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The Actuary The magazine of the Institute & Faculty of Actuaries

Life: Is there life in Bermuda?

A thriving global centre for property and casualty companies since the early 1980s, non-life reinsurance dominates the business world on the island paradise of Bermuda. Even Bermudan insurance professionals are surprised to learn that there are over 200 registered life insurers and reinsurers in Bermuda. However, the majority of these are inactive so the true number of life (re)insurers transacting business on the island is somewhere between 30 and 40.

Interestingly, the lack of development of life business over the last three decades — during which the non-life reinsurance market flourished — has been attributed to a decision by the Bermuda Trade Development Board in 1974 to deny a request from Harvard University’s medical malpractice program to operate a captive business from Bermuda. The request was denied due to fears of overexpansion stretching Bermuda’s infrastructure.

It wasn’t until 1998 that the first significant mono-line life reinsurer, Annuity and Life Re, was founded in Bermuda. Today, the Bermuda life market is comprised of a combination of internationally known names: The Ace Group, Hannover Re, Alterra (formed by the merger between Max Capital and Harbor Point), Credit Suisse and Standard Life, together with new and/or niche players such as Pentelia, Aurigen Re and Athene Life Re.

Over the last few years, there has been increased activity in the Bermuda market as a number of new companies have entered the fray, perceiving a shortage of capital in the industry, although this growth has been offset by existing companies closing to new business.

During the year, Bermuda’s insurance regulator, the Bermuda Monetary Authority (BMA), published a discussion paper on proposals to replace Bermuda’s existing solvency requirement of $250,000 for life insurers and reinsurers, a regulatory regime often viewed as being favourable to the Bermuda market.

It was against this backdrop that Pricewaterhouse- Coopers conducted the first market survey of Bermuda’s long-term insurers and reinsurers (comprising both Bermuda-domiciled companies as well as subsidiaries of international insurers and reinsurers) to assess the state of the Bermuda life market and identify the top issues facing life insurers and reinsurers. Figure 1 below shows the top issues facing companies in 2010.

The top priority for survey respondents was the challenge of growing the in-force business. With most of the major world financial centres now experiencing some economic growth (albeit at relatively low rates), growth in the market is likely, although market conditions remain challenging. Respondents believed that most lines of business would grow in the next 12 months, with the exception of variable annuity business, which was forecast to decrease (see Figure 3 below).

Notwithstanding the BMA’s proposals to replace Bermuda’s current solvency requirement with a regime equivalent to the proposed European Solvency II framework, the increased regulatory burden that would likely follow such changes only placed fourth in the list of management’s top issues. In large part, this is likely to be attributable to the greater emphasis currently placed by most companies on other measures of solvency, with 28% of respondents following National Association of Insurance Commissioners (NAIC) guidelines and a further 27% using rating agency standards (see Figure 5 below).

When asked: “Why did you choose to domicile your life (re)insurance company in Bermuda?”, the most common response was the reasonable regulation, followed closely by tax relief and then by statutory relief (see Figure 4 below). The question of what should replace the existing regime drew mixed responses, with only 13% showing a preference for Solvency II. 43% of those responding indicated that a principles-based approach would be welcomed by the Bermuda life market.

Even with the uncertainty surrounding the solvency regime changes, the outlook for long-term business in Bermuda remains positive, with current market participants seeking to increase business volumes despite the sluggish economies in many of the originating territories. Bermuda life companies assume their business largely from Continental Europe (46% of total premium income) and the US (37%) with only 5% of total premium income coming from Asia (see Figure 2 below).

The second most critical issue reported by respondents was the importance of capital levels and the allocation of capital: a direct response to the volatility in the capital markets in the last couple of years. Despite Bermuda having a low regulatory-capital requirement, companies have been taking steps to strengthen their capital position, in response to rating agency concerns and downgrades, which have affected reinsurers’ ability to attract and retain clients.

Allied to the increased importance in capital levels and the allocation of capital to companies is the desire to embed the management of capital and risk across all levels of the company’s operations.

Respondents were also preparing to focus on improving the quality and timeliness of management information. The unpredictable nature of the capital markets and increased focus of regulators and shareholders on good corporate governance has demonstrated a need for real-time, quality information to be available to management and those charged with governance.

With the BMA also introducing guidance on good corporate governance expectations, it’s clear that Bermuda is positioning itself to remain a competitive centre for insurance and reinsurance in the years to come.


Helen Crofts is an independent consultant based in the UK. Stewart Ritchie is senior manager in the Captive Insurance Group