Climate Summit
Starting blocks: Bermuda launches climate risk debate
In May the Bermuda Business Development Agency, in partnership with the Association of Bermuda Insurers and Reinsurers and Kroll Bond Rating Agency welcomed climate thought-leaders to the world’s risk capital.
“We incorporate the factors that we look at for ESG into all of our credit analysis, and put it forth in our credit rating.”
Kate Kennedy, KBRA
To say that the hosts of Bermuda’s inaugural Climate Summit had been eagerly anticipating the event would be an understatement. Taking place on May 25 at the Rosewood Bermuda hotel in Hamilton, the Summit attracted more than 170 delegates to hear from nearly 40 speakers in eight sessions that covered everything from the science of climate change to the regulatory needs of green investors.
The overwhelming message? There is no better qualified jurisdiction than Bermuda to be the climate risk capital as the most adjacent vertical to its key market strengths of re/insurance, insurance-linked securities (ILS), and financial services expertise.
On the eve of the Summit, Bermuda:Re+ILSspoke to David Hart, chief executive of the Bermuda Business Development Agency (BDA); John Huff, president and chief executive officer of the Association of Bermuda Insurers and Reinsurers(ABIR); Jim Nadler, president and chief executive officer of Kroll Bond Rating Agency (KBRA); and Kate Kennedy, KBRA’s senior managing director and co-head of business development.
“We originally intended to do this last fall and COVID-19 precluded that from happening, and then we were scheduled for February 3, but Omicron was peaking about then,” Hart said.
“We couldn’t be more excited that it’s finally here. We started out with a vision that we would bring together 90 thought-leaders from around the globe to discuss these important issues and the global leadership role that Bermuda can play in climate risk finance and resilience.
“Lo and behold, we are now at almost double that, with 170 registered guests. I don’t know where we’re going to put everyone but that’s a wonderful problem to have.”
Where Bermuda excels
The climate emergency and the challenges that global economies are facing are typically in areas where Bermuda excels, said Huff, who moderated the panel discussion titled “Building resilience in the face of climate change”.
“If you think about the rich history of the Bermuda market, with natural catastrophe protection, it’s a logical extension that we will be going into climate risk finance. ABIR celebrates its 30th anniversary next year and we’ve truly been focused on climate-related natural catastrophe events—whether that’s hurricanes in Florida, tornadoes in Missouri, Eastern European floods or Japanese typhoons,” Huff said.
“We’re hoping to highlight and showcase Bermuda’s talent, history, expertise and tools related to natural disasters, but also talking about the logical next step of taking us on climate risk finance leadership.
“How do we address adaptation, how do we help consumers around the world deal with these natural catastrophes and, at the same time, meet investors’ demands of doing this in an environmental, social and corporate governance (ESG) framework? Where are people on the journey toward net zero, and how can this market help them get there?”
“A large swathe of investors are looking to help those industries move towards a better carbon footprint.”
Jim Nadler, KRBA
No greenwashing
Nadler listed the qualities of the Bermuda risk market as the very things that investors in climate change are looking for: research, transparency, and the ability to attract capital.
“The Bermuda re/insurance market is known for its level of diligence and research on topics such as wildfires in the West, and tornadoes, as John mentioned, in Missouri. On the ability to form capital: since January alone, 27 new reinsures have been formed in Bermuda.
“All those together is a recipe for real change—and not the type of greenwashing we’ve seen in other jurisdictions, nor the type of lip service that I think many organisations give to climate change and ESG,” he said.
Kennedy said that KBRA is different from its competitors, in that it has chosen not to provide ESG scores as other rating agencies currently do.
“We incorporate the factors that we look at for ESG into all of our credit analysis, and put it forth in our credit rating,” she said.
Nadler added: “One of the biggest problems with ESG ratings is they try to put the environmental, the social, and the governance all together into one very opaque, numerical or letter score. That does the investing public no good because too often it’s been used to greenwash things.”
Hart stressed that the climate emergency, as a “huge threat globally”, is also Bermuda’s biggest opportunity economically.
“There’s a lot of new exciting things in terms of what the financial markets are investing in as ESG. Portfolios grow and goals grow in that space. So whether it’s renewable investment or resilience bonds, we’ve got the infrastructure, right here, to do a lot of that. And I think in the next couple of years, you’re going to see those capital markets attracted to Bermuda, to build on those strengths that we have.”
Bermuda’s re/insurance industry can elevate the climate debate from a simple comparison of what is harmful and what is helpful to reducing emissions, Nadler said.
“A lot of times you hear people talk about climate change, and everything’s black and white: ‘We don’t like oil companies, because they’re always bad’. ‘We don’t like the airline industry, because it’s always bad’. But a large swathe of investors are looking to help those industries move towards a better carbon footprint. Bermuda is uniquely situated to provide that sort of capital,” he said.
“You make folks aware so that when they’re ready to launch their climate-related product or entity, Bermuda comes top of mind.”
John Huff, ABIR
Freedom to innovate
Hart underscored that Bermuda has an existing framework for innovation.
“The last thing we would do is to tell people what they’re limited to in terms of innovation, by proscribing the products you should be designing here, and the products you should put capital behind.
“Instead, we have a framework where you can create that incubator of ideas. And we have an independent, globally recognised regulator that will help you in speed to market for your product.”
The Bermuda Monetary Authority (BMA), unlike regulators in many other jurisdictions, has the “simplicity” needed to support risk finance, Hart added.
“In the US, there are local state and federal levels of regulation versus Bermuda where it’s just the BMA. In the US, there’s a multiplicity of different federal agencies that may get involved in something around a climate issue: Department of Environment, Department of Energy, Treasury.
“Sometimes these federal agencies have competing goals about how something will be regulated, whereas we in Bermuda have a sole source,” he said.
A lightbulb moment
Huff said the priority now is to create an awareness of the attributes on the Island.
“Whether it be the expertise, the tools, the history, the regulator, or the openness and collaboration of government, you make folks aware so that when they’re ready to launch their climate-related product or entity, Bermuda comes top of mind,” he said.
Hart and BDA chairman Stephen Weinstein joined Walter Roban, Bermuda’s Deputy Premier, at COP26, to share Bermuda’s attributes with the audience gathered at the climate talks in Glasgow in November 2021. The reactions they received and during the BDA’s subsequent three missions to New York City to meet with law firms, asset allocation firms and advisory firms, were the same, he said.
“They all had a history of thinking of Bermuda for standing up a new reinsurance company, but as we described the attributes in our presentation around climate, lightbulbs started going on because that made perfect sense to them. I’ve been very excited about the response we get once they hear our message.”
Asked where they would like to be a year from now in Bermuda’s journey to becoming the capital of climate risk, Nadler said KBRA wants to be rating re/insurance companies that are specifically focused on climate change and achieving ratings that will attract more investors.
Huff said he hoped for a general recognition that Bermuda had climate expertise “before it was cool”.
“We’re known for our capital and our capacity. If there’s a measurement of getting Bermuda to be the climate risk capital it’s how we increase those, and whether that’s through the use of capital markets or more startup companies,” he added.
Hart concluded that the BDA intends to continue the dialogue “well beyond” the conversations that would take place at the Climate Summit.
“This will be the inaugural Bermuda Climate Summit, but there will be another one next year, likely moved to the fall. We will also be attending November’s COP27 in Egypt. Our chairman and I will be in London in June to meet with leaders in the field there so I guess my goal is that we continue telling the Bermuda story and the attributes around climate that attract this exciting new adjacent vertical to the Island,” he said.
