Long term reinsurance here to stay on Bermuda - and grow

Long-term reinsurance in Bermuda is likely to continue to grow as long as there is a shortfall in retirement funds in some of the major economies around the world.

That was the message from a panel discussion on life and annuity reinsurance at the Bermuda Risk Summit, taking place in Bermuda this week.

The panellists on Life & Annuity Reinsurance: The Catalyst for Financing the Real Economy, agreed that Bermuda would remain an important centre for the business due to its location and robust and transparent regulation.

Mike Downing, chief operating officer of Athene, said the company was dedicated to helping middle market Americans and others to secure their retirement.

He said reinsurance was critical to the growth of the annuity and retirement business.

“The challenge insurance companies have is because promises tend to be long-term in nature, if an insurance company has been underperforming for a period of time, it will continue to underperform for ten to 15 years,” he said. “Reinsurance can play a big role in helping life insurers to improve performance by recapitalising and pivoting into something more strategic.”

He said life reinsurers had been utilising sidecars successfully because they were an efficient way of raising capital.

“They create a new way for capital to come in,” he said. “They are more efficient. As the sidecars evolve, they are becoming almost a new investment class. They will be a permanent part of the eco-system.”

Norman Milner,  chief risk officer of Global Atlantic, said his company wanted to solve the long-term challenges it faced with an ageing population.

He added that the needs of retirees could not be achieved by investing in 30-year government bonds.

He also said the reinsurance vehicles could be a new asset class, adding that sidecars made it possible to disseminate the risk to different pockets.

“People are looking for investment vehicles which work,” he said. “Willing investors in a robust investment regime is an exciting opportunity.”

On regulation, the panellists agreed that Bermuda had developed a robust framework.

“There is a global requirement to solve the retirement challenge,” said Milner. “Bermuda has created a robust governance structure which is comfortable for all parties to come to. The days of regulators working in isolation is over.

“It is Important to have good governance and Bermuda is doing that. The regulatory regime here recognises the world is changing and forms a glue to bind together the regulatory environment. A lot of risks will come here, and the regulator has done well to see future trends.”

KPMG partner Anam Khan said regulatory changes introduced by the Bermuda Monetary Authority had used stress tests which showed the Bermuda models were resilient because they had a liability driven investment philosophy. The sector also had more than 60% of their investments in cash and secure bonds.

In the meantime, outliers were being tackled through a specific mechanism and framework.

Chantal Waight, managing director for risk and compliance at Athora, which operates in Europe, said a risk-based capital regime was a very strong regulatory regime. She noted that Solvency II had moved to an economic risk-based regime which was more stable.

Downing said regulation could be an enabler and a disabler. He said there were two ways to improve customers. One was to reduce costs and the other by using a wider variety of assets, which could deliver 40 basis points of yield. That, with the cost savings, was the difference between ruin and a productive retirement, he said.

He said regulator had taken a thoughtful approach, which recognised there was safe private credit and risky private credit.  The guardrails in place were appropriate.

Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.