Bermuda can help to fill retirement protection gap, says Mais

Bermuda long-term re/insurers have a role to play  in filling the coverage gap for retirement products, the president of the National Association of Insurance Commissioners has said. 

Andrew Mais, the Connecticut insurance commissioner, said US regulators are thinking about how Bermuda's reinsurance market can help create an adequate supply of life insurance policies and annuities as well as the need to maintain high safety standards.

Mais, was speaking at a life and annuity conference in Bermuda organised by Bermuda International Long Term Insurers and Reinsurers, according to ALM Think Advisor.  

The life insurance industry newsletter reported Mais noted at a conference panel about cross-border reinsurance that every NAIC president chooses a theme.

"My theme is 'mind the gap,'" Mais said.

In many areas, "there is an increasing coverage gap," Mais said. "Probably, the biggest single gap is in retirement products. People need more life products. People need more annuities."

But, over the period after the 2007-2009 financial crisis, when central bankers kept interest rates especially low in an effort to nurse struggling borrowers back to health, "the capacity to support those products was nil," Mais said.

Regulators' job has been to understand and monitor the new reinsurance, investment and capital-raising strategies used to address the product supply gap, Think Advisor reported Mais saying.

Mais added: "The number one goal is consumer protection," Mais said. "You have to ensure solvency. Is a company able to pay? And market conduct: Is the company willing to pay? But it goes beyond that."

In addition to making sure that the products that exist are safe, regulators have to make sure that consumers benefit from having access to a vibrant, competitive insurance marketplace, Mais said.

"We don't want to stifle the market," he said. "We're a market that supports innovation."

Bermuda tends to make it easier for reinsurers based there to invest in instruments that come with more market risk or duration risk but pay higher returns.

US life insurers have reinsured more than $600 billion in life and annuity business through Bermuda reinsurers since 2017, according to Moody's. The sector has more than $1 trillion in assets, according to BILTIR. 

Bermuda is developing new capital counting regulations meant to address observers' concerns, but officials there note that the European Union already classifies Bermuda as a jurisdiction with standards equivalent to the EU's own Solvency II standards and that the NAIC already classifies it as a reciprocal jurisdiction.

Astrid Jaekel, the chief risk officer at Aegon, said at the BILTIR conference that Aegon likes operating in Bermuda because it understands that life insurers can use illiquid assets and careful asset-liability matching strategies to support long-term life and annuity products.

Craig Swan, the chief executive officer of the Bermuda Monetary Authority, the agency that oversees Bermuda insurers and reinsurers, said private equity firms and the Bermuda reinsurance market are critical to overcoming the damage that low interest rates did to life and annuity issuers after the financial crisis.

One reason for the gap is that, from 2012 through 2022, the returns life and annuity issuers were earning on their invested assets were so poor that, instead of writing new annuities and pension plans, they ended up returning $275 billion in capital to shareholders in the form of dividends and share buybacks.

Darryl Herrick, co-head of reinsurance at Global Atlantic, and Michael Pagano, head of insurance coverage in the financial institutions group at Apollo, defended the approach that the new private equity owners are taking to managing life and annuity reinsurance companies and those companies' investment portfolios.

Assets that are relatively illiquid, or difficult to convert quickly into cash, can be just as safe as the high-grade corporate bonds that life and annuity issuers have traditionally put in their portfolios, and there is no reason for long-term institutional investors, or long-term retail retirement investors, to accept low returns in exchange for a high level of liquidity, Herrick and Pagano said.

"Why do we have daily liquid index funds in our 401(k)s?" Pagano asked. "That's the longest liability that you've got on your balance sheet. That's the retirement income the individual is meant to be saving for. They can turn that into cash tomorrow. Why? What is the reason for that?"

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