In March this year, The Insurer was fortunate enough to visit Bermuda – the (re)insurance industry’s island in the sun. While the rest of the world was beginning to wake up from its Covid-19 slumber, this bustling little island in the Atlantic Ocean was full of life and optimism.
The vaccination programme was well under way, hotels and restaurants were open, people were returning to the office in some capacity and in-person meetings were no longer something people dreamt about, they were a reality. Business was booming and still is.
It’s fair to say that Bermuda is enjoying something of a renaissance. Although in part linked to the cyclical nature of the market, in the latest virtual discussion in our #ReinsuranceMonth debate series, which put the Bermuda market in the spotlight, all our panellists agreed the hub is poised to take greater advantage of the opportunities residing in the industry and to step up to the challenges both innovatively and competitively.
A perfect storm of price increases and a reduced appetite on the part of many carriers has created a demand for new capacity. And according to our panellists, these are ideal conditions for Bermuda to shine due to its ability to foster creativity and create quick and sophisticated solutions.
It has been a significant period of growth for the island. With roughly $18bn being invested into both start-ups and scale-ups on the island since 2020, there is plenty of additional capital to deploy and businesses are bullish.
In her opening statements, Pina Albo, CEO of Hamilton Insurance Group, attributed the large injection of capital to “the market in and of itself”, and also the talent.
“It’s a very large pool and the fact that more capital is being attracted to the market just attracts more talent to this industry, solidifying Bermuda as – it’s already an important hub for insurance and reinsurance – but solidifying its place as a key hub and I think that is very important.”
Arch Capital Group CEO Marc Grandisson added to this, citing Bermuda’s resilience as one of the main reasons for its success and ability to respond to changes in the market and tougher dynamics following Covid-19, hefty loss development and, of course, a higher-than-average nat cat loss year.
“I think that Bermuda has always risen to the occasion and shines when things are getting difficult around the world and this is not an exception,” he said.
“It’s the same as other times before – it’s an innovative marketplace, capital is willing to deploy itself and to support risks. Cyber is the latest one and we’re going to talk about mortgage insurance as well, but in general, this market is really keen to innovate and that’s actually a huge differentiating factor,” added Grandisson.
Access to both world-class companies and world-class executives is, of course, one of the great appeals of Bermuda. As Grandisson explained: “Anybody can land here and spend up to a week and meet with 35-40 percent of the worldwide capital supporting risk.”
But the island also boasts one of the most competitive regulatory environments in the world, according to Albert Benchimol, president and CEO of Axis Capital Holdings.
He said: “If you’re here, you’re in one of the very few places if not the only place in the world to have both Solvency II recognition as well as equivalency with the US. You can set up a company here literally in weeks if you’ve got the right capital and the right management.
“For as long as I can remember, Bermuda is the first place to go if you want to start a new insurance or reinsurance company,” Benchimol continued.
However, the historic announcement by the G7 finance ministers and the OECD inclusive framework for reform of the international tax rules is likely to have significant implications for multinationals with operations in Bermuda and businesses headquartered on the island.
The global discussion about minimum corporate taxes and what that might mean in the marketplace is advancing at the OECD level and in the US, and while it is still “very early days”, according to John Huff, president and CEO of the Association of Bermuda Insurers and Reinsurers, “we’re monitoring the situation very closely”.
“The Bermuda government is very involved as a member of the inclusive framework at the OECD,” he said. “Bermuda has always been and will continue to be very committed to tax competition. It is a tool in the insurance and reinsurance sector, but also a tool in many other industries globally.”
The main concern, however, is around how these changes will ultimately impact consumers. If the tax plans proceed, three conclusions have been drawn up: the cost of insurance will increase, leading to less take-up and more pressure on government involvement; the ability for first-time home buyers to get mortgage insurance will become problematic given that Bermuda takes a roughly 50 percent share of US mortgage reinsurance; and finally, it will impact the industry’s ability to address climate change.
“As we lean into ways we can look at the climate crisis – or the climate emergency – this is not the time to add additional costs to that capital,” said Huff.
