Navigating the three Ts

In April the Bermuda Monetary Authority (BMA) published its 2018 Business Plan, laying out what ground it intends to cover over the course of the upcoming year.

In the plan the BMA’s chief executive officer, Jeremy Cox, identified ‘three Ts’, a trio of issues that Bermuda will have to cope with in 2018.

Speaking in more detail to Bermuda:Re+ILS, Cox explains that the first is tax. The Ministry of Finance, not the BMA, has overall responsibility for Bermuda’s tax matters—the BMA is the supervisor of the financial services sector—but Cox points out that tax policy changes around the world, and in the US in particular, can impact Bermuda. He is positive about the initial reaction of the re/insurance market to the tax policy changes experienced by the BMA thus far.

“Since the publication of the Business Plan, the BMA has seen increased re/insurance registration activity, with 30 new registrations recorded during the first five months of 2018. This is up from 20 for the same period last year,” Cox says.

“The introduction of the new tax policy in the US hasn’t had a major impact on the attractiveness of Bermuda, just the opposite in fact. In some respects you could almost say that it has underscored what many have said over the years—that companies do not form here for tax reasons, they come here to access Bermuda’s unique re/insurance market and because Bermuda is a credible jurisdiction.

“The international credibility of the regulator has certainly been high on the list of the reasons for new companies wanting to form here.”

The impact of technology

The second ‘T’ that Cox identifies is technology, which is impacting the global financial services market in a myriad of ways.

“The BMA recognises the growing importance of disruptive innovation in the re/insurance and wider financial industries and the critical role that innovation plays in promoting efficiency and enhancing competitiveness in the market,” Cox says.

“This is why the BMA is launching two parallel innovation tracks in 2018: an insurance ‘regulatory sandbox’ and an innovation hub both initially targeted at insurtech companies.

“The sandbox will allow companies to test new technologies and offer innovative products, services, and delivery mechanisms to a limited number of policyholders (or other clients) in a controlled environment and for a limited period of time,” Cox explains.

“The sandbox is designed for companies that are looking to be subsequently licensed as regular re/insurers or intermediaries as per Bermuda’s Insurance Act 1978.

“The innovation hub will act as a central point of contact between the BMA and potential new service providers who may eventually apply for entry into the sandbox.

“We are making it clear to the world that Bermuda is a jurisdiction that encourages innovation. The BMA has introduced these innovation tracks to allow startups, as well as established players, to test out different tools and products that ultimately may be embraced by the re/insurance market.

“We are giving them a chance to gain a unique perspective about how these tools would be perceived by a regulator. And it also gives the BMA, as a forward-looking regulator, the opportunity to expand our knowledge and future-proof our supervisory toolkit.

“Those are the things we’re looking at for the technology ‘T’.”

Takeovers and equivalence

The last ‘T’ stands for takeovers. Similar to the situation with the US tax changes, one possible negative perspective about the Bermuda market was that takeovers would reduce the number of companies on the Island, shrinking the Bermuda market and its relevance.

However, Cox disagrees with that perspective. “I’d say the complete opposite, that it underscores the relevance of the Bermuda market. It underscores the credibility of the firms we have here and the fact that they might be attractive to large European and US players.

“It also introduces a new level of complexity which the BMA is well positioned to manage. If you have followed what the BMA has been doing over the past seven to eight years we have moved to embrace a framework that can be deemed to be equivalent on both the European side (Solvency II) and on the US side through the National Association of Insurance Commissioners’ (NAIC) Qualified Jurisdiction Initiative.

“One of the core benefits from that type of international recognition is that you are establishing credibility, trust and a cooperative relationship with your peer regulators. We went into the equivalence exercises with a primary goal being that we wanted to put Bermuda in a position where Bermuda firms did not need to adhere to duplicative regulatory frameworks,” he explains.

What Bermuda firms can count on, according to Cox, is the BMA’s position as a trusted, leading supervisor, and from an M&A perspective, Bermuda is well positioned to manage recent and future developments.

Moving forward

When the BMA puts together its strategic plans it normally takes a multi-year perspective, so parts of this year’s Business Plan are a continuation of work which began several years ago. For example, Cox says, many of the work streams can be directly linked to the BMA’s international equivalence efforts over many years.

“It is a continuation of the whole push to ensure that Bermuda is seen to be a jurisdiction that has a high bar for regulatory and supervisory oversight,” he says, with the addition of technology as a focus for the BMA.

“We may have spoken about technology in the past, but we are now much more vocal about it,” he concludes.