Bermuda: Bermuda's Life Marketplace Supports Growing Demands Stemming From Aging Populations

Bermuda Finance 2022/2023, Life and Long-Term Re/Insurance Roundtable, in association with BILTIR.

Bermuda's robust long-term re/insurance sector is well-positioned to support demands for life and annuity products, which form a fundamental part of policyholders' retirement and financial planning. This discussion hosted by BILTIR at the offices of Hannover Re (Bermuda) examines the current landscape of Bermuda's life marketplace.

Q1: HOW WOULD YOU CHARACTERISE THE CURRENT HEALTH OF BERMUDA'S LIFE AND ANNUITY SECTOR?

Martin Laframboise: The Bermuda Monetary Authority (BMA) annual report has recently come out. It revealed that last year alone, there were 13 new licences granted in this sector, including eight new class E (assets greater than $500 million). So, Bermuda now has 148 licences as of 2021.

As an association which serves as a clear and consistent voice in advocating for the interests of Bermuda's life and annuity sector, Bermuda International Long Term Insurers and Reinsurers (BILTIR) now has 68 members which have businesses in many jurisdictions.

Patience Maina: It is a positive story. Assets under management are more than $800 billion now, so close to a trillion. That growth is being driven by a number of things.

First, macroeconomic factors including low interest rates. Companies have been chasing yield and traditional companies, struggling to meet guarantees, are reinsuring their books.

Second, a lot of pension risk transfer business has come in. Asset managers or private equity firms have been doing acquisitions in this space and that is driving a need for increased investment management expertise

Finally, there is the demographics side. There is a growing middle class, especially in Asia. We are seeing a fair bit of Asia business coming in because there is demand for life products and saving products in that region. Meanwhile, in the west, there is an ageing population seeking retirement solutions.

The BMA is very open to talking to new players. We are very accessible; we are able to engage, look at draft business plans and provide feedback quickly. Being accessible and responsive has played a key role there.

Helen Souza: Life is now definitely a very important pillar for Bermuda. We have partnered with BILTIR on a new focus group for the sector to make sure we complement each other. The other big reason people are choosing Bermuda is because of the expertise here, the access to capital and talent.

The Bermuda Business Development Agency (BDA) arranged an executive forum in New York back in May and there were many conversations and a lot of interest around life as well as climate, finance and asset management.

Brad Adderley: The life sector is a fascinating story. We talk about pillars of the economy; for me, this is a key pillar now. We always seem to lump insurance into one pillar but I like to break it down—life is a separate pillar. We had a number of new entrants last year, all with a hiring plan and all creating substance here.

Those jobs will be going from two to maybe five to maybe 50 positions eventually. That is in addition to the established companies hiring. That is interesting. How many large P&C businesses were formed last year? Not many big ones.

The life space is increasingly important to Bermuda. It has helped fill the gap. And what is really exciting is all the different companies are doing something different. They don't all have the same business model. That means they have to talk to the BMA early about what they're doing and how does it work within the BMA regulation. Is it a closed block, flow business, annuities, pension risk transfer? Which regions are they dealing with? The dialogue with the BMA is fundamentally important.

James Claxton: I agree our reputation is growing as a jurisdiction; we have the skills to be able to deal with many different business models. The BMA is key to the market. If you don't have a responsive regulator, it's difficult to make business decisions and move as a business. You need a responsive regulator to be able to make decisions quickly. Whether it's positive or negative, you need that feedback in real time or you cannot make decisions.

That's why people are coming to Bermuda rather than other locations. We have a melting pot of specialties and responsiveness. It's truly a global place to do business.

Ahwaz Chagani: I agree with what has been said. There were strategic considerations we gave a lot of thought to, and that's why we established here in 2018. There are a few other considerations.

We have an affiliate company in the US that writes direct business. There are a lot of competitive pressures in the direct business. There are too many writers effectively selling similar products. You need a way to differentiate. One way you do that is to offer better returns to the policyholder—essentially through reinsurance. That has created an ecosystem of US-focused life insurers backed by an entity in Bermuda.

