The quiet rise of life reinsurance on Bermuda
Bermuda is already a well-known and respected global hub for insurance capacity. Although this market has traditionally focused on general insurance risks, life insurance and reinsurance has been one of the fastest growing sectors in recent years. A diverse range of business models have emerged in this sector, providing new options and opportunities to manage long-term insurance risk.
In this article, Gokul Sudarsana from Deloitte interviews Sylvia Oliveira (Wilton Re), Scott Selkirk (Somerset Re) and Manfred Maske (Monument Re) about the key drivers of growth in this sector and the opportunities they foresee. In the November issue of this publication, the same panellists examine the regulatory landscape and assess how this applies to life reinsurance.
Gokul Sudarsana: Bermuda is one of the top three reinsurance centres in the world, and is best known for its market-leading position in the property-catastrophe reinsurance sector. There has also been substantial growth in the life reinsurance market over the past several years.
The number of licensed long-term (ie, life and annuity) companies has grown to be almost 15 percent of total licensed insurers and, in terms of assets under management, the long-term sector now makes up nearly 40 percent of Bermuda’s insurance market. What are the main drivers of this growth?
Sylvia Oliveira: We have seen a lot of startups over the past several years and this is due to a few reasons. One is the increased demand for life reinsurance, primarily driven by low interest rates and growth in the market for retirement products. As direct writers reach their exposure capacities, they will seek reinsurance.
Another reason is that stricter regulatory environments in the US and Canada, and in the EU with Solvency II, have increased the demand for reinsurance globally. Additionally, many companies are looking to exit legacy blocks or non-core lines of business to manage their capital and resources more efficiently.
All these factors are driving the increased demand for reinsurance. In terms of capital supply, low interest rates are driving institutional investors to look for yield in non-traditional areas, and in seeking diversified yields they want to invest in the life insurance space which is known to generate a stable earnings profile.
Last but not least, we have to mention the environment of Bermuda. Bermuda is very conducive to startups, and the licensing process is very straightforward and streamlined, so companies can raise capital and deploy it relatively quickly.
Scott Selkirk: Elaborating on Sylvia’s first point, the low rate environment has been difficult for life insurance companies for a long time. Interest rates have been declining since the early 1980s and this has put a lot of pressure on investment yields.
As a result, spreads are compressed on legacy blocks of business that typically have higher crediting rates. Insurers also have a harder time selling new business, because crediting rates on fixed annuities are lower and caps on indexed products are lower.
Companies are looking for solutions to these issues—they want to redeploy capital tied up in older blocks of business and put it to work in the lines of business that they are happy with, and make these products more competitive.
A handful of reinsurers have set up in Bermuda that can address this need, as the solvency framework here is more efficient in assuming this type of interest-sensitive business.
Manfred Maske: As a European-facing reinsurer, I would add that Solvency II equivalence in Bermuda has had a profound impact in many different ways. If you look at the Solvency II environment and where the EU is in terms of its demographics, with an aging population and ever-growing retirement funding gap, you have a pronounced issue (which is also true in other jurisdictions around the world).
The EU also faces the very low interest rate environment that Scott described; in fact, we even see negative rates in some cases, which is unprecedented territory.
If you overlay that with Solvency II which, in a nutshell, makes life a lot harder in terms of regulatory workload and capital required to back certain retirement and life savings plans, you end up with an environment that gives you a push and a pull. There is a push from insurers to review their portfolios and a pull factor to Bermuda for these types of businesses.
That is because Bermuda has invested significantly to become permanently Solvency II equivalent. What that means is that Bermuda is effectively part of the EU family so Bermuda reinsurers can write business into the EU, among other benefits, in an easy way and on a level playing field with their European peers.
Sudarsana: A lot of great business opportunities are emerging as a result of the external environment. Could you each describe your business and explain why it makes sense to operate out of Bermuda?
Maske: Monument Re is very much EU-focused, so what we are seeing happening in the market is a lot of decision-making and review around portfolios that are either sub-scale or capital-intensive under the new Solvency II regime. Insurers are looking to take various management actions and have done so over the past two years.
Those actions span from obvious things such as closing to new business on these intensive lines, all the way through to more radical actions such as disposal or reinsurance of those lines, as a means of trying to monetise something from these books.
Bermuda, with the specific provisions of Solvency II equivalence, provides an ideal base for us. I would highlight two particular advantages that Solvency II equivalence provides. First, a reinsurer based in Bermuda is treated the same way as an EU-based reinsurer, so you can understand how that is commercially beneficial.
Second, the Bermuda Monetary Authority (BMA) is recognised as a supervisor of the same standing as EU-based supervisors. When you put those together, along with the BMA’s pragmatic and collaborative approach, it makes Bermuda a very compelling choice of jurisdiction.
