Stepping up to fill the protection gap

The Bermuda market is the perfect platform to support the world’s ageing population, say six leaders of the long-term re/insurance sector.

In attendance:

Chantal Cardinez, chief executive officer, Hannover Re Bermuda

Steve Hales, chief executive officer, Resolution Re

Sylvia Oliveira, chair and chief executive officer, Wilton Re Bermuda; former chair, BILTIR

Christine Patton, executive director, BILTIR

Natasha Scotland Courcy, chief executive officer and general counsel, Athene Life Re; chair, BILTIR

Andrew Sooboodoo, chief regulatory officer, Fortitude Re

Moderator: Bill Zuill, editor, Bermuda:Re+ILS

What is the value of the long-term reinsurance sector to Bermuda and the World?

“The regulatory framework is appropriately meeting the risks.”  Natasha Scotland Courcy

Natasha Scotland Courcy: Some recurring themes are happening on our side of the market, one of which is ongoing pressure from public markets for insurers to de-risk some older portfolios and to free up capital. We’re serving those insurers globally.

Reinsuring life and annuity portfolios is an efficient way for these primary insurers to source additional capital, and we’re doing that without disturbing their end-user relationships with policyholders.

There’s an additional layer: an ageing population globally, and an increasing pension protection gap. More individuals are nearing retirement, fewer people are entering the workforce. The latest numbers I’ve seen estimate the global protection gap to be $1 trillion per annum per the Global Federation of Insurance Associations Global Protection Gap report published in March 2023, and it’s growing.

All those factors combined are why you’re seeing increasing demand for the services our sector is providing. We’re able to provide customisable solutions and products to help meet some of these customer-specific needs and demands.

In terms of market and industry outlook and the impact of Bermuda on our sector, we are now at a maturation point. We have approximately $1.2 trillion in reserves sitting on Bermuda balance sheets. We recently did our own long-term industry survey, which included a very large portion of our membership, and based on that data, we were able to see that assets exceed our liabilities in Bermuda by $140 billion—that’s very significant. 

“We want to make sure that all the players in the market are set up for success.” Natasha Scotland Courcy

Seventy-three percent of those assets are being held on cedants’ balance sheets. 

In terms of the dialogue around protection, safety, and ultimate policyholder protection, those numbers can speak very loudly for that value proposition. As assets under management (AUM) are growing, regulatory change is matching that growth. So the numbers are large but the regulatory framework is appropriately meeting the risks as well. Over 70 percent of our rated licensed members have a credit rating of ‘A-’ or above.

Our ultimate point here is the value proposition of the market. The policyholder balances are safe and our focus is now on sustainability in the long term. We are good corporate citizens in terms of financial stability, and our balance sheets are appropriately capitalised to go along with that.

Along with our partners we welcome regulatory changes generally, because we do understand that they need to keep pace with the growing AUM. We want to make sure that all the players in the market are set up for success with respect to policyholder protection.

So I think the value will remain; we’re all in long-term businesses here. But on top of that, risk mitigation and policyholder protection are also there for the long term.

“The real value of the reinsurance sector is that it’s a completely aligned way of managing that capital.”  Steve Hales

Steve Hales: We need to look at what’s happening in the primary industry, which is capital-constrained. There are different ways that insurance companies can source capital, and the real value of the reinsurance sector is that it’s a completely aligned way of managing that capital. It’s subject to the same kind of regulatory regimes, approaches and principles, and the same set of management methods.

It’s therefore a very good match for providing capital to these long-term liabilities, because you’re helping companies to reduce their risks on their existing balance sheets, or you’re providing capacity so they can grow in different markets, whether it is for savings products or pensions.

Companies have various ways of sourcing capital, but reinsurance is a very aligned and safe and prudent way of providing that capital for the long term. The key is providing long-term capital, because the sort of products we’re reinsuring are going to carry on for decades.

“We’re providing capacity for affordable products for an ageing population.” Sylvia Oliveira

Sylvia Oliveira: I’d like to take the opportunity to remind everyone that we are in a sector that is doing social good. We are providing capacity for retirees and for families to protect their wealth for their heirs. We’re providing capacity for affordable products for an ageing population, and we’re doing so in a prudent way with a very long-term horizon.

Bermuda is an important pillar in this structure where we’re providing capital and capacity for ceding companies to be able to support social needs and to assist in closing the protection gap.

What has made Bermuda such an important centre for this form of Reinsurance?

