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Bermuda has remained at the heart of risk transfer innovation. What is its enduring appeal?
The flexibility and innovation of the Bermuda Monetary Authority (BMA) have spurred Bermuda’s track record as a trailblazer in the industry—the world’s first true offshore captive insurance centre, the first true excess liability carriers, the first property catastrophe insurers and the launch pad for catastrophe bonds.
The regulation is constantly evolving. The BMA has introduced new classes of Limited Purpose Insurers; Collateralised Insurers, a fully collateralised reinsurer class; Class IIGB, an innovation class; and a new category of intermediary, insurance marketplaces.
What are the most significant developments you have seen in the past 18 months?
Eighteen months ago, the impact of the COVID-19 pandemic on reinsurers was still quite uncertain. There was a wide disparity of loss estimates and all business updates to investors started and finished with this topic.
Fast-forward to today, and the industry has reacted by tightening up policy wording, exiting certain lines of business and overall having a clearer picture of the expected loss due to the pandemic. Reinsurers are back to running their businesses—optimising their books of business, their capital structures, their investment portfolios, and their expense bases and looking to the future by making strategic investments in technology, people and processes.
“Attracting new capital to Bermuda is tried and tested: the infrastructure is in place to support the industry.” Craig Redcliffe, EY Bermuda
A fresh number of startups have selected the Island as their domicile. Why is this?
Speed to market and flexibility of the regulator are key. This allows the entities to get up and running much more quickly than in other jurisdictions. Attracting new capital to Bermuda is tried and tested: the infrastructure is in place to support the industry, and the relative proximity to other insurance and reinsurance markets, namely New York and London, is helpful.
What will be their long-term importance to Bermuda?
The new startups add to the already impressive list of Bermuda-domiciled reinsurers, further cementing Bermuda’s reputation as a first-in-class reinsurer domicile of choice.
Bermuda has become a hub for life reinsurance in recent years. Why do those companies choose Bermuda?
The lead attraction is the sophisticated reinsurance regulatory regime, and the BMA’s flexibility, which allows speed to market for startups. The larger and more complex long-term writers that apply for a class E licence can be up and running within three to four months. Simpler structures and captives can get to market within a few weeks.
Bermuda prides itself on its friendly approach to new business. Bermuda has an innovative and developing regulatory environment. The Island is one of seven countries to have earned US Qualified Jurisdiction status from the National Association of insurance Commissioners. Since the start of 2020, it has been one of only three jurisdictions of the seven that have Reciprocal Jurisdiction status, making reinsurance provided by Bermuda commercial insurers eligible for full regulatory recognition without the need to provide collateral.
It also means that deals with Bermuda reinsurers are more readily able to obtain approval from state insurance regulators in the US, and this is a well-trodden path.
Bermuda was only the second non-EU jurisdiction to qualify for Solvency II equivalence, which means the Island’s reinsurers can compete on an equal footing when vying for business in the EU and the UK.
For life reinsurers, the Bermuda regulatory setup can be more practical and accessible than in Europe or the US, and it provides an ample reinsurance pipeline opportunity to provide statutory relief for US and UK primary carriers. Bermuda’s best estimate approach to calculating liabilities can provide significant benefits when reinsuring certain products, relative to the prudent US statutory reserves.
Similarly, relative to Solvency II, the more flexible asset strategy allows Bermuda’s reinsurers to take credit for higher investment yields in the calculation of the reserves.
Strong industry groups such as Bermuda International Long Term Insurers and Reinsurers and the Association of Bermuda Insurers and Reinsurers add to the sense of an industry centre of excellence in which local specialist knowledge has built up over the decades.
“Embedding ESG in a reinsurer’s corporate strategy is an essential factor for success.”
Bermuda also retains its status as the global hub for ILS. Why is this?
Insurance-linked securities (ILS) requires a skillset in asset management and insurance. Bermuda is uniquely positioned in this regard as a leading jurisdiction in both industry segments.
A number of ILS startups have chosen Bermuda as their domicile for this very reason. Just like Bermuda has created a hub for P&C reinsurers, and more recently life reinsurers, it is also a hub for ILS asset managers. ILS asset managers are attracted to Bermuda for the same reasons as P&C reinsurers and life reinsurers: speed to market, a flexible and innovative regulator, existing infrastructure and access to the reinsurance industry in Bermuda along with close relative proximity to New York and London.
One of the key focuses in the wider industry at the moment is ESG. How might it change the industry in the long term?
Reinsurers have much to gain by developing solutions to respond to environmental, social and corporate governance (ESG) risks. The majority of industry players see this topic as both a risk and an opportunity.
Today, ESG is top of mind for most large reinsurers who are focused on the development of an ESG framework that is robust and delivers tangible key performance indicators and measurable goals. Embedding ESG in a reinsurer’s corporate strategy is an essential factor for success.
One of the ways we’re seeing this work in practice is with the appointment of chief sustainability officers (CSOs). CSOs are helping to demonstrate why creating value from sustainability is an imperative for their organisations. Very often, the CSO reports directly to the chief executive officer and the role is fast becoming an important and pivotal C-suite position. Roles and responsibilities would include providing training, raising the organisation’s overall knowledge of ESG risks and embedding the ESG strategy/ framework across the organisation.
The risks associated with climate change are extremely important and will continue to present significant challenges for the insurance industry, but with more than $30 trillion of assets there is an expectation that the insurance industry will take a leading role in bringing about change for the benefit of not just its stakeholders but also the broader society.
Craig Redcliffe is a partner of EY Bermuda and is the insurance sector leader for the EY region of the Bahamas, Bermuda, British Virgin Islands and Cayman Islands. He can be contacted at: email@example.com