Athene CEO warns of risks in Cayman’s life insurance capital standards

The CEO of life re/insurer Athene, James Belardi (pictured), has raised concerns that the Cayman Islands’ low capital requirements for long-term re/insurers pose a risk to the pension and annuity system.

Belardi urged US insurance regulators to “evolve and address the hot button issue in the Cayman Islands where we have seen unabated growth with the industry now having $150 billion of reserves supported by a fraction of the capital required by the US or Bermuda, which we believe puts the system at risk”. 

Belardi, who first formed Athene in Bermuda before it redomiciled to the US last year, said capital requirements in Cayman were much less stringent than in the US or Bermuda. 

He also warned in a conference call with analysts that North American insurers also faced a threat from regulators allowing supervision to become similar to Europe’s Solvency II rules, which failed to “effectively limit insurers' ability to provide longer duration investment-grade credit to the real economy”. 

Athene chief financial officer Martin Klein said the growth in Cayman had been partly spurred by the Bermuda Monetary Authority implementing a more stringent capital model in early 2024. 

“It’s a much more robust and sophisticated model,” Klein said. “It actually brings the capital requirements in Bermuda much, much closer to what they would be in the US.”

Klein said this was not an issue for Athene, but some companies that previously went to Bermuda because they could hold lower capital and reserves “are finding that does not work so well any more.”

“What's been happening is that some companies are now looking to pivot to the Cayman Islands, where the regulatory framework is much less robust, capital requirements are much less defined, and there’s much more flexibility that companies have. 

“Our observation is that companies are going to Cayman, and holding lower reserves, and/or lower capital behind their business. 

“We don't think that's healthy for the industry. We think it's actually quite detrimental. 

“We don’t think it's a healthy thing for the industry for companies to go to a different geography, and to hold significantly lower reserves or capital than what is required in the US. And we're trying to really escalate this as we're seeing more and more of this activity happening.”

Cayman is seeking to become a qualified jurisdiction with the National Association of Insurance Commissioners (NAIC). Bermuda is a reciprocal jurisdiction with NAIC and also has Solvency II equivalency.

Belardi, whose comments were first reported in The Royal Gazette in Bermuda, also raised concerns about the risk of regulators applying Solvency II regulations to long-term insurance, saying that the European standard required companies to report performance on a mark to market basis as opposed to cashflows which the NAIC risk-based capital model uses.  

“You have the Europeans primarily pushing a Solvency II model, which has largely decimated the asset incentive insurance business in Europe, and yet they are kind of pushing to make that the global standard,” he said. 

“I think there was a very positive development at the end of the year. Team America is somewhat standing up for our existing insurance regulatory framework and the aggregation method, which is effectively RBC, was acknowledged by the international body to be equivalent.

“We are strong defenders of the regulatory environment that exists here in the US and strong promoters that the world should not move to a Solvency II basis.”

Belardi added: “In a business, where your liabilities are really sticky and have surrender charges and would be around, the mark-to-market on assets versus the mark-to-market of liabilities doesn't really matter in the short-term as long as you have the cash flows to meet your obligations for those liabilities over time. 

“So, Solvency II creates some behaviours that don't make sense in downturns that people are encouraged to sell assets that are underwater, even if they expect them to perform.

“Solvency II is really hurting the lending market in Europe because long duration is penalised quite a lot, and it's also hurt the ability of insurance companies to provide longer term guarantees to customers, so that creates retirement and life insurance issues.” 

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