“The regulatory framework is aligned with how we view the underlying economics of the businesses.” Sylvia Oliveira

Sylvia Oliveira: Number one, the regulatory focus on reinsurance. We’ve heard this many times, that the regulator is approachable and available for engaging in innovative thinking. They understand our sector, they understand reinsurance. In a typical jurisdiction, the regulators are mainly focused on the individual policyholders and making sure their rights are upheld.

Bermuda is a reinsurance-focused jurisdiction where our clients are sophisticated insurance companies. The risks and needs are different and the Bermuda Regulatory Authority (BMA) understands that.

Second, Bermuda has achieved EU Solvency II equivalence and status as a US National Association of Insurance Commissioners (NAIC)-qualified and reciprocal jurisdiction. These accreditations are further contributing factors in bolstering Bermuda’s importance in the reinsurance marketplace.

Third, Bermuda is a  hub of international intellectual capital. From all over the world, it has developed a support network of accountants, auditors, legal team, actuaries, etc—all with an established presence in Bermuda. Bermuda has  the full support of all these industries to ensure our continued strength and prudence.

Lastly, one of the most important reasons companies have settled in Bermuda is because the regulatory framework is aligned with how we view the underlying economics of the businesses. Bermuda’s Economic Balance Sheet and the economic risk-based capital framework are very closely aligned with how we manage our underlying risks. That’s very important. 

“It was a very natural fit for us all the way back in 2007.” Chantal Cardinez

In other jurisdictions, the regulatory framework may differ from how we view the underlying economic risks, and that causes companies to manage their businesses in a way that might not be economic. The fact that the regulations and the underlying economics aligned allows companies to operate more efficiently and provide better and more affordable products and coverage for our cedants.

Chantal Cardinez: I will take a slightly different slant and ask why is Hannover Re in Bermuda? It stems from the property casualty (P&C) sector; Hannover Re has operated in Bermuda since 2001 on the P&C side, and as our footprint grew on the life and health side of the business, we were looking for a hub that would accommodate a truly global portfolio of life and health business and could deal with all the nuances that come with that.

Given our experience in the Bermuda market at that time, its responsiveness, the evolution of the regulatory regime, and the infrastructure that it has built up around insurance and reinsurance, it was a very natural fit for us all the way back in 2007. Back then, the life market was still relatively small. But I think our decision has been reinforced given the maturing of the life market over the recent couple of years.

Sylvia Oliveira: Wilton Re was established here for the primary reasons that I mentioned: the regulatory understanding of reinsurance, and the speed to market, to be able to license quickly. That was the primary attraction back in 2004. There’s been a lot of change over the subsequent two decades.

“Having that access to private capital made a huge difference.” Natasha Scotland Courcy

Natasha Scotland Courcy: Athene was incorporated in 2009. It’s important, when you’re facing other regulated entities, that you have a reputable credible jurisdiction behind those liabilities. All the international regulators want to know where these liabilities are being ceded to and that the framework is sound and secure.

I want to say that the legal framework in Bermuda dates back 400 years based on the UK common law system, with a judicial right of appeal up to the Privy Council. The Insurance Act has been around for decades. The legal system and the courts have been tried and tested. You want to know that you have a legal system that works, that the courts and judges understand the system creating a mature framework that understands such risks.

Athene was established for the reasons mentioned before. Apollo was involved with us from the very beginning, because of the need for and the importance of private capital versus what the public capital markets were putting into our sector. 

Public markets struggled with the long-term nature of the commitments of the sector and the volatility of shareholder returns. Having that access to private capital made a huge difference in terms of what we were able to do then and what we are able to do now to help provide protection to the ultimate policyholder. It’s a trend that has continued and will continue, because the demand is there.

“One of the core tenets of risk management is to build a varied and diversified portfolio of risks.” Andrew Sooboodoo

Steve Hales: I’ll definitely give credit to Athene/Apollo for blazing the trail. There was great engagement from the very beginning with the regulator in developing a framework that made sense for all stakeholders, but most importantly for policyholders. It wasn’t a strict rules-based approach: some good, deep thinking went into developing the framework, and that’s been evolving ever since.

We looked at several different jurisdictions when we set up in 2018 as Resolution Life Group, and all the criteria were met by Bermuda and not by other jurisdictions.

