22 June 2023ArticleILS

‘Every epilogue for Bermuda is incorrect’: Burt

“Every major innovation insurance that has happened the last 30 years has happened in Bermuda.” That is the boast of Bermuda Premier and Finance Minister E. David Burt, speaking to this publication in London days after he represented Bermuda at the King’s Coronation on May 6.

That statement is also the reason he is relaxed about Bermuda’s future role in the global risk transfer landscape. Despite the rapid pace of change in the types of companies operating from the domicile, despite higher interest rates, the spectre of banking failures in the US, and the potentially disruptive force of artificial intelligence (AI), Burt is in confident mood.

“Our entire international business industry is important to us, and we continue to diversify. Insurance is the cornerstone and the government and regulator continue to work to ensure we remain the leading domicile of choice. We continue to innovate and adapt our regulatory framework to match changing trends globally.

“We want to ensure we can continue to survive and thrive. But across the past 30 years, every major innovation in insurance has happened in Bermuda. That is why I am so confident we can adapt,” he says.

The risk transfer landscape in Bermuda has shifted considerably in those three decades. Sectors such as captives were born on Bermuda much earlier, but it was the big carriers such as ACE and XL, born in the mid-1980s initially to solve a liability capacity crisis in the US, that represented the start of a new era. They employed a lot of people. They were followed by the many reinsurance startups that arrived in the wake of Hurricane Andrew in 1992 and after the September 11, 2001, terrorism attacks.

Fast-forward to today and the mix has changed again. New carriers and capacity still choose Bermuda, but they are leaner in headcount. Many other industries have sprung up: Bermuda is the global hub for insurance-linked securities (ILS) and rapidly growing its footprint in other areas of risk transfer and bolt-on sectors, including in long-term/life re/insurance, legacy, climate finance—and, more recently, insurtech.

Burt sees this change as a natural process—and one that offers greater diversity for Bermuda. “I don’t view that dynamic of change as a bad thing. It’s just a natural evolution of the way business works. Businesses, especially insurers, find ways to be more efficient and deliver value to shareholders while continuing to solve problems.

“It’s a transition. Whether it’s the advent of ILS where fewer people are needed or future challenges with regard to AI, from Bermuda’s perspective we don’t need that much to move the needle. If anything, it brings even more companies to our shores, providing more diverse experiences and solutions.

“I don’t necessarily view that change as a net positive or negative. Overall, the industry continues to grow. Employment in the international business sector has grown,” he says.

He emphasises the country’s recent success in specific parts of the risk transfer spectrum such as the long-term/life space, where many new companies have launched in Bermuda in recent years, as being testament to the attraction of its robust and respected yet flexible regulatory framework and its long-term stability as a domicile. On the insurtech side, he believes Bermuda remains the best location for innovation of that type, whether it’s through standalone insurtechs or in-house within carriers.

Against a backdrop of change within the risk transfer space, he comments that Bermuda and its future relevance has been questioned many times before. Yet it remains the go-to domicile for so many types of companies operating in the risk transfer space.

“We’re here, we continue to survive. The epitaph for Bermuda as the leader in the global insurance market has been written so many times, yet every single time it’s been proved incorrect. We will continue to thrive because we understand what it takes as a jurisdiction to be a real international financial centre. And that is what we will continue to do.

“On top of that, we embrace innovation. You cannot be afraid of innovation. There’s nothing that you can do to stop AI or many other things. Instead, the question is how you make sure your economy is equipped to do embrace that change while still solving the world’s problems through risk transfer. I have no doubt that modernisation and the pace of change in technology will only enable us to do our jobs even better than before.”

The cornerstone

Burt stresses that re/insurance is just one part of an international business industry, which is important to Bermuda in its entirety. He says he would like to diversify more, but also acknowledges re/insurance is and has been a cornerstone of that sector. He attributes this to the work the government has done along with the regulator to ensure Bermuda maintains its position as a leading domicile choice.

“We continue to innovate our legislative and regulatory frameworks to match the changing trends globally. That perspective demonstrates how important we view this industry to be, and that we want to ensure that it can continue to survive and thrive.”

