing. We have seen an increase of close to 10 percent growth year over year, with the majority of growth coming from the Asia-Pacific region and emerging markets such as the Middle East.
High net worth clients and their advisors are looking for top insurers offering best-in-class products, services and financial solutions.
They are looking for offshore US-denominated currency, highly rated insurers, leading capacity and financial stability.
Our strategic presence in Bermuda covers the international offshore market and allows us to respond to the needs of those clients. The high net worth life insurance market represents billions of new business sum assured per annum across the industry.
Kelleher: Looking back over the period since 2014, we have a few interesting stats regarding the long-term sector in Bermuda. The number of licensed commercial insurers increased by almost 50 percent from just under 100 companies to over 140 and the number of class E insurers (the largest and most well capitalised) more than doubled from 20 to 45, which is a big change over that period.
If you look at the size of the business, using assets under management as a measure over the same period, the insurance-related assets under management increased from $150 billion to approximately $500 billion, primarily due to an increase in class E insurers.
Consequently, the long-term sector on Bermuda is much larger than it was just five years ago.
Meanwhile, membership of BILTIR increased by 68 percent over that five-plus year period.
“The result is a pretty rapid expansion in the size of the Bermuda long-term market.”
James Bracken
Bracken: The backdrop to all of this is the US life and annuity reinsurance market, where you are seeing significant transactions happening as traditional holders of large blocks of life and annuity reserves are figuring out that it doesn’t make sense to hold some of these reserves on their balance sheets.
As a result, there are a lot of sponsor-backed platforms—Fortitude Re being one of them—which are better homes for those liabilities due to their ability to source higher returning assets.
Consequently, we are seeing a lot of blocks changing hands and moving to newer enterprises, and those newer businesses are choosing Bermuda as a primary locale.
This is because of the strong regulatory environment, Solvency II equivalence, NAIC reciprocity, the quality of the people you can hire on the Island, and its business-friendly outlook.
The result is a pretty rapid expansion in the size of the Bermuda long-term market. Other drivers, including low interest rates and changes in accounting requirements, are also fuelling that growth and more deals are happening all the time, some of which will be on Bermuda.
Olunloyo: Those are all really great points when you think about shipping liabilities and choosing the right home for assets—an issue that sits alongside the sheer volume of capital that’s flowing into this space.
When it comes to low interest rates and low returns elsewhere, the long-term sector was once viewed as being too complex for many providers of capital. Now that is changing as they see the scope to earn returns in this space.
Some new entrants have become established, while existing players have raised billions in capital here in Bermuda. That deluge of capital is driving growth in the sector here and has an almost gravitational pull: the more capital, the more interest there is in this space and that drives up momentum for the industry.
“As a reinsurer, our interests are different from those of our clients.”
David Howell
Howell: Strong regulation is clearly part of Bermuda’s success, it is a respected regulatory environment, and a professional reinsurance environment. In most other parts of the world, you are dealing with insurance regulators who simply dabble with reinsurance.
We are in the process of moving our headquarters to Bermuda from London and that’s not tax-driven. We are a US taxpaying group, that’s not going to change, and we will primarily be operating via branches in local markets and also pay relevant taxes there.
It’s also not because the UK Prudential Regulation Authority is a bad regulator: they are very knowledgeable and actually quite responsive, but the vast majority of what they do is insurance—and as a reinsurer, our interests are different from those of our clients.
So, we’re moving from a regulator where our interests were never their top priority to one where we are central to what the regulator does. In part, that is why Bermuda works so well as a statutory regime.
“There is a need to be recognised as a credible and well-regulated counterparty.”
Amy Ponnampalam
Ponnampalam: Regulatory credibility is one of the key reasons that companies choose Bermuda. The regulatory equivalence with Solvency II is extremely powerful especially if—like Athora—you’re doing European business. In fact, we deal with several European jurisdictions, an exception being the UK.
Having that validation and that equivalence stamp is particularly important to us from a credibility standpoint. These asset-intensive deals are transactions that much of continental Europe has not seen before, and therefore there is a need to be recognised as a credible and well-regulated counterparty.
Having the Bermuda Monetary Authority (BMA) formally recognised as a Solvency II equivalence regulator and regime is therefore really important to Athora.
Even more important is the fact that the BMA has always been very clear that equivalence doesn’t mean equal, and therefore what we see here is a regulatory regime and a capital regime that is deemed to be equivalent to Solvency II, but also offers better alignment with how we think about balance sheet risk management.
We often see European insurers in a Solvency II environment trying to hedge balance sheet volatility by doing things which may not actually be aligned with how they think about risk, and are instead linked to the notional constructs such as the Solvency II volatility adjustment.
Meanwhile, here in Bermuda, we have our economic balance sheet framework which is built around the concept of strong risk management and good asset and liability management (ALM), and that’s what we get rewarded for.
How Bermuda and the BMA think about the regulatory balance sheet is clearly valuable to us when we are doing very large asset-intensive reinsurance deals.
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