Webinar report

Clarity in changing times

Bermuda’s response to the COVID-19 crisis was clear and decisive—and the re/insurance and asset management sectors have benefited significantly, as key government and industry figures explain.

Note: At the time of the webinar, Kathleen Reardon was chief executive officer of Hamilton Re.

Curtis Dickinson Minister of Finance

Bermuda’s response to the COVID-19 crisis has drawn widespread international admiration. Not only did the government take decisive action in introducing travel bans, closing schools and businesses and promoting social distancing, but it successfully phased the reopening of the country.

It has also marketed Bermuda as a year-long destination for remote workers in the face of a massive dip in tourism revenues.

Panellists gathered online on July 22 to discuss Bermuda’s approach and that of the re/insurance and asset management sectors on the Island, and to speculate about what comes next. All were in agreement that the government’s proactive response has reaped dividends across the board.

Explaining the approach, Curtis Dickinson, Bermuda’s Minister of Finance, said that the country’s “aggressive posture” had been highly successful but sounded a note of caution.

“We have done a very good job but we must be careful not to get ahead of ourselves—this pandemic has not fully passed,” he said.

Sarah Demerling, partner at Walkers and chair and executive committee member at the Alternative Investment Management Association (AIMA), praised the clarity of communications issued throughout the lockdown.

“The Bermuda Monetary Authority (BMA) and Registrar of Companies issued very clear communications on how they wanted people to interact with them, and the government released regular press releases so we knew what to expect. There was a real sense of teamwork,” she said.

“We have done a very good job but we must be careful not to get ahead of ourselves.” Curtis Dickinson

When it came to business operations, all agreed that the transition to working from home had been relatively seamless.

Highlighting the BMA’s response, Craig Swan, deputy chief executive officer, said: “A number of staff worked round clock so that the day after we closed the office all our staff had connectivity and within a week all staff were able to perform all office tasks while working from home.

“As a result, the BMA has been able to keep all functions running without any tail-off in our performance.”

It was a similar story for the Bermuda Stock Exchange (BSX), as Greg Wojciechowski, BSX president and chief executive, and board member at the Bermuda Business Development Agency (BDA), explained:

“We fully support the position of the World Federation of Exchanges that global markets must continue to operate in times of deep systemic pressure and volatility,” he said.

“At the outbreak of the pandemic BSX was considered an essential service so we continued to trade and to settle and the capital market here in Bermuda continued to operate without interruption.

“The only difference was that we began a remote working environment which continues to exist today.”

The re/insurance industry’s response

Kathleen Reardon, then chief executive officer of Hamilton Re, noted that the resilience and responsiveness of Bermuda’s re/insurance industry have been repeatedly proven in times of crisis.

“Think back to Hurricane Andrew, 9/11, Hurricane Katrina—in all those cases Bermuda stepped up and provided capacity,” she said.

“Bermuda plays a valuable role in aiding global economic recovery and we are doing it again now. Bermuda’s uniqueness comes down to our regulatory environment, our quick response if we develop a product, and formation of startups.

“It’s a very favourable environment for innovation and looking forward I think innovation will come to the fore. Many global carriers are looking for a pandemic solution, whether that’s a public-private partnership or a parametric structure. These are very exciting times.”

Wojciechowski agreed that Bermuda has always led the way, citing its creation of a new series of classes of insurers—special purpose insurers—in 2009 as a move that grabbed the attention of the global insurance market and propelled Bermuda into the spotlight, leading it to become a centre of excellence for the creation and supported listing of global insurance-linked securities (ILS) vehicles.

“The BSX is now the world’s leading exchange in terms of listing ILS vehicles.” Greg Wojciechowski

“This year it’s been business as usual for us and we haven’t skipped a beat," he said.

“It’s been a very robust cycle and the BSX is now the world’s leading exchange in terms of listing ILS vehicles, with about 470 of those listed here with a nominal value of about $38 billion—which represents about 85 percent of the global issuances of this specific asset class.”

He added that the ILS market, particularly on the property cat side, has proved resilient in times of global crisis, with any pressure within the ILS class coming from investors keen to find the yield created in the ILS in order to offset some of the losses in their portfolios other investments.

“So once again ILS is proving to be not only an important hedger in a broader portfolio of investments, it’s also seen to provide liquidity in times of big pressure,” Wojciechowski said.