The other reason is that on the asset side everyone has their speciality, their niche. For third-party reinsurance, our company targets small to mid-sized blocks of business. Plus, we have the direct arm. But other firms might be targeting larger deals. Everybody's offering something unique.

We have found that many direct writers seeking reinsurance are also seeking unique asset management capabilities to improve their competitive advantage. Capital has been cheap, particularly with the decline in interest rates since the Global Financial Crisis, which created an environment where it was easier to set up a shop in Bermuda. That is changing now but there has been a lot of product innovation in the US. Those are some other reasons driving the growth.

Adderley: The increase in interest rates may adversely affect new entrants to the market. Perhaps things will slow down, as people put the brakes on, or the second half of the year might be the same.

Chagani: As a direct writer and reinsurer, we're seeing the number of blocks being transferred has scaled back. Many of those blocks were written with high guaranteed returns. But now that rates are rapidly rising, companies are rethinking whether they need to offload those blocks.

We have had a low interest rate environment for a very long time: it's almost 13 to 14 years since the Global Financial Crisis. During this time, a lot of those blocks already either took losses or were reinsured. So there are fewer blocks out there and more reinsurers trying to get access to them.

With rates rising, companies are contemplating whether they should cash out or continue keeping those assets. Equally, other insurers are thinking that those blocks are using too much capital or are no longer part of their core business so they want to exit for capital or strategic reasons.

A lot of companies have entered the space, which has created competition. Asset managers have found that this is another way to gain access to assets. That attraction remains. I know one large asset manager trying to enter the space currently.

There's further diversification taking place where US and non-US companies are approaching the reinsurance market with different objectives in mind. Yields are rising, but they're not rising uniformly everywhere.

Mike White: I am more optimistic in terms of what the rising rate environment means. It's natural that there's going to be a bit of a slowdown because we are in a period of volatility. But if you look at the longer term, there are many problems to solve out there. There's a lot of capital locked up in long-term business all over the world. Direct writers need capital to be able to recirculate into new, more innovative products.

The fundamentals are still very solid. Companies in Bermuda are offering innovative solutions. There's always going to be a demand. Actually, rising rates might help. If you're doing a deal in a low interest rate environment, you could be realising a big loss relative to book. Those deals might become a little bit more palatable with higher rates.

Adderley: It is worth putting this in context. Yes, Bermuda has seen growth and some big companies come here. But the life markets globally are worth trillions. What is in Bermuda is still a drop in the ocean. There is still a lot more capital coming in but the market is so big and there's so much capital locked up.

That means so many different business models are possible. Most of the big P&C startups in the past did the same thing—they ran the same business model. But there is a lot more variety in such a new industry in Bermuda. Every company is trying to do it better, which I think is a very good thing.

Q2: WHAT ARE THE MAIN FACTORS IMPACTING THE LIFE SECTOR AND BERMUDA?

Martin Laframboise: Some key macro drivers, for example the aging population, impact the life sector globally; that's not going to change, and Bermuda is benefiting from it. But what's unique to Bermuda is the talent developed over the years in risk management, asset and liability management, capital, and liquidity management.

This combines with the robust and prudent regulatory foundations (full Solvency II equivalence, US reciprocal jurisdiction granted by NAIC) which is aligned with the long-term nature of the life sector. That's why there's a great success story in Bermuda.

Mike White: The regulation is a huge part of why any company comes here. The BMA has a great reputation internationally and it is a very pragmatic and commercial regulator. We also like its principles-based regulation. The regulatory system in Bermuda is solid, safe and recognised as equivalent to Solvency II.

I work for the reinsurance arm of the Resolution group and our role is to diversify risks from around the world. We have fixed, indexed annuities in the US, structured settlements in the US, some Swiss savings business, some Japanese savings business. In terms of assets we have everything from Swiss real estate to structured products in the US to regular corporate credit in three different countries.

It's very rare to find a regulatory framework that is robust for all of those different types of risks. The reason it works is because it is principles-based. There is the issue of complexity; how do you take those principles and apply them?

That is why dialogue with the BMA is so important. We explain how we're thinking about the risks, the reserving, the capital. I don't think there are many regulators you'd be able to have that kind of discussion with.