Oliveira: Wilton Re focuses on the acquisition of legacy blocks, which are generally large in size. Our clients are in North America, mostly in the US, and we transact either through direct acquisition or reinsurance. These deals allow our clients to exit old lines of business and redeploy the released capital and resources toward their core strategy.
Bermuda offers advantages in terms of capital efficiency: there are certain structures when compared to internal targets or US standards that are more compelling in Bermuda. Also, as Manfred mentioned, the regulator in Bermuda is very accessible and available to discuss regulatory approvals for large transactions, customised approaches for non-standard products or transactions, and similar issues.
They will give you a decision in a matter of weeks, which is a lot more efficient than some other domiciles.
Selkirk: Somerset Re is also focused on providing reinsurance solutions for legacy blocks of interest-sensitive business,
including deferred annuities, universal life, and similar products. We also get a lot of interest on the support we can provide on indexed products, which helps companies set higher cap rates on their new business.
We do not have a US entity so our typical transaction is coinsurance, where the vast majority of assets backing US statutory reserves would remain with the ceding company on a fund-withheld basis.
As to why Bermuda is the right jurisdiction for Somerset Re, I agree with the points raised by Manfred and Sylvia. In addition to those, being a US-facing reinsurer, proximity to US is certainly a factor, and the ease of establishing a new company in Bermuda is also an advantage as you’re dealing with one regulator as opposed to 50 different state regulators.
Bermuda International Long Term Insurers and Reinsurers (BILTIR) is the association representing the long-term insurers and reinsurers in Bermuda. Visit www.biltir.bm to find out more.
Meet the experts
Gokul Sudarsana
Senior manager, Deloitte
Gokul Sudarsana is a senior manager in the Actuarial, Risk and Analytics practice at Deloitte. He has extensive actuarial and risk management expertise spanning pricing, valuation, capital modelling, and asset-liability management within the insurance, reinsurance, and banking industries.
Sudarsana leads Deloitte’s actuarial service offerings in the long-term insurance market. He helps a diverse range of Bermuda and international clients with financial and solvency reporting, accounting and actuarial transformation, pricing and structuring risk transfer solutions, actuarial due diligence, and regulatory/market analysis.
Sudarsana graduated from the University of Waterloo with a Bachelor of mathematics in actuarial science. He is a Fellow of the Society of Actuaries, a Fellow of the Canadian Institute of Actuaries, a Chartered Enterprise Risk Analyst, and a Financial Risk Manager.
Sylvia Oliveira
Chief executive officer, Wilton Re Bermuda
Sylvia Oliveira is CEO of Wilton Re Bermuda, where she works with clients to enhance their value through the reinsurance and acquisition of inforce blocks of life insurance products. She is also chief risk officer of the Wilton Re group, where she has implemented and oversees its enterprise risk management framework.
Oliveira has more than 25 years of experience in the insurance industry. As a director of Bermuda International Long Term Insurers and Reinsurers, she has worked closely with the BMA over the past six years as it has reshaped and strengthened its regulatory framework. She also a director of the Association of Bermuda International Companies.
Oliveira is a Fellow of the Society of Actuaries and a Chartered Financial Analyst. She holds Bachelor’s and Master’s degrees in mathematics, from Boston University.
Scott Selkirk
Managing director, Somerset Re
Scott Selkirk is a managing director and head of pricing for Somerset Re, where his primary responsibility is to lead the evaluation and pricing of all new reinsurance opportunities. He joined Somerset Re in October 2014, and the company was licensed by the BMA in December 2014.
Somerset Re is a class E reinsurer, the largest commercial class in Bermuda, providing customised risk management solutions to the life insurance and annuity sectors, helping clients efficiently deploy capital, improve long-term performance and fund business growth.
Selkirk has held various actuarial roles in the US, at MetLife, ING, and New York Life, mainly focused on product development. He is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries. He graduated with a Bachelor of arts degree in statistics from Boston University.
Manfred Maske
Chief executive officer, Monument Re Group
Manfred Maske is a Fellow of the Institute of Actuaries with 18 years of experience in the life industry across a number of territories. He was previously CEO and director of Legal & General Reinsurance in Bermuda and CEO and director of Legal & General Gulf in the Middle East.
He has worked previously in a range of management and
technical roles within Legal & General in the UK, culminating
in the role of international actuary, where he sat on the boards
of startups and either as member or chair of the investment
committee.
Prior to this, Maske held actuarial roles with PwC in the UK, Old Mutual and Momentum Life in South Africa. He is also on the board of directors of Monument Assurance, Monument Insurance, Laguna Life and Monument Assurance Belgium.
