New headwinds and market developments are changing the course of reinsurance – and it’s switching things up for Bermuda.

Initiatives like the Mansion House Reform and the PRA’s crack-down on funded reinsurance show the increasing emphasis on keeping activity within the UK. In tandem, persistent talent shortages and the US’ stricter tax burdens on foreign reinsurance partnerships are forcing Bermuda-based companies to stay vigilant and adaptable.

Asia is simultaneously challenging the status quo. Markets like Hong Kong and Singapore are gaining momentum as they position themselves as key (re)insurance hubs, presenting both opportunities and competition for Bermuda and UK-based firms.

It begs the question: Is Bermuda still relevant as a global reinsurance hub, or have its twilight years finally arrived?

Undoubtedly, it remains as relevant as ever. Bermuda holds resolutely to its position as a leading reinsurance hub amidst a rapidly evolving financial landscape. Its robust regulatory framework, sophisticated infrastructure and strategic location make Bermuda an essential player on the world stage, hosting over 1,100 (re)insurance companies, managing assets surpassing US$1.6tn and representing 36% of the global reinsurance market.

So yes, Bermuda’s relevance is undeniable – but we can’t ignore that as the reinsurance market undergoes significant changes, so too does Bermuda’s role within it. To maintain its status, businesses and leaders must address the evolving risks and opportunities that are shaping the future of reinsurance on the island.

Fears of out-of-control risk on offshore reinsurance leads to shifting sands in the UK markets

There is a strong sentiment today that reinsurance activities need to stay within the UK. Post-brexit, people thought the UK would be more of a financial hub than it currently is, while others recognise that the horse has already bolted so you might as well chase after it.

Last year, UK life insurers tripled the amount of assets transferred to global reinsurers, contributing to a record-breaking £50bn of UK pension risk transfers, with many of these transfers being carried out in Bermuda.

This considerable outflow of pension funds to global markets, with little of that capital finding its way back, has led to the Bank of England tightening its regulations and the Prudential Regulation Authority (PRA) imposing stringent requirements on UK insurers. All of this is making it more challenging to offload risks to Bermuda, particularly in the Pension Risk
Transfer (PRT) and General Insurance (GI) markets.

The US is following suit, tightening the reins on offshore reinsurers

We’re seeing similar problems across the pond. Bermuda is a vital cog in the US reinsurance market, particularly in covering catastrophe risks – and as the country’s demand for catastrophe reinsurance grows by 15% in 2024, now is not the time to be severing ties with its largest supplier. But like the UK, the US has undergone similar regulatory changes that are complicating relationships with global reinsurers.

The NAIC’s 2022 amendments imposed stricter capital and collateral requirements on non-US reinsurers. Meanwhile, the Inflation Reduction Act (IRA) of 2022 reinforces the Base Erosion and Anti-Abuse Tax (BEAT) provisions, which impose higher taxes on payments made to foreign affiliates, including reinsurance premiums. These changes increase the tax burden on US companies working with Bermuda reinsurers, making such transactions less attractive.

Bermuda faces rising competition as companies look eastward

In Asia, cities like Singapore – home to 12 of the world’s top global (re)insurers – and Hong Kong are positioning themselves as attractive alternatives by offering more stable and predictable frameworks, combined with a focus on innovation and growth.

Singapore, for example, has become a leading reinsurance hub due to its regulatory clarity, government incentives and strategic location. The Monetary Authority of Singapore (MAS) has encouraged reinsurance activities by striking a balance between stringent regulations and business-friendly policies, making it appealing to global reinsurers seeking growth potential.

With less friction in capital movement and growing insurance markets, Asia is well-positioned to become a global reinsurance challenger, drawing business away from regions like Bermuda.

Despite all this, the BILTIR 2024 report reveals that Bermuda’s insurance market remains robust and confidence in it is well-founded. The biggest challenge for both Bermuda-based
reinsurers and international firms with ties to Bermuda lies in adapting to stricter regulations.

Both will need to enhance their compliance frameworks by adopting advanced regulatory technologies to ensure real-time monitoring and reporting, while also fortifying risk management teams. Building stronger relationships with regulators through proactive communication will also help anticipate and address potential challenges. Finally, diversifying portfolios,
particularly by exploring niche markets or innovative risk transfer mechanisms, emerges as a strategic way to stay agile during regulatory shifts.

Bermuda’s talent shortage remains a pressing concern

Bermuda is grappling with a persistent and increasingly acute talent shortage. New legislation from major markets like the UK and competition from other global financial hubs create the perfect storm for a talent war, with actuarial science, risk management and regulatory compliance skills in high demand.

The Bermuda Monetary Authority (BMA) is actively working to upskill its existing workforce, partly because increasing regulatory complexity necessitates it, and partly to ensure there’s a strong talent bench ready to step into leadership roles when the current C-Suite ages out.

Still, the demand for new talent is outpacing supply. The situation isn’t helped by the fact that Bermuda has become a less attractive destination for new entrants in recent years: it frequently tops the cost of living index, its ongoing housing crisis means fewer properties at higher costs and its schooling system might not meet the needs of expatriate families. These issues raise questions about whether Bermuda can continue to attract and retain the talent it needs to maintain its status as a reinsurance hub.

The pressure is on for companies on the island. Succession planning initiatives like leadership development programmes will be essential for bridging the talent gap so that Bermuda can continue meeting growing market demand.

Companies also need to start thinking outside the box by leveraging their global networks to tap into alternative pools and strengthening their employer branding. Showcasing the island’s unique selling points, like career growth opportunities and quality of life, as well as offering workplace perks and competitive relocation packages is essential for crafting an employer brand that top-talent is attracted to.

Navigating the future

So, is Bermuda still relevant as a global reinsurance hub? The answer is an unequivocal yes. Bermuda’s adaptability has been a cornerstone of its success. The island has shown time and again that it can pivot in response to global market shifts, and today is no different.

For UK, US and Asian reinsurers with interests in Bermuda, the key will be to stay informed and proactive. Understanding the nuances of these market developments and how they impact Bermuda is crucial for making strategic decisions and navigating these changes effectively.

For targeted help navigating this new terrain, contact me directly.