Martin Laframboise, executive director, BILTIR
21 November 2022Article

Life sector draws on Bermuda’s unique qualities

To say the life sector in Bermuda is doing well would be an understatement, since it has already taken root as a pillar of the country’s economy, but the ground was already fertile for its sustained growth.

This was clear from a recent discussion arranged and published by Bermuda Finance, and hosted by Bermuda International Long Term Insurers and Reinsurers (BILTIR) at the offices of Hannover Re (Bermuda).

BILTIR executive director Martin Laframboise said there were also macro drivers, for example the aging population, that impact the life sector globally and from which Bermuda benefits.

“What’s unique to Bermuda is the talent developed over the years in risk management, asset and liability management, capital, and liquidity management,” he said.

“This combines with the robust and prudent regulatory foundations (full EU Solvency II equivalence, US reciprocal jurisdiction granted by NAIC) which are aligned with the long-term nature of the life sector. That’s why there’s a great success story in Bermuda.”

Laframboise highlighted the Bermuda Monetary Authority’s (BMA) annual report, which revealed that last year alone, 13 new licences were granted in the life sector, including eight new class E (assets greater than $500 million). That means Bermuda has 148 licences as of 2021. BILTIR membership has grown to 68 and it has businesses in many jurisdictions among its members, he added.

“In the West, there is an ageing population seeking retirement solutions.”

Patience Maina, assistant director of supervision (insurance) at the BMA, noted that assets under management are approaching a trillion dollars. That growth is being driven by a number of things.

“First are macroeconomic factors including low interest rates,” she said. “Companies have been chasing yield and traditional companies, struggling to meet guarantees, are reinsuring their books. Second, a lot of pension risk transfer business has come in. Asset managers or private equity firms have been doing acquisitions in this space and that is driving a need for increased investment management expertise.

“Finally, there is the demographics side. There is a growing middle class, especially in Asia. We are seeing a fair bit of Asia business coming in because there is demand for life and saving products in that region. Meanwhile, in the West, there is an ageing population seeking retirement solutions.”

“The role that technology and innovation are going to play will be the heart of what Bermuda does.”

Helen Souza, business development manager at the Bermuda Business Development Agency (BDA), said the life sector had become a very important pillar for Bermuda’s economy.

The BDA arranged an executive forum in New York in May, she added, and there were many conversations and a lot of interest around life as well as climate, finance and asset management.

“I expect more growth but the role that technology and innovation are going to play will be the heart of what Bermuda does. The BMA sandbox and everything we’re seeing coming through there will be central. The life sector is no exception to technology and innovation,” she said.

The BDA has partnered with BILTIR on a new focus group for the sector “to make sure we complement each other”, she added.

Brad Adderley, Bermuda managing partner at Appleby, described Bermuda’s life sector as “fascinating”.

“What is really exciting is all the different companies are doing something different. They don’t all have the same business model. That means they have to talk to the BMA early about what they’re doing and how does it work within the BMA regulation. Is it a closed block, flow business, annuities, pension risk transfer? Which regions are they dealing with? The dialogue with the BMA is fundamentally important.”

“We have a melting pot of specialties and responsiveness. It’s truly a global place to do business.”

James Claxton, an associate partner at EY, agreed that Bermuda has the skills to be able to deal with many different business models.

“The BMA is key to the market. If you don’t have a responsive regulator, it’s difficult to make business decisions and move as a business. You need a responsive regulator to be able to make decisions quickly. Whether it’s positive or negative, you need that feedback in real time or you cannot make decisions,” he said.

“That’s why people are coming to Bermuda rather than other locations. We have a melting pot of specialties and responsiveness. It’s truly a global place to do business.”

Ahwaz Chagani, chief actuary of Oceanview Reinsurance, described ways to differentiate.

“One way you do that is to offer better returns to the policyholder—essentially through reinsurance. That has created an ecosystem of US-focused life insurers backed by an entity in Bermuda,” he said.

Another way is to have a speciality on the asset side.

“For third-party reinsurance, our company targets small to mid-sized blocks of business. Plus, we have the direct arm. But other firms might be targeting larger deals. Everybody’s offering something unique.”

The increase in interest rates may adversely affect new entrants to the market and Oceanview is seeing the number of blocks being transferred has scaled back, Chagani said, while a lot of companies have entered the space, which has created competition.

Mike White, chief financial officer at Resolution Re, said he was optimistic in terms of what the rising rate environment means.

“It’s natural that there’s going to be a bit of a slowdown because we are in a period of volatility. But if you look at the longer term, there are many problems to solve out there. There’s a lot of capital locked up in long-term business all over the world. Direct writers need capital to be able to recirculate into new, more innovative products,” he said.

“The fundamentals are still very solid. Companies in Bermuda are offering innovative solutions. There’s always going to be a demand. Actually, rising rates might help. If you’re doing a deal in a low interest rate environment, you’re realising a big loss relative to value. Those deals might become a little bit more palatable with higher rates.”

Adderley put this in the context that the life industry globally is worth trillions of dollars.

“What is in Bermuda is still a drop in the ocean. There is still a lot more capital coming in but the market is so big and there’s so much capital locked up,” he said.

“That means so many different business models are possible. Most of the big P&C startups in the past did the same thing—they ran the same business model. But there is a lot more variety in such a new industry in Bermuda. Every company is trying to do it better, which I think is a very good thing.”

To read the full conversation from Bermuda Finance click here