Robust, reliable, resilient - amid change


Robust, reliable, resilient - amid change

Bermuda’s reinsurance industry has endured many challenges over the years, but its unique mixture of talent, capacity, innovation and world-class regulation has ensured its adaptability in the midst of change. It has remained the go-to hub for large and complex risks globally and a hotbed for innovation for risk transfer solutions. This virtual roundtable, held just before the renewals season and sponsored by the Bermuda Business Development Agency, drills down into the main challenges and opportunities that lie ahead for the Island’s reinsurers.


1. Brad Adderley, partner, Appleby

2. David Brown, senior partner, EY Bermuda

3. Kathleen Faries, chair, ILS Bermuda

4. Sean Kelly, partner, PwC

5. Daniel Malloy, chief executive officer, Third Point Re

6. Andre Perez, chief executive officer, Horseshoe Group

7. Nicolas Plianthos, senior vice president, Marsh

8. Adria Richards, head of property catastrophe–global clients, RenaissanceRe

9. Anup Seth, global leader, underwriting solutions, Aon

10. Ariane West, director of structured finance, Nephila Climate

11. Gavin Woods, partner, Carey Olsen

12. Wyn Jenkins, managing editor, Bermuda:Re+ILS (moderator)

Part One

How do you characterise the health of Bermuda’s reinsurance sector, in the context of the challenges of COVID-19 and several years of cat losses?

Adria Richards: We’re facing several years of big cat losses. 2017 and 2018 were the largest two consecutive loss years for insured natural cats in history, and 2019 was not without challenges. During this period, the Bermuda market has performed very well.

The market continues to be resilient and this has only been reinforced by our response to COVID-19.

We’ve stayed open for business, supporting our clients and paying claims. 2020 looks likely to be another record-breaking year, and at the same time, we’re all grappling with the new challenge in COVID-19. That has brought with it a lot of uncertainty, from a loss estimation perspective, as well as operational challenges. But as a market we’ve continued to function at a very high level.

At RenaissanceRe we’ve turned our attention towards future opportunities that we think will arise as a result of COVID-19. We have recently raised some capital and we have a strong balance sheet that will enable us to further support our clients during these unprecedented times. Again, off the back of several big cat losses, the market continues to be extremely resilient.

David Brown: The Bermuda reinsurance sector continues to be very strong, with strong balance sheets. Certainly, the catastrophe events of recent years have been primarily earnings events. Capital has remained strong. Related to COVID-19, it’s too early to determine the long-term impact, but the industry appears to be in very good shape right now to weather the storm.

As a result of the hardening market we’re seeing a number of new reinsurance startups, which is very exciting, in the traditional reinsurance and insurance space as well as in the insurance-linked securities (ILS) space. All of those are forming in Bermuda, which is good for Bermuda.

There’s a number of reasons for that—obviously our history in helping new capital enter the market quickly is very important in these times of uncertainty and when the cycle changes. Bermuda has been a leader in moving quickly to identify these opportunities. We continue to be viewed as a reputable jurisdiction with the highest standards on tax transparency and a strong regulator in the Bermuda Monetary Authority (BMA), which continues to be very important.

I am very bullish and we think it’s the best place to start a reinsurance business.

Brad Adderley: First, there was the question of whether through COVID-19 the BMA would grind to a halt. If there would be issues around reviewing applications and so on. But what we saw was the opposite.

We are seeing new formations with the BMA approving large transactions on the life space, the ILS space—as well as some other interesting startups. Meanwhile, several established reinsurers have raised additional capital, which shows faith in the reinsurance marketplace and faith in Bermuda.

We see an abundance of new capital coming into Bermuda through existing players and new formations and no bottleneck at the BMA, which is great.

On top of that, in the ILS space, we are seeing a whole slew of new cat bonds and transformer vehicles being brought to market. Around 80 percent of cat bonds globally are still domiciled in Bermuda.

So, all through COVID-19, we have seen new capital, new startups and new cat bonds form in Bermuda. And by Christmas I think we will see even more. And they’re all talking about Bermuda and not looking at other jurisdictions. They are looking at being based in Bermuda and raising capital for Bermuda.

Sean Kelly: The capital we were seeing coming into the market in the back half of 2019 has continued to come in through 2020, and every group that I’m speaking with about a potential new startup has a Bermuda element in its strategy. Whether it’s UK-based or US-based, everybody is looking to establish a Bermuda company as a component of that, in part because they see that as the quickest path to the market for January 1, 2021.

