28 November 2013News

New class likely to comprise hedge-fund and life players

A new Bermuda class is likely to comprise life reinsurers and/or hedge-fund backed reinsurers, looking to take advantage of the Island’s beneficial regulatory and tax regime.

That is the view of David Cash, vice-chairman of the Bermuda BDA and veteran of the Island’s reinsurance industry, talking with Bermuda:Re in Hamilton about prospects for growth within the sector.

He said that two of the fastest growing new life reinsurers are already located on the Island—Athene Life Re and Guggenheim Life and Annuity—adding that he anticipates others following suit when they recognise the investment benefits of being located in Bermuda.

“Companies are looking to move books of annuity business to the Island in order to place them in a more capital efficient environment”, said Cash. He explained that annuity companies’ focus is very much on investment returns and with two major players already having chosen Bermuda’s shores, there is an expectation that others may yet follow.

Cash said that he expects to see greater emphasis on asset management, by both life and annuity and hedge-fund backed reinsurers with new entrants placing “greater emphasis on asset management and particularly taking more risk on the asset side of the balance sheet than before”.

The move to Bermuda by US companies is being largely driven by the attitude of the NAIC, said Cash. “If the NAIC is not in favour of their investment strategy or their capital models are not supportive of their position, it becomes very hard to execute an investment-focused strategy in the US. In Bermuda the regulatory model for capital is much closer to the rating agency model. What you’ll find is that they can position companies here, their underwriting risk portfolio will be a little bit smaller but their asset risk will be a little larger.”

“The capital models that the rating agencies have already approved—and they’re not indifferent to the risks you take—is an approach largely followed by the BMA,” said Cash. He said that the Bermuda regulatory model enables life and health and hedge fund-backed companies to benefit from a solvency regime that is more reflective of the risks involved.

“In the US life insurance companies carry huge reserves on their balance sheets”, said Cash. However, in the US “reserves are calculated to be a little bit punitive and then there are capital charges on top of that. Asset strategists will come here because of the openness of the regulators to more diverse risk strategies,” he said.