Life insurers face increased regulation
Conyers director Chiara Nannini discusses the challenges and opportunities that lie ahead for Bermuda’s re/insurance sector.
Please describe your background and your career at Conyers.
I studied law at the London School of Economics and Political Science after completing a BA at the University of Virginia. I was called to the Bar of England and Wales in 2007 (currently non-practising) and completed my training with Conyers Dill & Pearman in 2008. Upon qualification I had the opportunity to take a 12-month secondment with AIG in Bermuda and then moved to São Paulo, Brazil, where I was based in Conyers’ Brazil office from 2010 to 2013.
I am currently a director in the corporate department of Conyers Dill & Pearman Limited. My career has been focused on all aspects of corporate and commercial law with experience in insurance regulatory and transactional matters including segregated account structures, equity and debt financings of insurers and insurance groups and new insurance formations.
What trends and developments are you seeing in the re/insurance sector now?
The life insurance sector is a significant growth area that has experienced a surge in capital flows and registrations over the last five years. With that, the regulatory environment with respect to life insurers has increased, notably by the proposals introduced by the Bermuda Monetary Authority (BMA) by way of a number of consultation papers published in 2023 (with the most recent consultation paper known as “CP2”), relating to the BMA’s plan to enhance the regulatory and supervisory regime for commercial insurers and insurance groups.
Such enhancements included changes to the calculation of the technical provisions of insurers and insurance groups, including changes to the BMA’s scenario-based approach (SBA), the risk management and governance requirements for the use of the SBA and technical changes to assess liquidity mismatches in assets and liabilities due to lapse risk as well as general enhancements and adjustments to the Bermuda Solvency Capital Requirement (BSCR) framework. We anticipate that the SBA will continue to be of focus in the industry. The implications of CP2 are mainly within the life insurance sector – in the P&C space, the changes are limited focusing more on the adjustments to the BSCR. The enhanced regime is expected to be implemented on 31 March 2024, subject to certain transitional and grandfathering arrangements.
Another trend which we are seeing is the recognition of the importance of ESG in the BMA’s regulatory framework with the recent changes to the Insurance Code of Conduct and the release by the BMA of its Guidance Note on the management of climate risks for commercial insurers. This includes provisions for insurers to embed climate change risk management frameworks into their operations and their Commercial Insurer’s Solvency Self-Assessment (CISSA). The framework is required to be adopted and implemented by the end of 2025; however, commercial insurers are required to include an assessment of its implementation in their annual year end filing of its CISSA, starting from year-end 2022.
We are also seeing the regulatory environment as it pertains to group supervision becoming more robust as well as the introduction of Internationally Active Insurance Groups, which may subject Bermuda insurance groups to additional regulatory requirements, in compliance with the principles and standards of the International Association of Insurance Supervisors Common Framework.
There were slightly fewer insurance incorporations in 2023 than in 2022. Is this an anomaly and what can Bermuda do to maintain its role as a leading insurance jurisdiction?
Whilst we may have had slightly fewer insurance formations in 2023 than in 2022, it is worth pointing out that 2022 was a record year for insurance registrations across the board, having the highest number of new insurance companies since 2014. In addition, 2023 was the strongest year since 2013 for special purpose insurer registrations in Bermuda which reflects strong activity levels in the catastrophe bond market in 2023.
As we have already discussed, Bermuda has experienced an influx of commercial life insurers with close to approximately 70 life insurers being registered since 2018. The life sector is currently the largest market segment in Bermuda with Bermuda life insurers holding over US$1 trillion in assets under management with all such entities having presence and expertise in Bermuda.
In addition, given the hard market, the property and casualty sectors as well as ILS continue to grow. We are seeing insurers branch into other business lines (as well as captives) using a single vehicle which is indicative of the flexibility and attractiveness of the Bermuda regulatory environment and a responsive regulator.
Is the Bermuda Corporate Income Tax regime expected to have any impact on the re/insurance sector?
The Corporate Income Tax Act 2023 introduces a corporate income tax in Bermuda with an applicable statutory rate of tax of 15% effective for fiscal years beginning on or after 1 January 2025 (CIT), in response to the Pillar Two global minimum tax rules set out by the OECD (GloBE Rules). A key object of the Corporate Income Tax Act 2023 is to impose tax liability on Bermuda entities no greater than that which would otherwise be payable to other jurisdictions under the Pillar Two global minimum tax rules, while seeking to avoid double taxation.
The Bermuda Government and industry have worked collaboratively on how to implement CIT in response to Pillar Two. The resulting legislation is viewed as a reasonable response to the GloBE Rules. It is worth mentioning that to the extent Bermuda registered entities are tax-resident in jurisdictions outside Bermuda, they are not in scope and are therefore not subject to tax under the Corporate Income Tax Act 2023.
Ultimately, Bermuda’s response to the GloBE Rules further evidences Bermuda’s commitment to global standards – Bermuda’s insurance regime is equivalent to Solvency II, we have US reciprocal / qualified jurisdiction status and the implementation of CIT brings us into compliance with Pillar Two for those who need it, making us that much more competitive on a global scale.
Bermuda (re) insurers that belong to in-scope Multinational Enterprise Groups should very carefully consider the Corporate Income Tax Act 2023 and the “Frequently Asked Questions” publication issued by the Bermuda Government.
As we speak, International Women's Day has just taken place. Conyers is notable for having several female lawyers in directors' and leadership roles in its insurance practice. Do you believe women are better represented in the legal world and the insurance industry than in the past and what can be done to continue to improve representation?
We are very proud of our corporate team (of which our insurance team is a subset). We have an amazing team of not just female lawyers, but our lawyers have a depth and breadth of experience which is, in my opinion, unparalleled in Bermuda. There are an increasing number of female lawyers in directors’ and leadership roles in our insurance team, with a majority of our directors being women.
I do believe that women are better represented in the legal world and the insurance industry than in the past – I live this reality every day. However, there is still a way to go as global statistics still show a stark gender gap in leadership.
In order to improve representation of women it is important to remain flexible and creative such that women can have a profession but also be a mom or take care of an ageing parent or to be whatever else that a woman chooses to be. It should truly be a choice to be a mother and not to put whatever personal goal you have on the backburner for the sake of your career. Also, developing effective recruitment and hiring processes are paramount to achieving gender equality and ensuring that you are able to mentor, guide and support women in the organisation.
What advice do you have for people entering corporate law or the insurance sector in Bermuda?
I think like many industries, the key is work experience. If you are studying – keep an eye out for work opportunities. Do summer placements in Bermuda and abroad (there are now a number of virtual schemes offered by law firms in the UK for example). Network, get to know people, be personable and keep a flexible mind-set – you never know what opportunities might present.
Once you are working, the biggest thing I see is a lack of self-confidence. If you are a trainee or newly qualified attorney, it is expected that you will lack practical experience. Have confidence in your own ability and excel at the things that you are able to control – like meeting deadlines, attention to detail and asking questions when you need further guidance.
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