Prior to 2018, a number of jurisdictions were considered, but the reputation of the regulator and the infrastructure, the fact that there was a thriving P&C industry here, direct writers, law firms and consultants—that won it.

There is also a pool of talent already working in the industry so you can get off to a running start in terms of recruitment. Even the time zone helps. If you're doing business in the US and in Europe it is perfect.

Brad Adderley: You made a good point about the P&C marketplace helping the development of the life market. The snowball effect of US growth is such that life now is its own market in Bermuda, whereas maybe five years ago some bigger players were doing both. I find it interesting that the life reinsurers are doing deals with each other.

Everyone in the life space seems to be connected. You are also seeing people moving between companies. It is becoming a self-fulfilling prophecy—the snowball is getting bigger. More companies mean more people, and they attract more business.

With success comes scrutiny. Other jurisdictions out there are trying to eat our lunch. They don't have the BMA, don't have the regulations, don't have the marketplace. But they are trying.

The bigger the market here, the more will come. The CEOs of new formations will be asking: "If everyone else is in Bermuda, why am I considering another jurisdiction?".

The only hindrance for startups is talent. It's something people struggle to find at all levels of the spectrum.

Laframboise: I agree. BILTIR membership is now made up of 50 or so re/insurance licensed companies, supported by our board of 15 directors representing major life companies in Bermuda. The association engage openly and closely with the regulator, which is part of one of our four core pillars to maintain close engagement with BMA (local advocacy). The other three are international advocacy; learning; and networking and social impact.

BILTIR members invest in developing Bermudians' talent to facilitate them to join the life sector. All of that combined with the proximity of people here has helped BILTIR build the strong organisation it is today. Bermuda is an important re/insurance marketplace and BILTIR advocates for the interests of our members. Bermuda maintains some of the most recognised international standards and is there to continue maintain its commercial appeal.

Adderley: BILTIR is so important because of all the new rules and regulations and because everyone does so many different types of business. It's very hard to have one-size-fits-all when you are doing so many different things. Dialogue with the BMA is great, but it's even better when you have an association representing all the different interests to speak with one voice.

Helen Souza: One of the biggest advantages Bermuda has to offer is its associations, such as BILTIR, ABIR, ILS Bermuda, and the Bermuda Captive Network. The ability for them to get around the table and engage with the BMA and the BDA to protect and promote the domicile is invaluable. That's probably one of our biggest competitive advantages.

Laframboise: That's a good point: our close connection with other stakeholders such as business associations. In addition to our advocacy role on behalf of our members, we have these touch points with other business associations making sure that we keep and maintain the commercial appeal of Bermuda in speaking the same voice.

Our members are very diverse. They operate in Asia, the EU/UK, the US, they're direct writers, they're reinsurers, etc. Some of them are life and non-life. So, BILTIR ensures that it represents the interest of its members as one voice for the entire long-term sector.

Adderley: The non-life business has driven the development of Bermuda, and the life business now benefits from that. So the education has been happening for some time.

Souza: You're probably right. It's significant for sure. I agree that collaboration between BILTIR and the BDA is essential. It is helpful also from an external advocacy perspective. We are certainly getting more calls and this is because the industry is growing so significantly and getting so much attention.

In terms of interacting with external people, educating them about what Bermuda has to offer and working closely with BILTIR helps push forward the Bermuda agenda.

Q3: HAS THE MARKET REACHED A CRITICAL MASS IN TERMS OF COMPANIES AND TALENT?

Ahwaz Chagani: Definitely, there have been a few transactions where we have tried to partner with companies in Bermuda. All companies have different reinsurance and asset-management capabilities, capital base, and risk appetites. If we are unable to reinsure certain risks associated with a reinsurance opportunity, other Bermuda companies may be able to add value. We've definitely benefited from such partnership opportunities.

We're not a very old company; we have been around for four years. One of the reasons why we set up shop in Bermuda was the great success of very similar companies here.

We know the re/insurance support infrastructure in Bermuda is right, the regulatory framework is right, and the socioeconomic and political stability of Bermuda also plays a role if you're trying to raise capital. Investors want to know how stable the jurisdiction is.

