Bermuda for life

Bermuda International Long Term Insurers and Reinsurers (BILTIR) started life as a Bermuda Monetary Authority (BMA) working group. It was established to provide feedback on the major regime transformations needed to achieve Solvency II equivalence.

At that time, one of the major hurdles to securing equivalence was the setting of the liability discount rate, which determines the amount of reserves a company needs to hold on its economic balance sheet. In the EU, Solvency II finally adopted the Omnibus II directive to determine the liability discount rate and the matching adjustment.

In the meantime, and with guidance from the working group, Bermuda adopted an equivalent approach using interest rates scenario shocks to ensure sufficient policyholder protection in the case of future interest rates shifts. It means Bermuda life companies must calculate reserves under eight different interest rate scenarios and hold the highest calculated amount.

From those beginnings, BILTIR has grown into an effective and well-respected trade association representing Bermuda’s life re/insurance community. It was formally incorporated in June 2011, and today has 44 full members and another 17 associate members, including not only re/insurers but essential service providers such as legal and accountancy firms.

BILTIR’s raison d’être is to provide “a consistent and coherent voice” for the industry it represents. That means lobbying the government and the regulator to ensure its perspective is taken into account in the drafting and application of the rules governing the industry, as well as raising the profile of the island. In this task, it is led by Sylvia Oliveira, the chief executive officer at Wilton Re Bermuda, who was named chair of BILTIR in September 2020, having previously served on its board.

“I have lived in Bermuda for more than 20 years, having moved here as a newly qualified actuary to work for Bermuda’s first monoline life reinsurer in 1999,” says Oliveira. In that time, she has seen Bermuda’s life industry evolve and grow beyond recognition.

“Only a few life companies existed in Bermuda at that time, and further expansion was very slow at first,” she recalls.

“The global life sector needed to assess the long-term viability and stability of Bermuda before setting up operations here. After a decade or two, life companies finally seem satisfied that Bermuda has long-lasting robustness, which has led to the recent strong momentum in Bermuda’s life sector growth.”

The industry’s robustness is underpinned, first and foremost, by the quality of the regulation on the Island.

“The structure and size of Bermuda’s market allows the BMA to deeply understand the nuances of the life reinsurance sector,” Oliveira explains.

“Life is different from property and casualty. When we transact, our pricing can be locked in for the next 50 to 100 years, based on the current capitalisation levels. In general, life reinsurers cannot change their prices every year to adjust to changes in capital requirements. The BMA understands the long-term nature of our contracts and regulates us accordingly.”

The fragility of life

Bermuda’s life sector has been on a general upward trajectory for many years, but it is facing a number of particularly interesting opportunities and challenges. On the most basic existential level, if an event were to be created to showcase the value of life insurance, it would be difficult to come up with something more effective than a global pandemic.

“COVID-19 has highlighted the fragility of life and the importance of having life insurance to protect families in case of untimely death,” says Oliveira.

This should generate further demand, and suggests that the growth the industry has seen, both globally and in Bermuda specifically, is set to continue.

The macroeconomic environment, however, presents a bleaker picture.

“Low interest rates are major challenge for the life sector,” admits Oliveira. “Asset liability management is a key focus for our sector, due to our need to support long-dated liabilities with adequate investment yield. Many companies use hedging to mitigate interest rate risk, but the possibility of defaults due to a widespread economic downturn is also a major concern.”

The industry will always face challenges of some description, and being organised to better overcome them is the point of having a trade association. More specifically, BILTIR has a number of priorities it is working on to represent the interests of its members.

Perhaps the most pressing priority was the replacement of BILTIR’s executive director position, vacated by Ronnie Klein in September 2020. The priority was to select someone local—Klein had been based in Switzerland—who already knows and understands the government, the regulator and the members. BILTIR achieved this with the appointment of Shelby Weldon, a former compliance director at the BMA, in March.

Oliveira says: “Increasing member engagement is an important priority. We want to ensure BILTIR is hearing from all of its members.” With the appointment made, BILTIR’s next priority is to hold a strategic planning session to develop a three-year plan, she adds.

