The good life: Bermuda’s new economic pillar

The question isn’t why life insurers have come to Bermuda, but rather why others haven’t yet, Brad Adderley, office managing partner & head of corporate at Appleby Bermuda, told delegates at the Bermuda Risk Summit.

“We often hear in Bermuda of creating a new pillar of the economy. I think that life insurance is a new pillar,” he said.

“Over the years, almost every single major offshore direct life insurer has formed in Bermuda, from startups to blue chip, and direct life insurance in Bermuda has naturally transformed into reinsurance. Due to the nature of the marketplace in Bermuda, you can have business flow from direct life insurance into reinsurance companies, along with closed-off businesses, which is very interesting.

“When you think of another pillar to the economy, every new startup in Bermuda, whether it’s P&C or life, is going to have to start with two or four people on the Island. When you think of the advantages to Bermuda of the life insurance market and what it brings, you could see 10 to 15 new life insurers being formed each year as there were last year, and each one will have two people from day 1, and then they do a hiring plan for the next two to three years.

“You’re talking about 30 new jobs in the next few years, which are mostly C-suite.”

Adderley moderated a panel discussion at the conference about the Island’s role in the growing life insurance sector. The discussion was based on the assertion that, in a world where the COVID-19 pandemic has brought an increased awareness of mortality risk, Bermuda’s life re/insurance sector has an increasingly significant role to play.

The panellists were Nicola Hallett, director of captive & commercial insurance at Artex; Amy Ponnampalam, chief executive officer of Athora Life Re; and Martin Spit, partner at EY USA.

Last year, 14 or 15 new commercial life companies formed in Bermuda, Adderley said, before asking how many the panellists expected would be added by the end of this year. Ponnampalam said 10 to 12, Hallett 15 and Spit 20, while Adderley said he expected 16 to 17.

“The reputation of the jurisdiction as a whole and the reputation of the Bermuda Monetary Authority (BMA), mean it’s almost: ‘why are you not choosing Bermuda?’,” Adderley said.

“If you look over the last 10 years, the vast majority of life reinsurance formations in the offshore space have been in Bermuda. If you choose another jurisdiction, you almost need to defend that position to your board because everyone else has chosen Bermuda.

“I wonder now if Bermuda is becoming a real marketplace where what we’re seeing is existing life players doing a first transaction with other Bermuda players. Come to Bermuda, raise your capital, there’s a great regulator and you will do business with each other and consummate a transaction at a conference like this one.”

He added: “Previously you might have seen a new startup doing a first deal of $500 million. Now, you’re seeing deals of $8 billion, $10 billion, $20 billion. That’s a lot of numbers and the fact that the onshore regulators are allowing those businesses to come offshore is a testament to the jurisdiction and to the BMA’s reputation in the marketplace.”

A true investor in the life re/insurance space should be defined by the intent, quality and permanence of its capital, Ponnampalam said. Asked if she had a preference, when passing on risk, for investment backed by a purely financial player or by another reinsurer, Ponnampalam said the “badge” the investor wore wasn’t important.

“One of our key investors at Athora is Apollo Asset Management Europe, which is traditionally seen as a global asset manager, and it recently merged with the team. Its identity as an investor has now changed but nothing in substance has really,” she said.

“Even though you may have institutions which are deemed to be asset managers, supporting a backend life business, if it’s still permanent capital, and you’re still bringing insurance expertise to the running of these businesses, then it doesn’t matter about the badge of the investor.

“It’s to do with intent, the quality and the permanence of the capital. Expertise is also very important. The life business is very long, we’re signing contracts for 40 to 50 years, so having a very strong, credible backer is very important.”

Private equity (PE) is sometimes mischaracterised, she added.

“I genuinely believe there are a lot of PE players who support the life insurance business with very strong intentions that are for the good of the industry, but it’s quite easy to characterise PE as cowboy-style short-termism. That isn’t the case if we look at how PE backers have supported the life industry, particularly in Bermuda.”

Spit agreed. “The game is changing in the underlying market. Over the last decade, more than 5 percent of the total balance sheet has moved into alternatives. Primary carriers, reinsurance carriers, need to tap into different asset management capabilities to drive the yields.

“The problem is that, if you don’t drive the appropriate yield, you can’t put a market-competitive price on the table. It’s a game-changer in the entire industry, and PE, private-backed teams, have been the first to the table with more competitive pricing based on some of the better yields that they’re driving.

“You have to look for more alternatives if you run a large book of life insurers and reinsurers,” Spit explained.

Hallett added that, on the incorporation side, Bermuda had seen a mix of investors. “There are the big US and Asian insurance companies that are transferring, but—and it’s been made public—there have been recent formations that are PE-backed.”

Adderley suggested that, when Bermuda sees the PE-backed life reinsurers, there is the perception, at least to the BMA, of whether those companies have the life re/insurance expertise.

“Second, is their investment policy going to be more aggressive than that of the normal life reinsurer? I’m not saying they won’t get approval from the BMA, but if you have a PE with a specialty focus on certain types of investments, then the BMA might ask what’s going on there.

“When we see the new formations, you could ask: ‘you’re an investment house, who is going to do the actuarial investment work?’. There might be more stress-testing to make sure you meet the relevant standard,” he added.

Ponnampalam said that Bermuda’s Economic Balance Sheet framework supports a well-diversified life re/insurance company. One of the key differentiators between the life business and the P&C business, she said, is that the former is “so long term”, which means there is “genuine value to be had in investing in illiquid assets, which do give you some spread pickup, maybe higher interest rates, and that is ultimately to the benefit of policyholders”.

To do that in a safe, well-governed way, however, is where life re/insurers play a very important role. “The BMA framework is set there to challenge us and hold us to the standard that’s needed,” she added.

Obtaining a licence to operate as a life re/insurer in Bermuda is challenging, but a bigger challenge there is finding appropriately qualified staff, Ponnampalam said.

The amount of government control, risk management and compliance that needs to be in place puts Bermuda “on a par” with North America and Europe, she said, but the continuing growth of that sector proved that finding capital wasn’t the issue.

A less obvious barrier is that the supply of talent isn’t keeping pace with demand.

“The life re/insurance talent in Bermuda has grown over the last decade or so, but demand is huge,” she said. “Growing local Bermudan talent in this space is very limited so far. I’ve recruited for a number of roles since I’ve worked in Bermuda, and the number of qualified Bermudan applicants who are able to come forward is quite limited.

“That speaks to the role we need to play in changing that picture, which means doing a lot more around schooling, investing in education, internships and scholarships. When you’re promoting local talent, that means building a local talent pool because we are seeing a shortage of life actuaries on the Island.

“It’s difficult to get them in and they’ve become very expensive. It’s a real challenge and a barrier to entry, to some extent.”

Spit said there is nothing to deter life re/insurers from coming to Bermuda, “because the size of the prize is too big”, but he agreed that talent is a major limiting factor in allowing people to move quickly from having an entity there four times a year to becoming one that fully operates in Bermuda.

Hallett added that the regulator is “very welcoming”, but as life re/insurers build up their businesses “they’ll need boots on the ground, and there’s only a very small talent pool from which to source that”.

Adderley said the number of C-suite employees in the sector was “excellent for the jurisdiction”, but added that there was a need to ensure there are enough “independent, resident directors, who have either financial expertise, the actuarial expertise, or the life insurance expertise to act as board members”.

He suggested there was a “secondary job market” for retirees to become independent directors.