Shining a light from Bermuda on climate risk finance
Experiencing COP in a developing country like Egypt was a vastly different experience from the one we experienced in Glasgow, Scotland. While there were media reports of some infrastructure and logistics challenges at COP27, overall it was greatly beneficial to have been hosted in a developing country because it helped to shine a light on some of the different and unique challenges other countries face. Of course, any time 35,000 delegates descend on any one destination, you are going to have some challenges, but I have to say the Egyptians were extremely friendly and welcoming hosts and it was a pleasure to be there!
There were some noteworthy announcements coming out of COP27, especially about the importance of biodiversity, which I think were significant for Bermuda, in relation to our coral reefs. Coral reefs harbour the highest biodiversity of any ecosystem globally, but are threatened ecosystems, with some sources, including UNESCO, predicting many will cease to exist by the end of this century if current circumstances continue. As the most northerly coral reef system in the Atlantic Ocean, and the only landmass in the Sargasso Sea, Bermuda is a critical habitat for marine biodiversity which is why so many steps are being taken to protect them, for example by the Bermuda Ocean Prosperity Programme and Bermuda Insitute of Ocean Sciences (BIOS).
“Climate risk finance builds on Bermuda’s strengths.”
The perfect place for climate risk
Since our first climate risk finance roadshow to NYC in September last year, the BDA’s message has remained the same, that Bermuda is a perfect place to become the world’s climate risk finance capital because we are already the world risk capital, the most adjacent vertical. Climate risk finance builds on Bermuda’s strengths: reinsurance leadership, especially climate-driven hazards; globally respected financial services regulatory regime; and human capital/established service infrastructure. We have not had to change our message much over the last year because, unfortunately, climate risk does not seem to be changing either.
Bermuda’s reinsurance and insurance-linked securities (ILS) sectors are moderating climate risks by helping to close the protection gap. On adaption and resilience, Bermuda’s re/insurance market is always adapting its services to better meet the needs of the international markets it services, increasing resilience to vulnerable areas. Regarding nature-based solutions, Bermuda is an isolated, Atlantic archipelago that feels the effects of climate change first-hand in the form of rising sea levels, increasingly severe and frequent storms, and erratic rainfalls; the Bermuda government remains committed to reducing its carbon footprint and already has a wave-based renewable energy company lined up to enter an energy sandbox. Bermuda’s young people are especially committed to the cause; over the past 10 months attendees of Bermuda’s inaugural Youth Climate Summit have been working on home and community garden projects, mangrove and seagrass restoration, and reducing single-use plastics.
“Re/insurers have potentially three roles to play in climate risk finance.”
A wide choice
There are many Bermuda-based companies to choose from for their work on climate risk, but we would highlight the 20 large Bermudian re/insurers and ILS funds (representing GWP of over $100 billion and an investment portfolio over $550 billion) interviewed in the landmark ESG report by Oxbow Partners and the Bermuda Business Development Agency (BDA). The Bermuda ESG Report was launched during our inaugural Bermuda Climate Summit back in May. Our second annual Bermuda Climate Summit will be held on June 26–27, 2023, where we hope to once again partner with Bermuda Gin Company, whose partnership with Ecotote not only reduces waste but also removes ocean waste.
Re/insurers have potentially three roles to play in climate risk finance: as risk manager, risk carrier and investor. In terms of risk management, Bermuda is the world’s risk capital because of its unique combination of commercial re/insurance, captives, and ILS all in one domicile—as a result, over the last 50 years Bermuda has developed a unique culture of risk management and compliance that is part of our DNA. Especially since Hurricane Andrew 30 years ago, Bermuda has also acted as an important risk carrier for some of the world’s most vulnerable populations—since 1997, Bermuda’s commercial re/insurers have paid out over a half a trillion dollars to policyholders and cedants in the US, EU, and UK. Regarding investors, Bermuda is no stranger to ESG investing and is in the process of introducing a governance structure for a Blue Economy Fund as well as an investment model for a Green Energy Fund.
Innovation is also part of Bermuda’s DNA, striking the right balance between robust regulatory standards and encouraging innovation via regulatory sandboxes that enable creators to experiment with exciting new products in a controlled environment, especially insurtech. Whatever the future of finance ends up looking like, you can be sure that some of the most important aspects of it were beta-tested in Bermuda.
We are so excited to be hosting the BDA’s first ever climate risk finance working group meeting this month. The purpose of this working group is to bring together industry professionals, regulatory officials, and key Bermuda contacts to leverage their expertise to bring forward solutions to some of the world’s most pressing climate-related problems. Its mission is to educate audiences, both locally and internationally, about Bermuda’s value proposition as the world’s climate risk finance capital, help drive legislative change to facilitate climate risk finance initiatives and bring together thought leaders, policy makers and academics to maintain open dialogues and find workable solutions.