Asked about the current hard market conditions, a period when Bermuda’s re/insurers often shine, Burt says he is agnostic on market conditions in the sector. The important thing, he says, is that Bermuda continues to play its central role in international risk transfer. “Whether it’s a hard market or a soft one, Bermuda has always been there and we’re going to continue to be there to provide the capacity to insure the world’s risks. That’s what we have always done, whatever the market conditions.

“I don’t necessarily view it as a positive or negative. Overall, the industry continues to grow. I think that’s just an example of the strength of the domicile—that it can continue to attract capital in the insurance market, because people know that if you’re going through an insurance business, there’s no better place to do it than in Bermuda.”

He makes the same point around interest rates. “Whether it’s high or low interest rate environments, tax changes or other things, international or local scrutiny, we seem to know how to make our way through it.

“The Bermuda Monetary Authority (BMA) has stress-tested multiple various different scenarios and has the regulatory wherewithal to ensure that we can continue our strong record of having insurance company survivability so they can be there to pay their claims when they time comes,” he says.

One of the highlights of this growth in recent years has been in the long-term/life sector. Some 70 companies now count themselves as members of the association of Bermuda International Long Term Insurers and Reinsurers (BILTIR), and the sector’s growth is showing no sign of waning. While job creation in these companies remains much lower than in fully-fledged P&C businesses, the sector represents an increasing pillar of the risk transfer community on Bermuda.

Again, Burt is wary of being drawn on commenting on a very specific sector but he acknowledges why the companies are here. “Bermuda has always been a place to solve complex issues when dealing in matters of risk transfer, and a capital-efficient jurisdiction. The growth goes back to other people seeing what other companies are doing, recognising, and understanding, that,” he says.

“Certainly, as with all things, it hasn’t been without its challenges. But in the past few years we’ve seen the BMA explaining how it is regulating these businesses, making sure they’re making any adjustments to ensure that international regulators understand what it is they’re doing.

“For me, that is an example of the value proposition of Bermuda. When you’re writing long-term risks, you want to have a stable environment. And Bermuda has that: a history of stability and a well respected regulator. It is now just another way we’ve expanded what we’re doing to be able to solve very complex problems.”

He adds: “People are living longer. The world of the risk associated with that is important. If we can help solve those problems, especially in a prolonged low interest rate environment, that offers real value to people. It means people can have more security in the long term.”

One potential concern to the long-term sector is impending changes to Bermuda’s long-term insurance regulations to bring them in line with Solvency II. There are concerns that these changes will force re/insurers to hold more capital and make them less attractive to insurers overseas looking to cede long-term risks. Specifically, it could have unintended consequences for the UK’s Bulk Purchase Annuity market, worth some £25 billion.

However, Burt is confident there will be no major fallout from the changes. “Our regulatory regime will continue to be one that companies can use to return value to their shareholders and solve the problems of their ultimate clients and customers.

“Bermuda has always been a cooperative jurisdiction and we’ve had to make adjustments to ensure that global regulators understand what we are doing.

“We’re handling risk globally for billions of people around the world. So it’s important for us to continue to maintain those excellent relationships with global regulators, especially in the EU and the US. I don’t know what the future will hold, but I do know that companies serious about being in a jurisdiction where they can manage those risk with a well-respected regulator will remain. On that basis, I have no fears of an exodus of companies from the Bermuda market.”

Bullish on insurtech

Another bright spot for Bermuda, which very much ties in with the ethos of innovation, is insurtech. Despite the sector seeing less investment in the past 12 months, Burt is clear that it is not all about standalone companies funded by private equity. He believes a lot of innovation is taking place within incumbent players.

“Whether they are standalone or within companies working on their own projects, I have no doubt that we will succeed inside that industry. The BMA has always taken a very pragmatic approach to this, whether with its innovation hub, through new licences for innovative insurers, or the sandbox, we have taken the lead.

“It’s nice to see other regulators copying what we’ve done, but I think people recognise the quality they have here in the interaction with a regulator that has the experience and reputation.

“So from an insurtech perspective, there will be growth of individual companies, but also within firms in their own shops. That’s what we are good at in Bermuda: innovation. I have no doubt that we will continue to innovate in insurance.

“Wherever those companies that may come up with the latest innovations may be, I think they’ll most likely be in Bermuda. If they’re going to try to find a space and place to operate, if you’re going to serve the world’s largest insurance companies, there’s no better place to come to Bermuda,” Burt says.

