ROUNDTABLE: LIFE RE
Q2: WHY IS BERMUDA SO ATTRACTIVE TO LONG-TERM LIFE COMPANIES?
“From a capital perspective, it’s a very strong model.”
Kevin Hovi
Hovi: It’s primarily the combination of talent and the jurisdiction’s reputation, especially with both Solvency II and NAIC equivalence.
From a capital perspective, it’s a very strong model which is a forward-looking economic model, as opposed to a historical one, and that generally means the treatment of investment gains and liabilities is more reflective of current economics, which can hurt or help certain lines of business. Haddad: One of Bermuda’s significant advantages as a jurisdiction is the ability to build the most efficient portfolio possible given the required capital. >>>
“They’ve built on the existing platform.”
Faisal Haddad
<<< This does not distort the results or change the overall risk appetite for insurance companies when constructing their investment portfolios, but the capital framework is more efficient.
Bermuda has the right infrastructure in place to combine asset management with reinsurance—it allows you to utilise these tools.
The government of Bermuda and the BMA have done such an excellent job in adjusting their regime, which was historically P&C-focused, to allow for life companies. They’ve built on the existing platform, and transformed it for the better.
“The BMA will look at a business holistically.”
Allison Pedro
Pedro: It boils down to our regulator’s impartiality, transparency, and flexibility. For example, the BMA is well-versed in IFRS and US GAAP. The accounting rules of the jurisdiction do not bind you.
That’s especially important for us with the upcoming implementation of IFRS 17, but it’s also important for companies that report under US GAAP. US GAAP has another significant change in accounting standards—Long Duration Targeted Improvements.
Another benefit of Bermuda that we didn’t mention is that the situation is also politically stable. A notable feature of the Bermuda environment is that the BMA will look at a business holistically rather than taking a solely technical approach and the statute allows for consideration of bespoke treatment.
There are strong technical standards, but they take a holistic view of the business and are willing to listen when there are unique aspects of the business and how those impact the risk-based capital model.
“All these things make Bermuda a choice location.”
Kai Talarek
Talarek: The fact that they have an economic framework is, in my opinion, the most crucial argument. Various forms of capital may be accepted as suitable regulatory capital by different jurisdictions but suppose, as is often the case, the capital framework isn’t aligned with long-term economics.
In that instance, you’re constantly juggling. The way Bermuda looks at business, and the fact that it stretches beyond the investable 30-year term, is very helpful.
The fact you can also manage diverse exposures in a single entity has several advantages around diversification. These are significant regulatory advantages for Bermuda as a location to do business from.
The quality of the BMA as a fair partner is key. All these things make Bermuda a choice location for long-term liability management.
Image courtesy of Shutterstock / TatyanaMago