In terms of talent, we have a team of six people in Bermuda. It is geographically close to certain countries which have great talent. At the same time, with the growth and the snowball effect in the Bermuda life sector, we're all competing for the same talent, and that has made things a bit more expensive and harder in terms of talent acquisition.

Mike White: I agree that talent is a straining point. When I joined just over three years ago, I was the first employee and we're now 26. That is pretty big growth. We have more roles to add, but recruitment can be a challenge when you've got a number of companies all going through that growth.

The marketplace has responded pretty well. There are not many small jurisdictions that could accommodate such exponential growth but there's definitely a bit of a shortfall in on-Island life insurance talent at the moment.

James Claxton: We're a 250-person shop on-Island and of those we have 14 life actuaries locally. We look for local talent, but we also have to hire from overseas. We found that a lot of people didn't realise that Bermuda was a credible place to have a career.

There's probably more we can do if we want to attract from countries that have less knowledge of Bermuda. People are very focused on the US market but we need to educate them about Bermuda.

White: It is obviously a great place to live but I agree that it takes people a while to realise that it's also a place you can have a great career, do interesting work and make real decisions.

That is changing. We've had people join from India, Canada, the UK, and the US. That is largely due to efforts of BILTIR in terms of marketing and with the growth, it's hard to ignore what's going on here.

Brad Adderley: To attract talent, we need to tell people Bermuda is a viable place to live and work. That it's a real marketplace with lots of insurers. The more we tell people, the more insurers come here, and the more people pay attention.

There is a fine line between saying how great we are, without getting scrutiny. We know that every time someone does something different, everyone wants to know why. And there's always a review of why they do that. We need to stop that question, stop any doubts.

Martin Laframboise: I agree on the importance of telling people Bermuda is a viable place to live and work and that it's important to ensure everyone understands the full transparency of our regime, especially with other international regulators. The importance of making sure everyone understands what we do collectively is key to the success of our jurisdiction.

White: Insurance works because of diversification. That's economically why it works. In terms of what is the differentiator for Bermuda—it's a place to be able to achieve diversification.

Q4: IS THERE ANY CROSSOVER BETWEEN P&C TALENT AND LIFE TALENT?

James Claxton: There is some crossover at the more junior levels. For actuaries in consulting, the point at which you become a specialist in consulting can happen as you progress through your exams. There's a lot more overlap in other professions, such as tax who often operate across both, and certainly on things such as risk, HR, process improvement or IT.

Brad Adderley: You could not take a CFO or CEO of a P&C company and put them in a life company.

Ahwaz Chagani: Yes, finding very specialised talent is hard. And remember that even the P&C space has challenges when it comes to talent acquisition. The recent growth in the life sector means pressure to acquire talent. Other jurisdictions are now trying to do what Bermuda has done. In Asia, for example, Singapore and Hong Kong are targeting similar re/insurance business so we have to keep an eye on the global competition for talent. There's a lot of demand for talent in Asia because of growing economies and a growing life sector.

Patience Maina: It feels a bit like musical chairs. We see people moving from place to place and that is a testament to a lot of demand, especially for life actuaries.

I do not think there is a shortage within the accountant space or with lawyers—it is specific to actuaries. Nevertheless, some of the initiatives, such as allowing work permits to be accelerated, will help.

Martin Laframboise: Life and P&C are two completely different sectors. I started my career in life, which is a completely different education path and career than P&C. That's why it is important to have the Bermudian workforce and stakeholders understand that distinction. An example of collectively working in that direction is how we invest in developing local talent via internship programmes.

It keeps growing which means the message is getting across—it's been our most successful year this summer. Companies are embracing developing talent through the programme. If we want diversity, equity and inclusion, it's important to make senior leadership positions accessible to everyone, especially Bermudians, by developing young talent into the life space as the industry continue to grow up.

Maina: We do consider this. We ask for a staffing plan, and they have to meet their head office requirements. We want the companies to have sufficient staff levels to support the business they are doing. We then monitor the business as it grows, tailored to what the company is doing. It is not that one type fits all, but we do check to make sure they are doing what they said they would.