Andrew Sooboodoo: To reiterate Chantal’s point, one of the core tenets of risk management is to build a varied and diversified portfolio of risks. Hannover Re and Fortitude Re both appreciate the licensing structure available in Bermuda that encourages risk diversification, which ultimately increases policyholder protection and is a feature that is unique to Bermuda.

It’s clear that the BMA is able to competently manage the complexity that arises from the varied lines of business through the people they’ve hired.

What attracts newcomers to Bermuda? 

“Bermuda has been extremely resilient during the economic volatility seen over recent years.” Andrew Sooboodoo

Andrew Sooboodoo: Bermuda is an attractive place to establish a presence for both new entrants and the world’s most sophisticated and established insurance groups.

Bermuda offers all the core ingredients, including a constructive and responsive regulator, stable legal framework, strong pool of talent and a geographic location that provides access to both sides of the Atlantic.

In addition, Bermuda has been extremely resilient during the economic volatility seen over recent years due to the economic, mark-to-market regulatory capital framework that Sylvia mentioned previously. This ultimately increases policyholder protection and allows insurance companies to manage to a very long term planning horizon, which is vital because we offer insurance products that will last over 50 years. 

“It’s a very good balance of stability, robustness and the ability to innovate.” Steve Hales

The resilience of the Bermuda re/insurance sector, which has been proven over the last five years, is testament to the robust regulation offered by the BMA.

Steve Hales: There is a real blend of companies with different business models within the reinsurance model: a mix of private and public capital, different product lines, and different approaches, including primary insurance, not just reinsurance. It’s a good place not just to set up and reinsure but also, because there is a thoughtful regulator in place, it is a good place to innovate.

There are different business models within the industry—it’s not just one approach or one offering. We have a very good spread of offerings, because it’s a very good balance of stability, robustness and the ability to innovate.

“Companies are being very thoughtful in how they think about going into the market.” Christine Patton

Christine Patton: Having come from the P&C space where I worked for 20 years, and now dealing with actuaries who set up and run these companies, the whole process is very patient. It’s thoughtful and for the long term. The feeling of the industry is so different from P&C, where companies historically were set up very quickly following hurricanes. 

The companies I’m seeing and the lead time for companies being set up here is longer—not because of the regulatory hurdles, but because the companies are being very thoughtful in how they think about going into the market and their risk management processes. Sylvia talked about the speed to market but it can be at a much slower pace in its engagement than the P&C startup company process.

The Japanese market is one of our fastest-growing sectors and they are very patient. They are long-term thinkers and very careful about where they go. We see this across the board in terms of companies coming to Bermuda.

The other big thing is reputation. The reputation of Bermuda is very important to many of the companies that have been here for a long time as the new companies that are coming in.

To Andrew’s point about resources, Bermuda International Long Term Insurers and Reinsurers (BILTIR) has a board of 15 and most of those directors have been around or in Bermuda managing risk for upwards of 10 to 20 years. They’ve been in this space for a very long time and understand its risk management needs well.

“When people start up here, there’s a rich amount of talent already existing.” Natasha Scotland Courcy

Natasha Scotland Courcy: I often quote that we have the most golf courses, per capita, in the world, and it’s the same thing for strong actuarial talent, which is the engine of our business. But it is not just actuaries: we have risk management experts, legal counsel, accountants, compliance professionals. The pool of talent in Bermuda is diverse.

In the life sector we’re coming from different markets and different jurisdictions and that can bring a unique perspective to what the talent pool looks like in Bermuda. It’s adding to the success of our businesses.

When people start up here, there’s a rich amount of talent already existing. We’ll talk later about talent retention being probably the biggest challenge we’re seeing right now in our market, but the access to talent is a big driver.

Has it been helpful to have the P&C sector here in terms of people being able to transfer their skills?

“Parts of the market such as compliance are more easily transferable”  Natasha Scotland Courcy

Natasha Scotland Courcy: With actuarial science, you’ve picked your lane: if it’s life, it’s life. But outside that, for instance, like Christine I started off at a P&C company, and for a lot of our finance professionals, it’s the same story. Some parts of the market such as compliance are more easily transferable into the life sector. Do you see that cross-pollination? Yes.

Chantal Cardinez: As a global insurance industry, you sometimes struggle to attract good talent, but Bermuda has a unique selling point where everybody in high school, in the supermarket, at the doctor’s office, knows what reinsurance is.

To some extent, the first hurdle has been overcome in terms of bringing awareness to the community and to the future talent pools about what reinsurance is. That’s half the battle and a unique selling point for Bermuda. 