The regulator has done a tremendous job to differentiate Bermuda’s speed to market and it’s encouraging for the industry.

The accident years 2017/18 were touched on already—they were the first significant loss years for a large number of ILS investors, yet you’re still seeing capital come into that market. To me, it demonstrates that the industry in Bermuda is trending in the right direction, and the market is very well positioned heading in 2021.

Gavin Woods: The BMA has done a sterling job over the past couple of months. The questions we get most from onshore legal counsel and the industry are ‘will the BMA be able to cope?’ and about what the response time is like. The answer to that is the BMA has been on the ball throughout and they have been exceptionally responsive in a very difficult time.

It has been a very good representation of Bermuda during COVID-19. This has resounded with clients and within the industry.

Andre Perez: The fact that we have existing companies raising significant amount of capital is encouraging. Investors are understanding that certainly on the casualty side we have started to respond in the form of a hard market.

For those of us who have tried to place some D&O insurance, you know what I’m talking about—it is tough. So it definitely is encouraging that there is more capital. The elephant in the room is obviously COVID-19 and the uncertainty around it.

There is no doubt the loss is going to be significant. There is still a lot of uncertainty on the interpretation and the coverage, and that’s not only on the casualty side but now it’s seeping also on the property side with business interruption.

We’re definitely in an uncertainty mode, but the nice thing about it is that we have new capital coming in. We have new companies being formed; on the ILS side the opportunity is slightly different because it’s focused on the property side but that capital which was on hold in March and April is now coming back.

Every single project we put on the backburner in March and April has now resumed and they’re full on. That gives us a lot of enthusiasm and hope for the future of this market. And let’s not forget we have hurricane season to come.

2021 is going to be a very interesting year in terms of what the market is going to be. But all in all, I would say that Bermuda remains a jurisdiction of choice. Just look at some of the new ventures that are setting up. They chose Bermuda because it’s the best place to start a reinsurance company.

Kathleen Faries: It is going to be interesting if we do in fact have any big cat events. We’re still in the middle of this pandemic and it’s hard to see the end point of what’s going to happen. But if we do have a big cat event, what does that mean for how we’re going to handle claims adjusters? Will claims adjusters be willing to go where the event has happened? Are they going to be worried about their own safety?

There’s going to be layers and layers of complexity, so let’s hope we don’t have a big event as, if we did, there’s going to be a lot more unknowns and a lot more uncertainty.

It’s been amazing to watch everybody in Bermuda pivot and adjust to what we’re doing now, working from home. It has been very challenging for people who work and also have young children.

It’s going to take us a long time to say ‘this was the impact’, but it has been amazing to see how people have pivoted and we’re using the technology that Bermuda has been pushing and getting ready for people to use, so that’s all positive.

There’s still a lot of unknowns about how this will all shake out and what the final impacts will be but there are many positives for Bermuda at the moment.

Daniel Malloy: At Third Point Re, we’ve spent the last two-plus years building a stream of underwriting profitability as well as investment returns. So we’re pretty excited about the Sirius transaction [a merger between Third Point Re and Sirius Group]—there are a lot of positives. One of the positives again is how responsive the BMA has been.

We’ve been to the BMA a number of times this year, and we’re very pleased about how quickly they were able to organise meetings, often on short notice and how professional and supportive they’ve been.

We’re a company of 35 people, 25 of them in Bermuda. We were set up eight years ago and our disaster response was really geared toward working from home after a hurricane. So we’re fortunate in that while a disaster really did occur, although our response is geared to a different nat cat, the effect has been the same.

We reopened our office three weeks ago and two people have come in. We’ve had two board meetings, we’ve issued two earnings, we’ve filed with the SEC, we’ve talked to investors. We’ve done an acquisition, and then done the day-to-day business with people were doing it from home.

One of the very positive things for Bermuda was the sense of community and the coming together during this time. We’ve taken steps to help others in the community through some charity initiatives—and all this has occurred at a time of increased social sensitivity to racial equity with the Black Lives Matter movement.

I’ve been really very impressed with not only our firm, but the reaction of the community and our industry. It’s something we can be proud of. Everybody has stepped up and said: ‘I’m willing to recognise there’s an issue’. We have been working as a business community to foster diversity, equity, inclusion.

Anup Seth: We have certainly seen Bermuda respond in a very positive way. I would add that it’s all about access to capital and ensuring the efficient deployment of that capital. We’ve seen an increasing number of enquiries around accessing the reinsurance markets or the capital markets.

