Bob Richards, Bermuda's former Minister of Finance
3 July 2020Re/insurance

Bermuda’s second pillar stands tall

Now, more than ever, Bermuda must count itself very fortunate to have such a vibrant re/insurance sector, says Bob Richards, who was Bermuda’s Deputy Premier and Minister of Finance from December 2012 to July 2017.

The global economy has entered a period of considerable uncertainty. The COVID-19 pandemic has devastated government revenues, in Bermuda and elsewhere, and many businesses and whole industries have entered a period of malaise from which many may never recover. For a small island economy such as Bermuda’s, the challenges are particularly acute.

“Bermuda can’t print money like some other countries, and it can’t borrow in its own currency,” says Richards.

“With the market hardening it looks as though the industry may be able to make a profit for the first time in a decade.”

“It has to borrow US dollars, which makes government finances very difficult, especially with the collapse of tourism.”

Bermuda is therefore fortunate to have the reinsurance industry as a second pillar to its economy, says Richards who, since retiring from politics, has turned his hand to writing, and has recently written a book, “Triangle of Treason”.

Tourism has been hit hard by the COVID-19 pandemic, which has made international travel all but impossible, but the reinsurance industry has weathered the pandemic very well, he notes. Employees have been able to work from home and service has continued with few interruptions.

“Some of the Caribbean economies have a much greater reliance on tourism than we do and have been absolutely shattered. But Bermuda has another pillar to lean on, and with the market hardening it looks as though the industry may be able to make a profit for the first time in a decade, which is great news for the Island,” he says.

EU problems

It has achieved this despite the significant headwinds. Perhaps the most high profile of these has been the thorny issue of the EU’s economic substance requirements, under which Bermuda was temporarily added to an EU blacklist of ‘tax havens’ between March and July 2019. There had been moves to add Bermuda to the blacklist in 2015.

“I fear the EU economic substance issue will rear its head again. Bermuda has to spend a lot of time battling baseless perceptions about the harm it does to the global economy, despite the fact that Bermuda’s re/insurers have come to the rescue of EU businesses several times,” Richards says.

“Those attitudes have not disappeared, they have just been temporarily superseded by concerns about the pandemic and a global recession.”

The issue is clearly frustrating for a man who was intimately involved in discussions between Bermuda and the EU in his role as Finance Minister.

“It’s a whack-a-mole issue, you comply with one regulatory request and then there is another somewhere else,” he says.

Despite Bermuda’s having compiled with the EU’s requests around transparency, Richards notes the EU has still not sent a team to assess the effectiveness of its new regime.

“No doubt the team will say the rules are not effective enough,” he says. “It is clear that no rules will be sufficient while Bermuda is still in business, because what the EU really wants is to put Bermuda out of business.”

Despite this, Richards believes, Bermuda’s re/insurance industry could be entering a phase of healthy profitability and growth. After a period of consolidation, characterised by deals such as AXA’s acquisition of Catlin and Chubb’s takeover of ACE, Richards says Bermuda’s re/insurance industry looks healthier than ever.

“The industry has always stepped up at moments of acute financial distress,” he notes, having been formed following the devastation of Hurricane Andrew in 1992, before later playing a key role in helping businesses manage risk following the 9/11 terrorist attacks.

Richards believes the same will be true of the COVID-19 pandemic, with re/insurers playing a leading role in helping global businesses manage the changing risk landscape.

Levelling up

He also believes the re/insurance industry can play a leading role in navigating Bermuda towards a place of greater racial equality. The Island is, he notes, heavily influenced by its links to the UK and the US, as well as its Caribbean roots. Bermuda shares many of the racial tensions being experienced around the world, and particularly in the US and the UK, which have driven Black Lives Matter protesters to defy advice to socially distance in recent months.

“The history of Bermuda is integral to the history of relations between North America and Europe,” Richards explains.

“It has been at the crossroads between those continents since the 17th century, and all issues that affect them—good and bad—meet in Bermuda. I cover a lot of these issues in my debut novel, “Triangle of Treason”, which will be in all good book stores and indeed online from next year. It covers our crossroads role and aspects of interracial relationships.

“My advice to young people coming through the education system in Bermuda is to leave the Island to gain experience.”

“Bermuda does not have a good history when it comes to race relations—in fact its history is pretty bad. Baby-boomers such as me can remember the overt racial segregation that existed not so long ago, the wounds of which are still there today.

“Slavery was abolished in Bermuda in 1834, long before it was in the US, yet as late as the 1960s there was a form of apartheid here. It was not formalised as it was in some countries, it was more subtle,” he recalls.

“It was not illegal for hotels to prohibit black people, but the law was silent on discrimination. The excuse was that tourists would only come if there were no black people allowed, so they were not.”

Things have come a long way since then, but there is much further to go. As the re/insurance industry is the second pillar in Bermuda’s economy, Richards sees it as having some responsibility in helping to drive more change. He acknowledges the efforts that have been made on the Island to include and promote Bermudians, but there are natural barriers, he says.

“The re/insurance industry is very specialised and Bermuda has a very small population to draw from,” he says.

“There will never be enough local Bermudians to populate all the C-suites and boards of Bermuda’s re/insurers.”

Richards believes re/insurers have made considerable progress in promoting gender parity among their employees, but laments that they have made less progress promoting racial equality.

“The re/insurance industry is arcane, particularly compared to an industry like banking or investment management,” he says. “You look around the big banking centres and you see people of every race. Re/insurance is still much more of a club.”

Talent pool

As well as having a re/insurance sector driving economic activity at a time when many other industries have slowed down or stopped, Bermuda can be thankful that it continues to produce talented and ambitious graduates. Many of them are attracted to careers in re/insurance, if for no other reason than a lack of attractive alternatives on the Island.

“We have some brilliant young people who can definitely make it to upper and middle management roles at re/insurers,” says Richards.

“They have to accept the statistical reality that the number of opportunities is relatively limited, however. My advice to young people coming through the education system in Bermuda is to leave the Island to gain experience in places such as New York, London and Tokyo, and then to come back to Bermuda with more experience.”

He admits that attracting the next generation of talent to the re/insurance industry is not easy. Young people report wanting to work for companies that they perceive as a force for good in the world. Re/insurers are certainly that, as any insured farmer who has had his or her crop flattened by a hurricane could attest.

The industry has a role to play in helping the world achieve carbon-neutrality, helping businesses better manage their risk, and enabling new, life-changing technologies to emerge, he notes.

The industry needs to do more to advertise this reality, says Richards.

“Re/insurance is seen as an industry for eggheads, it’s not seen as an industry that is saving the world. It must do more to promote the good things it does.”

He is generous in his praise of the re/insurance industry, in terms of what it does for the global economy, and for Bermuda specifically.

“The re/insurance industry does great things for Bermuda,” he says. “Bermuda’s charities are largely financed by donations from the re/insurers, and in Bermuda, unlike in the UK, there is no tax advantage to it. They are making these donations for the right reasons.”

However, he is concerned that charitable giving has declined in the difficult years since 2008, with the challenging underwriting environment around the world leaving re/insurers less profitable, and with less money to give away.

“Donations that once flowed to charities like a river have slowed to more of a trickle,” he says. “But as the market hardens and profits increase, the trickle should become a river again.”