“People know Bermuda as a jurisdiction.”Chantal Cardinez

Kudos to the P&C industry that Bermuda has become known as a property-cat hub. People know Bermuda as a jurisdiction, they know it’s a well regulated, serious place and has a good standard of living. So when you have to look at talent pools abroad to supplement the local talent, it becomes an easier conversation.

The BMA regulatory review is ongoing. Are you happy with the process?

“The Bermuda re/insurance industry welcomed the proposed Enhancements.” Andrew Sooboodoo

Andrew Sooboodoo: The Bermuda re/insurance industry welcomed the proposed Enhancements to the framework. The industry and the BMA have a mutual interest to ensure the Bermuda capital and supervisory framework has very high levels of policyholder protection, since this is the sole reason our industry exists. At the heart of the BMA’s recent Enhancements, and all supervisory activity, is the furtherance of this objective and to ensure Bermuda retains its reputation as a reliable and robust source of capital.

Bermuda’s Solvency II equivalence and NAIC reciprocal jurisdiction status reaffirm the level of policyholder protection offered in Bermuda is at least equivalent to that provided in Europe and the US.

More specifically, the BMA reviews all block deals transactions in Bermuda and ensures there is a dialogue with the cedant regulator before the transaction closes to ensure all parties are aligned—providing detailed and rigorous oversight of all aspects of the deal. This is crucial given the international nature of Bermuda’s re/insurance industry.

“Wherever we are in the world, we’re going to be regulated.” Steve Hales

Steve Hales: Every regulatory regime is undergoing constant evolution as new risks arise, and as market conditions and industry conditions develop. If you look around the world, all the main regulatory jurisdictions have either specific or general reviews going on, so we ought to see it in that context—that it’s a natural evolution of in terms of the regulatory regime.

Wherever we are in the world, we’re going to be regulated and regulatory change and evolution is part of the business model. I see it as a continuum of genuine evolution in regulatory regimes around the world which is normal and natural.

There is a perception that the BMA review has been driven by external forces. Is that accurate?

“The BMA continually assesses the capital and supervisory framework.” Andrew Sooboodoo

Andrew Sooboodoo: The capital and supervisory Enhancements introduced by the BMA are prompted by the BMA’s own view of robust policyholder protection. As the Bermuda marketplace evolves, the BMA continually assesses the capital and supervisory framework to ensure it continues to provide very high levels of policyholder protection, equivalent to the policyholder protection provided in the US and Europe.

The Enhancements will ensure the Solvency II equivalence and NAIC reciprocal jurisdiction status are retained, which serves as a vital and independent verification of Bermuda’s robust framework. It is very important to ensure that the Bermuda reinsurance market continues to thrive for the sake of providing capital to the international insurance marketplace and to support the Bermuda economy.

Natasha Scotland Courcy: Solvency II equivalence and NAIC reciprocal jurisdiction status come with requirements. You’re not going to maintain that unless your regulatory framework is appropriate and updated on a periodic basis. It can’t be stagnant—you have to evolve in order to maintain the status on both sides of the ocean. 

“They are all addressing risks and issues they see through a global lens.” Natasha Scotland Courcy

The NAIC has been putting out a ton of proposals through its committees. They’re looking through various aspects of our market, including how private equity-backed insurance should be regulated.

The International Association of Insurance Supervisors (IAIS) is a similar story; the BMA is a founding member of the IAIS, so it’s part of those committee meetings.

The point is that these regulators meet frequently and the BMA is part of a global regulatory ecosystem. They are all addressing risks and issues they see through a global lens. Bermuda, wanting to be a global leader and to maintain its equivalent status on both sides of the pond, has to respond. They’re doing some of that proactively.

The reality is that in order for us to maintain our footing as a jurisdiction of choice for these types of risks, we need to evolve. We would not maintain our status on either side if we didn’t.

How do you deal with the increaseInternational scrutiny?

“There are real contractual constraints around the investment of those assets.” Natasha Scotland Courcy

Natasha Scotland Courcy: We have talked about the jurisdiction’s CV. It’s an impressive CV but sometimes it’s forgotten, when we label it as “offshore”. With any kind of growth and innovation, you’re going to hear misinformation, and there will be scrutiny. That’s just part and parcel of the same issue. So Bermuda and Bermuda balance sheets are constantly being discussed, because this small island has a global footprint.