The cat bond market had a very successful start to the year. Then we experienced a very volatile equity market in the first quarter due to COVID-19 that led to a slowdown in capital market solutions. However, it’s been remarkable how the market has bounced back in the second quarter and companies have increased their access to capital markets and issued further mortgage insurance bonds as well.

The industry now needs to demonstrate underwriting performance. We’ve had three to four years of poor underwriting performance. As an industry, we need to have several good years where we can demonstrate to investors that this is a good sector to invest in and that our risk-adjusted return is sustainable over a five to 10-year horizon.

There are two types of investors. There are investors who see our industry as a real business and we treat them as permanent capital. And you’ve got those investors who treat our business as an asset class and they’ll play only when the rates and returns are there, and will pull out when they’re not.

We have to cater for both types of investors and provide bespoke solutions for both traditional and alternative capital. Bermuda is well positioned to facilitate the deployment of this capital in an efficient manner.

The other important change is the new licence class that the BMA has come out with: the collateralised insurance class. We have seen some good traction there and that’s a great practical example of how the BMA is innovating and bringing real solutions to the table.

It has been a very busy six months for us, and it’s been great to see how all aspects of our business are performing well, but it’s all centred around that theme of access to capital.

Ariane West: The industry has done a good job of managing the challenges that come with large loss events, and shown growth in other areas aside from property catastrophe over the past few years, including, for example casualty and speciality lines. The ILS market continues to respond to investor appetite for well-priced risk.

With respect to COVID-19, the ability of teams and platforms to continue to serve counterparties and investors has been truly impressive. Despite the challenges, most people haven’t missed a beat, which speaks volumes about the talent and commitment of the people in this industry.

I have seen teams and working groups pull together and be flexible to provide support when needed, because we’re all coping with having our work and home lives come together and managing multiple obligations and demands on our time.

The ability to keep up that pace and execute on our objectives comes down to a sense of collegiality and team spirit, and a willingness to provide support within teams as well as across the table with the counterparties we work with. It has been a really great time in that respect.

Does Bermuda now have a role to play in terms of innovation, regulation and using technology to find solutions to new challenges?

West: Many are expecting the recovery from COVID-19 and the ensuing economic downturn to look different from prior economic recoveries. It’s an opportunity to reset and innovate.

We were already anticipating a significant amount of infrastructure development, which is now likely to be bolstered by expanded government stimulus plans as well as the private sector, and insurance and risk transfer will have a key role to play in facilitating those significant investments.

My work in the area of risk transfer relating to renewable energy and supporting the grid transition is an example of this.

There’s been a lot of discussion about climate change, about the importance of supporting the carbon transition and there is a significant focus on and demand for renewable energy investments.

I’ve been fortunate to be a part of innovation to create solutions to support these investments in addition to and alongside traditional insurance.

Faries: Bermuda has an interesting opportunity right now, mainly because of the great job that the community did in keeping COVID-19 at bay. If Bermuda can capitalise on that story to open up Bermuda to new investors and new opportunities it would be great.

The ‘Work digitally from Bermuda’ initiative is an amazing opportunity. It will help Bermuda get the attention of investors and people building companies and thinking about new innovative platforms. If we can get more people to Bermuda and show them the intellectual capital we have here, they’ll see the potential for themselves.

We’re just beginning to see the potential impact of the Digital Asset Business Act legislation and the digital framework we have been trying to build on here.

I’m involved in a fintech company that is looking to do digital insurance out of Bermuda including cat bond issuance. If we can build a digital exchange here we will give Bermuda exposure to an expanding base of capital and investors. Building a more liquid and lower cost cat bond market is an interesting initiative that we are uniquely qualified to execute on.

Seth: I feel that Bermuda has a bigger role to play. And if it plays its cards right—and all the signs are that it will—it has a bigger role to play in the future. Bermuda has always had a very strong P&C industry and we’re seeing that further strengthening now with the new startups. We now have a very strong life or long-term industry as well.

The other industry worth mentioning is legacy or run-off. Many companies that focus on legacy or run-off business have established in Bermuda. It’s that capital efficiency play whether it’s a large portfolio transfer or commutation these companies are taking legacy reserves off balance sheets to free up capital for companies to pursue their core strategy.

There is also a vibrant ILS industry in Bermuda. Bermuda is now a multifaceted marketplace. COVID-19 is an unprecedented pandemic and after the human tragedy the economic and insurance impact are just beginning to unfold.