The three-year plan will flesh out BILTIR’s priorities, but a number of items are obvious. Item one on the agenda is likely to be working with the Bermuda government on its expressed intention to review its tax structure, an initiative BILTIR understands and supports.

“Of course, we do not want to see tax increases, but we must also consider the long-term stability of the jurisdiction,” says Oliveira. The organisation understands the importance of maintaining Bermuda’s sovereign ratings, and avoiding another blacklisting, she notes.

“Our industry, more so than other sectors, must maintain a long-term perspective on these issues,” she adds. “Long-term stability is paramount to our continued durability and our ability to serve our clients.”

The blacklist issue is always a particular concern in a jurisdictions such as Bermuda, and particularly now, with the EU having initiated a further review of its blacklisting criteria.

“Bermuda needs to be prepared for possible repercussions,” Oliveira says. “BILTIR has been reviewing the digital tax proposed by the Organisation for Economic Co-operation and Development, alongside the Association of Bermuda Insurers and Reinsurers (ABIR), the Association of Bermuda International Companies (ABIC) and the Bermuda government, to ensure Bermuda’s unique structure is fairly represented.”

Coordinating efforts

This leads to one of Oliveira’s own priorities as chair of BILTIR: to strengthen its links with other local associations such as ABIR and ABIC.

“Our associations have been collaborating on key issues more and more over the years, and the industry overall would benefit from continuing to expand the number of multi-association initiatives,” she says.

Closer engagement with the other trade associations could help the life industry learn from advances they have made in areas such as the use of technology and data, which Oliveira says she would like to see improve among life companies.

“In my view, the life industry is far behind the P&C industry with regard to the sophistication of data collection, aggregation and usage,” she admits.

There are reasons for this, she explains. “First, our data covers facts about individuals, not earthquakes and storms, so privacy laws come into play. Second is the age of the data.

“The long-term nature of our business means that policyholder data is often stored in old-school mainframe systems that are difficult to manipulate.

“Third, the underlying products and risk coverages vary widely from company to company and from year to year, making long-term large-scale data comparisons difficult.”

These issues are not, Oliveira argues, insurmountable.

“Large amounts of historical life claims data exist, and barring privacy issues, today’s computing sophistication should be able to tackle some of these data hurdles,” she insists. As a voice for the industry as a whole, BILTIR could be well-placed to orchestrate a greater push for, and commitment to, technology investments that can boost profitability and lead to the development of new life products, to enhance and expand their appeal.

There is also scope for closer collaboration on student and graduate outreach programmes, as well as charitable and other social initiatives on the Island. Like the other associations, BILTIR takes its commitments in these areas very seriously, and closer coordination could leverage the undeniable and impressive efforts each already makes.

Back on track

The immediate priority, however, is to get its own programmes back on track after the disruption wrought by COVID-19.

“BILTIR was unable to conduct its usual summer internship programme in 2020 due to COVID, but we are gearing up for a solid 2021 programme,” says Oliveira.

“Internships provide an excellent opportunity for the students to learn about life reinsurance. As a fast-growing sector, we are constantly searching for new talent and seek to develop and attract qualified Bermudians into our industry.”

Oliveira is clearly passionate about this goal. “The issue of racial diversity is particularly important in Bermuda,” she explains.

“There is historic tension between the locals and international business here. Improvements to diversity and inclusion (D&I) within the international business sector could help ease some of these tensions.”

These are more than just words: under Oliveira’s leadership, BILTIR has held a number of diversity training seminars for members, to ensure not only that young Bermudians get employment opportunities in the life sector, but that there is a clear path to the highest levels of management.

BILTIR has held two sessions about D&I and unconscious bias in early 2021.

“I was overwhelmed by the incredible passion shown by the executives in attendance,” she says. “BILTIR members were engaged and ready to learn more to make improvements in this area.”

Oliveira insists BILTIR is uniquely positioned to help the industry tackle the issue of D&I. “The tone at an organisation is set from the top, and we work with the executive teams at our member organisations,” she says.

She is also confident this will pay off, not only in terms of an easing of residual tensions in Bermuda, but in the cold, hard language of the bottom line.

“Studies by Harvard Business Review and McKinsey have shown that more diversity leads to more profits,” Oliveira says.