In terms of clearing up a lot of the misinformation, we want to make sure the important data is out there. The BMA is one of the founding members of the IAIS, and we are actively engaged in all the work happening there. The BMA is also a member of other international standard-setting bodies—we have memorandums of understanding with 31 countries, I believe, if not more than that, and we have talked about equivalence ad nauseam.

So in terms of the misinformation, I don’t think it’s unique to our market—these things happen cyclically. P&C has been here for a long time, but it went through an element of the same issues, as did the funds market. It’s something that is inherent to success, and it’s because we’ve been successful that these questions are being raised.

In terms of trying to clear up some of that misinformation, it’s all about the data. We did a data exercise not too long ago, and I quoted some of those metrics for you earlier. We’re going to use that information from our member companies to help educate and hopefully clear up some of this misinformation. 

“We’re all working towards the same ultimate goal: to narrow the protection gap.” Chantal Cardinez

A big part of the misinformation claims is that we’re backing liabilities with assets that are not investment-grade. Our data shows that 93 percent of AUM by our member companies are investment-grade.

In terms of the long-term companies that are registered here, most of us are well north of 120 percent of our Bermuda Solvency Capital Requirement Ratio requirement. That’s important to note. As to investment restrictions imposed on the assets backing these liabilities, commentators have not focused on some of the different structural elements of the transactions that are hitting Bermuda balance sheets, such as funds-withheld or modified co-insurance transactions where those assets remain on cedant balance sheets.

Additionally there are real contractual constraints around the investment of those assets, and let’s not forget we have a very engaged regulator, and have pre-approval requirements on these transactions. There are all these checks and balances.

Chantal Cardinez: A lot more risks need to be insured and pooled in a way that helps build resilience for the communities and doesn’t end up falling back on governments. We have an industry here in Bermuda that is set up to do exactly that. It needs capital, it needs a regulatory environment and a global trade environment which supports that.

We’re all working towards the same ultimate goal: to narrow the protection gap. That element needs to be highlighted back to some of the critics of the Island.

That is a genuine problem we have across the world: more risks to be insured than capital committed to deal with it. In this sense, Bermuda is pulling its weight in terms of trying to address that protection gap.

What are some of the other challenges facing the industry?

“We’re all looking for resources at the same time.” Sylvia Oliveira

Sylvia Oliveira: The recent increase in interest rate volatility has created some challenges. However, the Bermuda framework is set up to address this issue, with the mark-to-market or the economic balance sheet which includes additional reserves to cover cash flow mismatch, and an interest rate risk charge to contemplate any asset/liability mismatch.

The structure of the framework strongly encourages companies to ensure that they are duration-matched, which protects a company in times of interest rate volatility.

The recent regulatory enhancements focus on liquidity, ensuring that companies have appropriate liquidity to withstand any additional policyholder surrenders under times of elevated interest rates. The risk of increased lapses definitely exists, but the Bermuda framework is equipped to ensure policyholder protection.

I don’t think corporate income tax will be a deal-breaker for life companies, but there will be substantial work involved in implementing these new tax rules. Bermuda is one of the unique countries that does not have an income tax base at all (rather it relies on payroll and consumption taxes), so it will be creating a corporate income tax base for the first time. 

Companies must establish an initial set of tax financials at the same time that we’re trying to implement several other regulatory changes.

Another challenge is finding appropriate resources: as Natasha mentioned, actuaries are the engine, so a lot of us are seeking actuaries and other professionals to help us manage our businesses and implement all these changes. We’re all looking for resources at the same time, so that is a challenge.

“That’s focused on getting more Bermudians into the marketplace.” Natasha Scotland Courcy

Natasha Scotland Courcy: There is a diverse pool of talent. We recently participated in a diversity and inclusion survey, along with other industry trade groups. Bermudians and black Bermudians in particular, men and women, are trying to find appropriate representation within our sector and we know the numbers don’t necessarily reflect where we want to be.

But that’s an opportunity and our member companies have stepped up in a major way. We have a very robust intern programme, where every year we’re taking in more interns across our member companies. Again, that’s focused on getting more Bermudians into the marketplace and giving them opportunities to have roles in our sector.

Athene recently spearheaded a life career expo, which gave career-shifters and students an opportunity to learn more about the industry. A lot of BILTIR member companies were part of that and helped sponsor it. We do see more talent coming into our space, but we need to do more work as it pertains to diversity and inclusion to get more Bermudian representation in the sector.

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