What we’ll see with COVID-19 is perhaps an inflection point and greater polarisation of our industry where we’ll see some companies do really well, particularly if their digital strategy is very strong, versus other companies that may not survive, particularly if the BI claims go the wrong way for them.

If you look at how the tech companies have fared over the last three to six months, since the March downturn, there has been a real acceleration of those companies that have a very strong digital strategy.

Apple recently crossed the $2 trillion mark, and the technology industry has emerged much stronger compared with the retail, hospitality or travel industries that are all struggling..

It is going to be a different new economy that emerges, and for Bermuda to succeed it has to play a role now for those companies that have accelerated. There was a comment by one of the tech CEOs that we’ve seen 20 years of accelerated digitisation in the last six months.

That’s a real opportunity for us, but what do we need to do now to ensure that we can build a framework, a business opportunity, a landscape for those companies that will want to come to Bermuda with their digital strategies going forward?

I don’t have all the answers, but I do see a different economy emerging and Bermuda has to look forward and adapt, and that will be the real positive opportunity for Bermuda.

Malloy: For an industry that doesn’t necessarily grab the headlines the way tech does, it is amazing all the changes that have gone on in the last 40-plus years in Bermuda. And that speaks to the entrepreneurial tradition that runs deep in Bermuda.

We are really in an inflection point. My daughter is in New York and her boyfriend lives in London and they’re thinking about moving to Bermuda for a year. Both their firms have said they can work from home, and suddenly Bermuda starts looking attractive and creating the next inflection point.

We can not just bring in the class of 2020 here but need to create an ecosystem where different technologies and different people and different mindsets are all going to combine in a small community of 50,000 people to create a more diversified stream of opportunities.

I really admire the work that’s being done in Bermuda and I’m very supportive of helping to participate in the next generation of what’s going to be going on there.

Perez: Bermuda has always been known for being innovative. It’s always had the ability to adapt and be flexible. It’s the people and the infrastructure, but we’re also lucky enough to have a regulator that’s also open and flexible in terms of encouraging new business coming in.

We talk about tech and the sandbox that is evolving from an international business perspective. One thing that’s been very clear is that the Bermuda market is probably one of the best equipped and the best prepared markets to work remotely. People wanting to move here and the one-year permit sounds like a very attractive proposition.

But what is the work force? What does the work force of the future look like and how does that impact the Bermuda economy? We’ve all done staff surveys as to who wants to stay home and who doesn’t, and it’s staggering the high percentage of people wanting to work from home.

But the next question is: ‘If I can hire the same person 2,000 km from here for a quarter of the price, why do I have them here?’.

It’s a double-edged sword. Part of the strength we have is the ability to fuel the local economy, and empower the local workforce, but if my workforce can work from home, then I’m not so sure I need to hire them on Bermuda.

So what are the incentives for people to be here? Sure, I keep a core here and my economic substance is important but this is now one of the future challenges that Bermuda is going to have to cross. How do you keep people here? How do you attract them and how do you keep them here in a way that makes sense?

The jury is still out about how many people are going to work completely remotely, what it’s going to look like in the future or whether it’s going to be a hybrid model, and for that Bermuda has always had the ability to adapt very quickly.

But if we extend our thinking, what’s the future of our local workforce going to look like? That’s something that we need to think about.

Woods: I will say that a lot of it is not necessarily within the control of Bermuda itself. For example, in terms of getting to and from the Island, air travel is key. We see it with commercial insurers that need to have executives in Bermuda making decisions.

Bermuda can do everything possible to show that it’s open for business, but some things might be outside of its control.

Kelly: I agree, it is a double-edged sword but Bermuda does have a track record of being able to innovate when it needs to, and we need to continue that going forward.

Brown: Coming out of the pandemic, Bermuda is open for business and we’re going to be there to pay claims and help companies get back on their feet, the things we’ve always done.

There are going to be some opportunities, and Bermuda is probably uniquely positioned as far as new coverages or new exposures that are brought on by the pandemic and obviously in the ILS industry here, so I believe they may play a key role in some of the exposures brought on by the pandemic.

When we look at it from an industry perspective, there’s a seismic shift with technology. We’re seeing a lot of companies in our industry advancing their digital agendas, so there’s going to be a real shift.

If you look historically, the industry is primarily insuring tangible assets, there’s going to be even a more significant shift to insuring intangible assets: brands and intellectual property and networks, virtual supply chains, those type of things.

That’s an area where Bermuda could be well positioned to play a pivotal role.

Nicolas Plianthos: There are things out of our control but it’s very encouraging to see that Bermuda has done almost everything that it can to innovate and adapt, and I have no doubt that it will continue.