His bullishness in this sphere extends to the use of AI, which in recent months has hit new levels in terms of its potential to transform the industry. Some are fearful of the impact it could have. Burt is not.

“We are a country that embraces innovation. You cannot be afraid of innovation. There’s nothing that you can do to stop AI; instead, it’s a question of how do you make sure that your economy is equipped to provide and keep solving the world’s problems through risk transfer? I have no doubt that technology will only enable us to do our jobs better than before.”

“We understand what it takes as a jurisdiction to be a real international financial centre.” E. David Burt, Premier of Bermuda

Climate finance

Another segment Bermuda has clearly earmarked for potential growth—and where it too thinks it can lead—is in climate finance. Burt notes that Bermuda has a proud record of its stewardship of ecology and has some of the most ambitious climate targets in the world. “We count ourselves as leaders in climate of stewardship,” he says.

Add this to the Island’s track record in risk transfer, and opportunities emerge in the space of climate risk finance. He notes that there will be billions of dollars available in the future to make communities more resilient to climate change. This represents a natural fit.

“Bermuda has a massive database of climate risks, we are the ones who are underwriting these risks. In that way, we have the expertise to judge the types of investments that are going to be needed to mitigate these risks in the future, as those risks become more apparent with the advent of climate change.

“We also know that asset allocators will put certain amounts of money into environmental, social and corporate governance (ESG) items. Bermuda is ideally placed. We understand the type of risks that need to be covered, the products and structures. We can help build that resilience and deliver it through a Bermuda structure that is not only capital-efficient but also with a great understanding of climate risk.

“In the long run, it’s a natural course for insurers. The more resilient you are, the more resilient communities are, the lower premiums are. And that pays dividends to people who may be in those communities,” he says.

Burt’s parting thought returns to the question of whether it’s for P&C players, insurtechs, life or captives—why Bermuda? He doubles down on the quality of the regulator, stability and the long game.

“Our focus is on maintaining and extending our lead. We will do that through our sound reputation and our political stability. You don’t get anywhere by trying to escape global rules. That’s why we made a decision way back after the financial crisis to be leaders in setting the pace of global transparency, of global standards and making sure that we’re part of that.

“In the long run, if you say you’re not going to do something, the international community is going to catch up with you. So you might as well start and get ahead—lead the way. And that’s where Bermuda has been. That’s where we will be and where we will continue to be.”

The value of captives to Bermuda

The captive insurance sector remains extremely important to Bermuda, which is committed to innovating to ensure it stays strong—but, as the sector’s pioneer, it will always take a long view, Bermuda Premier and Finance Minister E. David Burt told this publication.

Burt highlighted his belief that Bermuda remains the epicentre of innovation for the risk transfer industry globally, meaning he sees the domicile as well placed to adapt to and benefit from the rapid change the sector is seeing, as capacity is increasingly deployed in new ways and insurtech innovations accelerate change. This logic, he says, applies to the captives sector too.

“Across the past 30 years, every major innovation in insurance has happened in Bermuda. That is why I am so confident we can adapt,” he says. “It is difficult for me to speak about growth and innovation in the captive insurance sector specifically, but I would say the captives sector is very important to us.”

He acknowledges that the sector is increasingly competitive, with many onshore and offshore domiciles competing for its business. But, he says, Bermuda remains a leader in the space—and he intends to ensure that remains the case.

“We have seen more competition, whether that’s from the US or other jurisdictions. Just as businesses compete, countries compete. But we’re going to continue to ensure we innovate and remain strong. Bermuda is the leader and we intend to continue to be the leader. We will do what is necessary to maintain that position.”

But, Burt says, the key to that was not to focus on what others are doing, and instead focus on what Bermuda has always done well. Companies and investors value the reliability, consistency, reputation and longevity of Bermuda’s governance and regulatory regime.

“People involved in risk transfer understand the quality of our proposition. They know what they’re getting. We’ve been doing this for a very long time. We pioneered the industry. We continue to innovate, and we continue to offer a regulator that is well respected around the world and a government that has political stability, that understands what’s needed to grow an international business sector, whether it be in good times or difficult times,” he concludes.

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