First Published in Bermuda:Re+ILS, September 2021.
Bermuda:Re+ILS speaks to Brad Adderley, partner at Appleby, about how Bermuda will maintain its position as a jurisdiction of choice for re/insurance in a post-COVID-19 world.
"We have to have a jurisdiction where people want to move to the Island, work and spend money here." Brad Adderley, Appleby
"I'm not pretending there will be numerous new large startups globally this year, but in the last couple of years when you look at the market, all of the new significant entrants have been formed in Bermuda," says Brad Adderley, partner at Appleby.
Catastrophe bonds, sidecars, startups, commercial re/insurers and life re/insurers are all being established on the Island, he notes, with 67 new re/insurers registered in Bermuda in 2020.
In particular, Adderley believes that life re/insurers are thriving in Bermuda, with "transactions getting bigger and bigger all the time".
The Bermuda Monetary Authority (BMA) has already solidified its reputation in catastrophe bonds, but that doesn't mean that competition isn't at its heels. Other jurisdictions are making concerted efforts to attract the insurance-linked securities (ILS) market to their shores.
Singapore has extended its ILS grant scheme, which can fund 100 percent of the upfront issuance costs of cat bonds domiciled in the country, until December 31, 2022.
"We can't compete with providing funding for every cat bond, but we can compete by making your experience better. We can make the formation and approvals processes for a restricted special purpose insurer (SPI)-specifically cat bonds and mortgage bonds-quicker and more seamless.
"We know the right questions to ask to speed up the process
as we've been doing this for years," says Adderley.
Changes are upon us. Adderley shared that the BMA recently changed the process to form a restricted SPI and made it even faster.
The first change is perhaps the smallest of the three. An application can now be submitted any day of the working week (rather than just on a Monday), with the BMA guaranteeing a three-business day turnaround. "This change adds flexibility to the process which is essential in today's fast-paced environment," says Adderley.
Second, applicants previously submitted a business plan as part of their application. Now, in a bid to make the process more streamlined and more focused, the BMA has created a questionnaire that "focuses on the most important aspects that the BMA is going to regulate", says Adderley, adding that the questionnaire should be easier and quicker to complete than a business plan.
Finally, the regulator has now combined its processes for approval and registration, to save time. Previously, an application to obtain approval for its programme had to be submitted on a Monday and would be reviewed and approved on the Friday of the same week. Companies would submit their registration application a couple of days after receiving approval. Now, it's a one-step process-one submission combines programme approval and registration.
A PERFECT STORY
This mindset of always making Bermuda an attractive place to do business is one that the industry and the regulator on the Island has held for many years. With the advent of SPIs just over a decade ago, the BMA announced a new class of insurer, introduced by the passage of the Insurance Amendment Act 2008.
"Since then, we haven't sat on our on laurels. In recent years, Bermuda has introduced a collateralised insurer class," Adderley says, adding that there will soon be a change in restrictive SPI licenses.
"The BMA has introduced new innovative licenses. We know that people are accessing risk in different ways, and the sandbox introduced by the regulator offers the opportunity to incubate novel ideas. This is a prime example of the BMA adopting laws quickly to appeal to the marketplace."
The approach to regulation has changed since Adderley began his career two decades ago. When he began structuring deals, people wanted as little regulation and anti-money laundering policies as possible.
"Now we find that people want regulation. Investors are saying 'I can give you money only if you are regulated'. Regulation was once viewed as a hindrance, now it's seen as a necessity," says Adderley.
"Offshore jurisdictions that don't have an in-depth regulatory framework or solid anti-money laundering regulations are going to increasingly struggle. Investors may start to ask 'are you trying to hide something' or 'are you doing something you should not be doing if you go to these jurisdictions'?" Adderley cautions.
The question now is whether this regulation is the right one. The answer is 'yes'. Adderley explains that the current thorough regulatory framework may have "scared off" investors if it had been implemented 10 years ago, but now investors want this framework, particularly with regard to Solvency II equivalence, in an offshore jurisdiction.
Bermuda's Solvency II equivalence is of great benefit to the re/insurance market on the Island. Equivalence has created an almost "perfect story" for the life industry in Bermuda, says Adderley. With investment returns low in North America and having Solvency II equivalence, Bermuda was able to attract its share of business, maintain it and grow it.
On the property and casualty front, equivalence and the BMA's reputation have driven business, according to Adderley, in addition to the ability to write business in America and Europe.
THE NEXT LEVEL
The BMA and the regulatory environment it continues to develop play a large role in attracting re/insurers to the Island. The proactive nature of the regulator can be seen in many forms, from innovative licences to its push for environmental, social, and corporate governance (ESG)-friendly practices.
In April, the regulator introduced a regulatory and supervisory team specialising in the licensing and supervision of business model proposals to address climate change risk and the associated protection gap.
"The BMA is proactive and ahead of the curve, ensuring that Bermuda maintains its market-leading position," he says.
At the end of 2021, a new leader will be in place. Jeremy Cox will step down at the end of year, with Craig Swan, the BMA's deputy chief executive officer, in line to replace him.
"I expect that the BMA will continue to grow and become stronger and more efficient. Cox has pushed the regulator forward, and now, Swan will fine-tune it and bring the BMA to the next level.
The regulator's reputation will grow from strength to strength," adds Adderley.
Outside of an attractive and forward-thinking regulatory framework, Bermuda will need to adapt to continue to attract workers to the Island.
"With an ageing population and declining birth rate, Bermuda needs people to move to the Island and work here," says Adderley. Last August, Bermuda launched a Work From Bermuda permit, aimed at attracting remote working professionals from overseas to the Island.
"COVID-19 has shown us that even if you work at a Bermuda company, you may be able to work from any place in the world. We have to have a jurisdiction where people want to move to the Island, work and spend money here.
"Increasingly, jurisdictions are thinking about how they can provide the right regulation when it comes to attracting workers. Bermuda must do this," he says.
He adds that if people are living and working in Bermuda, there's more of a chance that the next structure will be formed on the Island.
Adderley concludes: "Every client has a choice of where to go and Bermuda competes with many other jurisdictions. We have to understand that and take that mindset in everything we do: 'what can we do to ensure you locate your business in Bermuda-all of your business?'.
"Bermuda has so much to offer from a regulatory perspective for businesses but it is also a spectacularly beautiful and unique place to live, which helps to attract the best of the best professionals to the Island. That only further enhances Bermuda's value proposition."
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