The financial services and the tech sector are doing fantastically, but there is a whole lot of other industries that are struggling and will struggle for a very long time, and what will that mean for Bermuda’s and the world’s future? How will Bermuda factor in solving basically the world’s problems?

Richards: Climate change is another area where Bermuda’s role has probably never been more globally relevant. In our view, the effects of climate change could create the potential for unprecedented cat losses in the coming years.

Bermuda has a very deep expertise in cat reinsurance and also in the science of natural catastrophe risk management, and that makes it an ideal champion in the efforts to increase insurance coverage in disaster-prone and developing countries that often lack it.

Adderley: I agree with Andre’s point: we don’t know where the staff are going to be but if we start seeing the senior decision-makers coming down to Bermuda for this one-year work permit, being on the Island, then that will encourage them also to put more roots on the island, and will help to ensure that we hire a couple of people.

Bermuda will never again have the likes of big companies like ACE and XL employing hundreds of people in Bermuda, but we can handle 100 companies with three people here. The biggest expense that you have in Bermuda is office space, plus staff. So if you can have people working from home, they don’t need the office space and you’ve got the decision-makers in Bermuda, hopefully, then that works.

It comes down to whether we can get the senior people from the East Coast, inland, move to Bermuda, whether it’s for COVID reasons, safety reasons, family reasons, and good planning, good financial planning and leave it like that.

Plianthos: It’s great offering this one-year work permit but we should be more aggressive. Bermuda is stable, it’s functioning and we need to be encouraging other entities and operations to come and work here. We need to be more aggressive about that, instead of just targeting an individual, we should be looking at companies as well because we’ve done a great job.

Adderley: The first area of innovation and regulation that’s been really important for Bermuda is creating that new wave of more efficient insurance companies doing things electronically and online.

People have come out with this new insurance marketplace licensing category who are hopefully going to make doing business between insurers and reinsurers more efficient and easier, because everyone always talks about the cost to get a transaction done, how much of the premium dollar is lost to the food chain.

Specifically, the new innovative classes can be really important to Bermuda because we want to make sure we attract that business to Bermuda, which we have done so far, and that will also help the next wave.

That collateralised insurer classification, by changing of the laws to address some specific challenges, is very important because it shows we are a market leader in the ILS space. It means we’re really trying to appeal to everyone.

Richards: Bermuda’s involvement in the public-private sector collaboration to close the protection gap is another area for potential innovation.

Here, the industry is looking to find ways to optimise and extend the use of insurance and risk management to build greater resilience and protection for people and communities, businesses and public institutions.

This is an area in which Bermuda is well placed to lead the charge.

Plianthos: Bermuda needs to keep its eyes and ears open on what the competition is doing. If you think about the ILS space, Singapore has extended its grant for the ILS industry.

Hong Kong is tabling ILS legislation so we can’t rest on our laurels. Competition is always a big factor in this day and age.

Woods: When thinking about innovation it’s not just innovative regimes or new regulations.

I’m thinking of how one fund manager recently found a way to securitise trapped capital as a way of releasing funds to investors. That was an innovative approach to a problem that’s been around for a while and an example of how people can work within the regulations to provide value.

In terms of new regulations, I’m mindful of the potential for a new global minimum tax that may be coming.

I know it’s going to be a hot topic and people are keeping an eye on what happens at the end of the year whenever more information is released .

So, while we have addressed the OECD’s economic substance rules—and Bermuda has done an excellent job on that—you can’t rest on your laurels, as there’s always more coming through the pipeline. We have to continue to be vigilant.

Faries: About Lloyd’s and its approach on ILS, part of the challenge they had was having the intellectual capital to service that business. That takes time to build up.

I would say that Bermuda still has an advantage in terms of all the companies and the services you need to execute on a good idea and we need to continue to capitalise on that strength.

We’ve got that intellectual capital and it is sitting in Bermuda, which is a huge advantage.

One thing I would add though, through the fintech and insurtech advisory work I’m doing, is that Bermuda is still somewhat closed to the rest of the financial market.

One of the things I’m encouraged about is the Bermuda Stock Exchange (BSX) being bought by the MIAX Exchange Group.

We automatically then have in the BSX a wider infrastructure that we can start to leverage in a variety of ways.


Brad Adderley, David Brown, Kathleen Faries, Sean Kelly, Dan Malloy, Andre Perez, Nicolas Plianthos, Adria Richards, Anup Seth, Ariane West, Gavin Woods

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