“The other thing we are seeing is increased interest from other jurisdictions to enter the ILS space,” he added. “We do watch this very closely but also we are aware that this will continue to broaden and expand the risk transmission pool, which, if we look at this holistically, provides more capital flowing into the market to help narrow a pretty wide protection gap in terms of uninsured places in the world.”

Greg Wojciechowski Bermuda Stock Exchange

Asset management

Sarah Demerling Alternative Investment Management Association

Demerling noted that during the COVID-19 crisis the asset management sector quickly recognised the importance of providing clients with the highest standard of service, with minimum disruption.

“On the wealth management side people prioritised their families,” she said. “We are seeing a lot of estate planning, which includes jurisdictional location choices.

“Bermuda has always had a thriving trust sector and at the moment the government is working with stakeholders to introduce bespoke private family office products for the needs of ultra-high net worth people.

“On the pure asset management side, it was on the whole business as usual in terms of establishing new structures.”

She added that even in times of pandemics and crisis, investors are looking for solutions with specific outcomes such as sustainable investing and are pursuing more of a multi-asset approach that lends itself well to a segregated account.

“The government is working with stakeholders to introduce bespoke private family office products.” Sarah Demerling

“On-Island we have a terrific breadth and depth of experience and capabilities across all the alternative investment industry and we have very strong relationships with leading market participants,” Demerling said.

She also highlighted Bermuda’s physical closeness to the US capital market as a unique strategic advantage, along with Bermuda’s understanding and expertise in both capital markets and insurance, which has been evidenced by the strong convergence sector.

“It helps that we have one regulator for insurers and the funds, and for that reason Bermuda is still the preferred jurisdiction for ILS funds,” she said.

“Given our location, we cater for both the US and EU market in the funds and asset management sector, which is quite unique.”

She added that changes to closed-end funds legislation not just in Bermuda but across all the jurisdictions have led to managers doing jurisdictional shopping—something they may not have done in prior years.

“This has effectively levelled the playing field, she said. “Bermuda compares very favourably—for example, our limited partnerships meet all the provisions that would be important to private equity general partners.”

The future landscape

Looking to the future, Patrick Tannock, managing director at AXA XL and chairman of the Association of Bermuda International Companies, said that one of the keys to Bermuda’s resilience will be how quickly it adapts to the post-COVID-19 world with its new sets of expectations and ways of working.

“Our focus should not just be on getting through the pandemic—as it will end at some point. We must also focus on what the environment will look like when it’s over and what we must do to position ourselves and show relevance in the new normal,” he said.

“Bermuda is primarily a service economy and as an overarching trend we must acknowledge customer behaviours—both tourist and businesspeople—as we enter into a digitised experience-driven era.

“We have to factor in the impact of COVID-19 on practically everything from customer behaviour to business interruption, globalisation, supply chain issues, the way we work and structural changes such as real estate as we navigate our way to economic renewal,” Tannock said.

All panellists agreed that Bermuda’s ability to innovate will equip it to thrive and stay relevant in the future. Reardon noted that with the market hardening on the insurance side and picking up momentum on the reinsurance side, growth definitely is on the horizon for Bermuda carriers.

“We will add jobs and some innovative solutions such as parametric solutions for parametric communicable diseases,” she said.

“We have seen a lot of interest in the excess and surplus lines in the US and seen some confirmed startups in that area but that doesn’t mean Bermuda will be quiet.

“We have to factor in the impact of COVID-19 on practically everything.” Patrick Tannock

“At the very least there are several syndicates that have been eyeing the Bermuda market for several years now and have decided this is the right time to make a move and set up some operations here.

“I do believe there will be a few more, and creative ideas are welcomed.”

Wojciechowski predicted that the ILS asset class will look at ways to expand into different risks and will be complementary to what is happening in the traditional space.

“Areas which have been talked about for at least the last couple of years are transferring and covering risk in cybersecurity—it is at the forefront for people looking to provide risk transfer solutions,” he said.

“We are also seeing products coming to the market that will address pandemic type situations and provide cat cover there, so I think the innovative nature of the ILS structure is going to deepen and accelerate as we go forward.”

Demerling added that she expects pandemic bonds to be a key area of interest, with the capital markets playing an important role in providing financing and capacity. She highlighted the hybrid vehicle—comprising one structure that can be licensed as a fund and as an insurance company at the same time—as having key potential in this area.