Adderley: I know that the government wants to grow our workforce exponentially in Bermuda over the next 10 years. Last year there were 12 commercial life insurance companies formed. If for example they all hired three people this year, we would have an additional 36 people in Bermuda contributing to the economy and businesses.

Q5: TO WHAT EXTENT ARE MACROECONOMIC FACTORS, INCLUDING INFLATION, A CONCERN?

Martin Laframboise: In terms of other important aspect, it's important we maintain our international recognitions to ensure the success of the life sector.

Mike White: The risk is one of uncertainty, especially around things such as tax. If there's real clarity around what the rules are, Bermuda will adapt and still have a thriving industry. The risk is you could end up with uneconomic outcomes that are just not sensible.

Ahwaz Chagani: There's socioeconomic unrest in certain parts of the world. There are geopolitical situations playing out which make certain jurisdictions unattractive for re/insurance. Stability has become a huge factor. Increased protectionism and regionalisation are a risk, as are changes to tax rules. Tax certainty and geopolitical stability would help.

Also, capital is becoming more expensive. You touched on inflation. If you're a company focusing on third party flow business, that's dependent on how much consumers are going to spend on insurance which is essentially a function of their overall budget. I like to think of adversity as an opportunity. Even a recession unlocks opportunity. But I think market volatility is my main short-term concern.

Laframboise: The economic forward-looking inflation is another concern as ultimately the policyholder is the one buying insurance products and it's important to maintain the cost affordable to bridge the protection gap.

James Claxton: We need to communicate, share and educate more, as well as link to these other global organisations. We need to work out how we educate appropriately.

Brad Adderley: I'm concerned about talent. In every paper there are references to companies trying to keep talent, buying talent. It's a worldwide issue.

For me, it's important to get people through the door, and give them a good experience. I think we will see additional vehicles raising additional capital, which means the need for more talent. If we can attract the talent, and keep them here, that is almost the crux of it all.

It's the circle of life. If we can get the right talent, if we can hire enough actuaries, the deals will flow and the sector will grow.

Q6: WHAT ARE YOUR PREDICTIONS FOR THE SECTOR'S FUTURE GROWTH?

Helen Souza: I am optimistic by nature. I expect more growth but the role that technology and innovation are going to play will be the heart of what Bermuda does. The BMA sandbox and everything we're seeing coming through there will be central. The life sector is no exception to technology and innovation.

In terms of future growth, I see technology playing a role in the life space and I'm excited to have Bermuda at the heart of that.

Patience Maina: Bermuda has always been quite resilient and able to come up with innovative solutions. That and the growth will continue on the back of the solutions the market is able to offer. So I am definitely optimistic.

Martin Laframboise: Definitely optimistic. We have the right mission, and strategy. We're keeping pace with hiring people. The infrastructure is in place, everything is in place. We are growing. We have the right prudent technical framework to sustain claims in various stress conditions. Because of that, we're going to continue our growth and our track record.

Mike White: I'm optimistic as well. There's a very well-established and tried and trusted method of reinsuring life business from the US.

Now we're starting to see transactions from other parts of the world, from Europe and Japan. We'll probably see more international business being insured here.

James Claxton: The main thing I would say differently is I think we have another couple of years of new players entering the market and then I would imagine some consolidation. We've seen firms interacting with each other. With more formal consolidation we'll end up with a more mature, stable market of continued growth but with fewer bigger players.

Ahwaz Chagani: I am generally optimistic; there's short-term market volatility, but my long-term perspective is optimistic for more international business here, more product innovation and different types of products and reinsurance arrangements being targeted by re/insurers to unlock the value.

Brad Adderley: Definitely positive. We're going to see a fair amount of new life insurers this year. It's going to be very interesting. There will be more companies formed by existing players and even sidecars. I don't think the sidecars will be as big, but the new entrants will come with bigger capital numbers and bigger blocks.

I'm very bullish on talent, attracting people and making sure we can keep the BMA happy with staffing plans is important. We all need to be growing in the same direction. By the end of 2023, I wouldn't be surprised to see anywhere up to 15 new commercial reinsurers, which would be quite substantial.

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