“The interesting fact that John just touched upon,” Grandisson continued, “Is that it should not be forgotten that in Bermuda, we’re able to take over 35 percent to 40 percent of the cat, the cat impact and billing cushion.
“If there’s less tax on those earnings, then we’re making money and we are able to pay when there’s a cat event which ultimately means a lower cost for the consumer in the US and everywhere around the world actually. So changes in tax could negatively disrupt this and it’s something to be mindful about,” he concluded.
There was a strong consensus among the panellists about the willingness of companies in Bermuda to take on larger risks than perhaps other markets around the world. This, in turn, has led to business coming to Bermuda which hadn’t previously.
Clark Hontz, president of Bermuda at Acrisure Re, cited Italian quota share business as an example of new business coming to the island.
“Since there’s a big talent pool down here in Bermuda developing all lines of business, we’ve seen the flow of business in multiple lines. We never used to do Italian quota share business and now we’re doing it down here,” he said.
But as risks become more complex, frequent and severe, Bermuda’s role in risk transfer is becoming even more important, with the panellists citing cyber, climate change and mortgage coverages as key areas where Bermuda (re)insurers are demonstrating their business acumen.
On cyber, Arch’s Grandisson said: “If somebody has a cyber risk issue that needs $50mn, there’s a good chance the Bermuda market will be able to fill most of it, which might be more difficult to do in London.”
On climate change, Axis’ Benchimol first acknowledged Bermuda’s sensitivities to climate change.
“For us as an industry and as a company that provides a lot of coverage for weather-related events, cat events, I think we’ve seen first-hand the impact of climate change in terms of increased frequency and severity of losses and the impact on human lives and quality of lives,” he said.
“Climate change is the single largest problem for humanity right now because we only have one planet, we only have one place to live. Over 60 percent of the world’s population lives very close to coasts and if you’re going to have sea levels rising and so on, we as an industry have to make sure we are rising up to the task ahead of us when it comes to providing the right levels of coverage. We have a responsibility,” he said.
The other element to tackling climate change is to make sure that one’s own house is aligned with progressive ESG principles.
Benchimol continued: “It was clear that we could not deny the impact of climate change, the impact of carbon on climate change and we felt that we had a responsibility towards our stakeholders and our planet and our communities.
“We decided to go early on in terms of limiting our insurance to thermal coal, to tar sands, to Arctic refuge and any of the infrastructure that supports it. We’ve also started on the journey of reducing our own carbon footprint and others. We think it’s the only way. This is the only planet we have.”
On the changing risk landscape and Bermuda’s position to address this, Huff said: “If you think about the areas that will become increasingly important, they play to the strengths of Bermuda’s (re)insurance market. So whether that be climate and natural catastrophes and flooding and earthquake and wildfires, the analytics and the modelling and the talent are in Bermuda to tackle those challenges.
“Or whether it be cyber or specialty risk, mortgage and terrorism, all of those will be tailwinds for the Bermuda market because those are the areas that we know. Whatever the new challenges are, the agility of the market will mean we are able to respond to those new challenges,” he concluded.
Talent and collaboration
One aspect the panellists all agreed was unique to how Bermuda operates is the way collaboration is embedded in everything the market achieves.
Speaking on the subject, Hamilton’s Albo said: “The companies on the island are very nimble, they look for opportunities, they capitalise on opportunities, they offer new products and they do that in a collaborative manner.
“That’s something I noticed is really strongly entrenched in Bermuda amongst the business community – just how collaborative companies are with each other and with the regulators to get things done.”
She added: “When I came on to the island, I had CEOs and other executives call me to welcome me, take me out, show me the ropes and that’s never happened to me anywhere in any other country in which I’ve worked. So that’s something that’s very unique.”
The talent that resides on the island has long been a dominant feature of the Bermuda market and while there are no signs of that changing, the war for talent continues.
“I would say the war for talent is real,” said Benchimol. “When you’ve got companies that are changing their risk appetite, shifting their books of business, or new companies starting, clearly there’s a war for talent.”
He continued: “My view is it just compels all of us to step up our game. So we want to make sure that we’re the right place, that people want to work for us.”