Patrick Tannock Association of Bermuda International Companies

The role of innovation and technology

Craig Swan Bermuda Monetary Authority

There is huge potential for innovation when tackling the protection gap. Reardon highlighted Hamilton’s involvement in Blue Marble, a provider of microinsurance, as an example of this. With the aim of extending socially impactful, commercially viable insurance protection to the underserved, Blue Marble’s technology enables farmers in emerging markets to buy insurance with parametric triggers via their phones.

“It’s very efficient, and all based on technology,” she said.

“This is helping close the protection gap. If we could use it in the more developed word too, that would be fantastic. Everybody’s mindset is: let’s push it further and accelerate its benefits.”

Advances such as microinsurance are generally supported by emerging technologies—and these hold the key to future success for Bermuda and for the industry as a whole.

“Emerging technologies have potential to have a bigger impact than anything since the advent of computers, and as artificial intelligence (AI) is so popular and relatively cheap it will spread a lot faster than computers did in every industry,” said Tannock.

“It’s going to augment and improve and help us to work smarter, and has potential not just to accelerate existing capabilities—the real prize is the potential of AI and emerging techs to do things that haven’t been done before.

“We are also seeing products coming to the market that will address pandemic type situations.” Greg Wojciechowski

“We’ve done a nice job with bricks and mortar solutions, but we need to harness big data and AI to increase our efforts to provide value and ensure relevance in mitigating exposure for intangible assets.

“Whether it’s to provide solutions for intangible assets by using sophisticated algorithms or accessing larger quantities of data and capitalising on an exponentially increased computer power, we have the culture and ingredients to lead the world.”

The panel agreed that in many ways, COVID-19 has simply accelerated changes that were already on the cards. This applies not only to the drive to harness and use new technologies but also to the ways of working that will become the new normal. An unexpected benefit, according to Reardon, could be a greater gender balance in the workforce.

“Remote working has accelerated discussions on flexible working policies and that has a potential knock-on effect for gender parity and fair career success,” she said.

“There is research that proves women bear the brunt of parenting tasks and caring for the elderly but with everyone working from home, this can be better managed and some of those career development hurdles could be removed.”

The panel noted that more junior team members are having an opportunity to take part in meetings via zoom and similar apps, enhancing opportunities for career progression.

Reasons for optimism

From its geographic location to its willingness to embrace new ideas and technologies, the panel agreed that Bermuda has several distinct advantages in the post-COVID-19 world.

“Our performance during the pandemic affirms the importance of our jurisdiction,” said Dickinson.

“Without a doubt the insurers and other financial services producers have been very important to handling the fallout of this pandemic and will be critical to the eventual recovery.

“We have a reputation of being an innovative jurisdiction. We have always been known to punch above our weight and by virtue of our size we constantly are working towards reinventing ourselves.”

Swan added that Bermuda has always taken an optimistic view and will continue to do so in the post-COVID-19 landscape. In particular he highlighted opportunities in the protection gap around pandemic cover.

“Complex losses such as pandemics will require solutions combining government, capital market and insurance market efforts to hedge the risk,” he said.

“COVID-19 will cause us to re-examine how we view risk, particularly tail risk correlation.” Craig Swan

“Given Bermuda’s knowledge and experience, the BSX, and the fact that we have in excess of 70 percent of the global alternative capital capacity based here, the country is an ideal place for tail risk and liquidity solutions.

“On the regulatory side COVID-19 will cause us to re-examine how we view risk, particularly tail risk correlation, so this re-examination will impact the strength and scenario testing the BMA requires of registrants. It will also cause us to raise our expectations around registrant risk.”

While the impact of COVID-19 will play out far into the future, Wojciechowski said he believed the panel’s optimism regarding Bermuda’s future is well placed.

“That optimism isn’t based on a gut feeling but on the fact that this country has survival and innovation in its DNA,” he said.

“We are located between two of the deepest capital markets and insurance markets in the world and provide significant benefit to both of them. We are able to seize the opportunities that will come our way.

“Instead of looking at the future as a bleak, barren post-COVID wasteland, most of us see it as something providing an opportunity to shake the status quo and re-enter the conversation with a bit more energy and provide a lot more support to the areas in which we excel.”

Photo www.instagram.com/martsellar | Photo: Shutterstock.com / Andrey_Popov

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September 2020

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