Developing a new economic pillar for Bermuda

23-12-2021

Developing a new economic pillar for Bermuda

Hon. Curtis Dickinson, JP, MP, Minister of Finance in the government of Bermuda

Bermuda has always developed the many pillars that support its economy through being proactive and innovative. Minister of Finance the Hon. Curtis Dickinson, JP, MP, explains where he sees innovation leading the Island next: towards climate risk finance.

Bermuda has the potential to become a world leader in climate risk finance, developing an additional pillar to its economy that will complement and be supported by its existing risk transfer industry.

That is the view of the Hon. Curtis Dickinson, JP, MP, Minister of Finance in the government of Bermuda, who told Bermuda:Re+ILS that such an offering and skillset can largely build on what the property/casualty sector has been doing for a long time.

“We have been meeting a lot of asset allocators and we want them to see Bermuda as the place to invest their money. For me, climate risk finance is just a natural expansion of the work that P&C companies have been doing for a long time. Before the term environmental, social, and corporate governance (ESG) was even coined, P&C companies were pricing cover for climate risks. They have been at the forefront of this across the world.”

The government partnered with the Bermuda Business Development Agency (BDA) in April to launch an initiative aimed at promoting Bermuda as the world’s climate risk finance capital. The aim is to make climate risk finance an additional economic pillar for Bermuda. The government sees it as highly aligned with, and complementary to, its other strengths: re/insurance, insurance-linked securities (ILS) and its professional services expertise.

Dickinson says the government and the BDA are working closely with the private sector, notably the Association of Bermuda Insurers and Reinsurers and the Association of Bermuda International Companies, to establish initiatives with this aim.

“My job is to ensure Bermuda is a good environment for businesses and able to attract firms. The industry has responded admirably in its support of this initiative,” he says.

He says this issue will only become more important to all aspects of finance and risk transfer. For Bermuda, it is about recognising that now and ensuring it is able to adapt and innovate to ensure it is able to leverage this opportunity for the economy.

“Climate and ESG-related initiatives will have an increasingly stronger focus going forward. Our aim is to create an environment that enables companies to do their best work. Insurers and reinsurers already recognise the importance of sustainability and we want to support that.

“We know that unless we constantly adapt and innovate, we run the risk of becoming obsolete. It is in our DNA to collaborate on innovations such as this and as companies based here win, so do we,” he says.

“The new business models are not as people-intensive as they used to be, but they will still create jobs.” The Hon. Curtis Dickinson, Minister of Finance

Post-COVID positives

After two years of COVID-19-inspired economic turmoil, Bermuda’s finance minister is eyeing a new era for the economy with initiatives such as this, complemented by a return to normality for other more established parts of the economy.

The re/insurance sector weathered the storm of the pandemic well, but it has been bolstered in the past two years by the arrival of a new class of carriers, born out of a newly hardening market, a phenomenon in part kickstarted by the losses and uncertainty caused by COIVID-19.

A number of new carriers of all shapes and sizes have launched on Bermuda. Some, such as Convex and Conduit Re, are traditional P&C carriers with significant amounts of capital at their disposal from the off. These have been complemented by an array of other launches, ranging from sidecars and managing general agents, to life and run-off companies.

The point is, however, Dickinson notes, that they chose Bermuda. “We have been very encouraged by the startups all choosing Bermuda again. It should that Bermuda remains the domicile of choice for this industry.”

Asked why he believes that, in addition to Bermuda’s location and time zone (so suited to both the US east coast and London) he highlights its regulatory environment and depth of talent as being the two key draws.

“Our regulator is a big draw—the speed to market that is possible combined with the fact that it is a regulator of a very good standing at an international level,” he says. “The Bermuda Monetary Authority (BMA) has excellent standing. It has proved itself to be both thoughtful and responsive and it lends itself to creating a very good environment for businesses on Bermuda.

“In addition to that, any companies coming here are able to tap into the local ecosystem of excellent professional services providers. We have a robust group of law firms and accountancy firms on the Island and all the expertise and connections that come with that. It is very important to the way in which the industry functions here.”

While new re/insurers setting up on Bermuda is a good thing, one downside is that they will not create as many jobs as some of their predecessors. This is due to a mixture of new operating models being used and the use of technology, which make operations more efficient.

Nevertheless, Dickinson says, their impact should not be underestimated. “The new business models are not as people-intensive as they used to be, but they will still create jobs,” he says. “Not only directly, they will also be responsible for creating further jobs in the wider economy—in the service providers they use and across the whole ecosystem.

“There will be an impact in the real estate market, for example, as well as in shops and stores and the service industry on Bermuda. The impact goes way being the direct impact of a single organisation being formed. Yes, they are leaner companies, but they still have a very positive effect on Bermuda.”

“Technology companies want to interact with the biggest insurance players and Bermuda is the place to do that.”

Growing steadily

Complementing the growing P&C industry on Bermuda is a rapidly growing long-term insurance sector, dominated by some big life re/insurers, which has been steadily maturing on Bermuda for some time. Bermuda International Long Term Insurers and Reinsurers (BILTIR), which now boasts more than 60 members with more than $550 billion of assets under management, celebrated its 10-year anniversary this year and continues to attract new members.

Dickinson says the growth of this sector is important for Bermuda. While attracting less attention and headlines it leverages Bermuda’s ecosystem of professional services advisers, helping boost the wider economy in the process.

Yet another pillar of the Island’s risk transfer offering is its ILS sector. Bermuda remains the undisputed world leader in this sector with more than 80 percent of ILS deals globally domiciled in Bermuda. While it creates few jobs on the Island in its own right (compared with traditional carriers), Dickinson sees this sector as increasingly complementary to the traditional risk transfer model, enhancing the sophistication of the offering of many of its carriers.

 

“ILS has driven a wider increase in alternative capital providers and the insurance model generally is evolving in this regard. It is a natural expansion of what the traditional insurance industry used to be. But as a jurisdiction, we champion innovation in all its forms.

“Good regulation embraces that and has an element of foresight in identifying trends and taking these into account in regulatory frameworks. We have a dominant market share and we want to continue to nurture that environment.”

Illustrating this philosophy was the move by the regulator in 2019 to introduce a new class of insurer designed to reflect the unique needs and functions of a fully collateralised player. The new class of Collateralised Insurance and Limited Purpose Insurer (LPI) was the result of the increasing scope and sophistication of the ILS and collateralised re/insurance market, the regulator said at the time.

Dickinson explains: “The job of the regulator is first and foremost to protect the interests of capital providers and policyholders, but it is also to adapt in line with how industries evolve. That new class of insurer was a good example of how it does that.

“The BMA represents the tip of the spear for us, but it works closely with industry to promote the jurisdiction while also ensuring sound regulation.”

Finally, yet another pillar Dickinson is hoping will grow is the insurtech segment on Bermuda—another sector being driven by innovative legislation. In 2018, it introduced the Digital Asset Business Act 2018, the statutory basis for regulating digital asset business (DAB) in Bermuda.

“We see this as the foundation for continued innovation in financial services technology—it represents a good framework in what is a growing space,” he says. “Technology companies want to interact with the biggest insurance players and Bermuda is the place to do that.

“We have the ecosystem that facilitates and encourages the interaction and sharing of ideas.

“We have the talent here, and no difficulty attracting more of that. I firmly believe that insurtech could become another major pilar for our economy in the future,” he concludes.

BDA, Bermuda Government, P&C, ESG, ILS, Insurance, Reinsurance, Curtis Dickinson, Bermuda

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