The new centre for the life market

Over the past decade, Bermuda has attracted many life reinsurance companies to domicile their operations on the Island, with assets under management in the sector now topping $667 billion, up from some $150 billion 10 years earlier.

While Bermuda remains the domicile of choice for new P&C startups, the growth of life reinsurance may yet become an even more significant trend for the Island. Certainly, in addition to the assets under management growing robustly, the sector is also becoming a big employer.

According to figures from Bermuda International Long Term Insurers and Reinsurers (BILTIR), whose members contribute $500 million in direct and indirect expenditure to the Bermuda’s economy, the life sector employs more than 600 Bermuda-based staff, 60 percent of whom are Bermudian, or married to a Bermudian.

Those are significant numbers, and new companies are arriving all the time. A number of new companies including Fortitude Re have launched in Bermuda over the past 18 months, drawn by the market’s supportive regulatory environment and infrastructure of appropriate talent and service providers.

What is it that has drawn so many life reinsurers to make Bermuda a rising hub for the industry?

Industry executives met with sister publication Bermuda Finance to discuss the key factors setting Bermuda apart from its competitors in the life re space and what had made the difference in choosing to base their operations here.

Participants on the roundtable, held virtually due to COVID-19-related restrictions, comprised Faisal Haddad, chief actuary, North End Re; Allison Pedro, chief financial officer, Sun Life Assurance Company of Canada–Bermuda branch; Kai Talarek, chief financial officer, Fortitude Re; and Kevin Hovi, president and chief financial officer, Kuvare Life Re.

Holistic support

From insurance-linked securities (ILS) to P&C and now the life re market, a recurring chorus from industry participants on what it is that makes the Island so attractive to new companies and ventures is the continuing support and understanding of local regulators and government.

One participant stressed the importance of the regulator, the Bermuda Monetary Authority (BMA) taking a holistic approach when it is analysing businesses so that, while remaining rigorous and in line with international standards, it helps businesses—rather than acting as a barrier to growth.

“It all boils down to our regulator’s impartiality, transparency, and flexibility. For example, it is well-versed in both IFRS 17 and US GAAP. The accounting rules of the jurisdiction do not bind you. That’s especially important for us with the forthcoming implementation of IFRS 17, but it’s also essential for US GAAP.

“One thing we didn’t mention is that the situation is very politically stable. Another notable feature of Bermuda is that the BMA will look at a business holistically as opposed to taking a very technical approach.

“They still have their technical standards, but they have a holistic view of the business and are willing to listen when there are unique aspects of the business and how that leverages into the risk-based capital model.”

Another participant agreed that the approach of the BMA and government was one of the key factors which had allowed the life re industry to flourish on the Island.

“One of Bermuda’s significant advantages as a jurisdiction is the ability to build the most efficient portfolio possible given the required capital. This does not distort the results or capital choices you get but the capital framework is more efficient.

“Bermuda has the 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 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 focus should be not just on sustainable activities but on looking forward to the impact of the investments.”

A good framework

Another executive said that Bermuda’s regulatory framework, compared to that of other jurisdictions, was more economic for the long-term policies and liquidity management issues that face life reinsurers, and described the talent around this regulatory regime as “important”.

“It’s 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. It is a more forward-looking economic outlook, as opposed to a historical one, and that generally means I realise the investment gains in a fairer way and get a more appropriate treatment for certain liabilities,” he said.

“The fact that you can manage assorted exposures in a single organisation 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 also key. All of these things make Bermuda a choice location for long-term liability management.”

The panel also debated the growing impact of environment, social, and corporate governance (ESG) factors on the life sector on Bermuda—in terms of how it will impact their strategy and future outlook. They agreed that ESG was already a major driving force and its importance would only increase in the future.

“It’s a high priority. It’s ingrained in pretty much every decision we’re making right now, whether it’s board representation, hiring practices or how we invest,” one commentator said.

Another added: “In general, the insurance industry plays a crucial role in ESG due to its role as a risk manager, risk carrier, and, most importantly, a significant investor. And the focus should be not just on sustainable activities but on looking forward to the impact of the investments and the activities they undertake.”

Image Credit: Shutterstock.com / AlinaMD

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