Bermuda’s international standing clearer than ever: Abir's Huff

Bermuda’s relevance on the international stage has never been more important, according to John Huff, president and chief executive of the Association of Bermuda Insurers and Reinsurers (Abir).

In an interview with Insurance Day, Huff says this became clearer still last year, with more proof to come in 2024.

In November, the US National Association of Insurance Commissioners (NAIC) renewed Bermuda’s status as a reciprocal jurisdiction and, from April this year, Bermuda will take a step closer to the EU’s Solvency II framework, when the Bermuda Monetary Authority’s (BMA) enhanced regulatory regime enters into force.

“The NAIC reciprocal jurisdiction status is so important to our market because it allows our re/insurers to operate in the US with the same collateral and other frameworks a US re/insurer would have. This makes sure capital and capacity are available to help keep products affordable there,” Huff says.

The Solvency II equivalence entails regulatory modernisation for life and annuity re/insurers, but this development is of interest to the entire market in Bermuda, Huff stresses.

Abir is focused on property/casualty (P&C) re/insurance, but some of its members are composite firms and have a life portfolio. “It’s important Bermuda maintains its impeccable regulatory reputation across the board, which includes these enhancements in the life and annuity space,” Huff says.

Both developments are “accolades” for the BMA, he continues, which ensure Bermuda is responsive to the two major markets of the US and the EU.

The BMA is famously a one-stop shop, which means the licensing and regulatory process is efficient and sensitive to “speed to market” commercial considerations, Huff says.

“Outside Bermuda, there are regulators for many different classifications of assets and risks. In contrast to that alphabet soup, the BMA is a consolidated and independent regulatory authority,” he adds.

For that reason, Bermuda is a hotbed of innovation, including for digital assets, he continues. However, as a longstanding centre of risk management, the unsung hero of innovation among its re/insurers is successfully managing legacy systems.

“Operationally, it’s easy to start an insurance company but it’s hard to keep one going,” Huff says, “and we’re seeing a great deal of innovation among Abir members in their approach to modernising underwriting, claims and legacy systems. It’s the unspoken technological innovation that is keeping these companies cutting edge and therefore able to keep moving forward.”

New tax regime

A new development is the Bermuda Corporate Income Tax Act, according to which a 15% corporate income tax (CIT) will apply to multinational enterprise (MNE) groups with annual revenue of €750m ($814.2m) or more. The tax is effective beginning in 2025.

Until recently, Bermuda had not imposed taxes on profits, income, dividends, or capital gains. MNE groups will need to understand the scope of the new CIT, but Huff is optimistic, particularly given the hard market, about the ability of Abir members to adjust.

Abir has contributed to the public consultations and provided technical support to the International Tax Working Group the government created. Feedback from re/insurers about the CIT has focused, he says, on two main points.

“Bermuda has been a zero corporate tax jurisdiction for so long but that doesn’t mean there are no taxes. The Bermuda government is very healthy, having an annual budget of $1.1bn to $1.2bn, much of which is funded by Abir members. It’s just this contribution is from the high consumption tax, payroll tax and customs duties, rather than from an income tax”
_{John Huff
Association of Bermuda Insurers and Reinsurers}

The first is reducing the cost of doing business in Bermuda; to this end the government has established the Bermuda Tax Reform Commission to examine all the taxes MNE groups already pay. The second is building qualified refundable tax credits that would incentivise public policy measures, such as housing, through tax relief for those that invest in them.

“Bermuda has been a zero corporate tax jurisdiction for so long but that doesn’t mean there are no taxes,” Huffs stresses. “The Bermuda government is very healthy, having an annual budget of $1.1bn to $1.2bn, much of which is funded by Abir members. It’s just this contribution is from the high consumption tax, payroll tax and customs duties, rather than from an income tax.”

The benefit of the CIT’s introduction is Bermuda will no longer have to endure the baseless claim of being a tax haven. “Critics who have unfairly characterised Bermuda as a tax haven will not have the ammunition to do that anymore,” Huff says, “because it will have a more internationally recognised tax regime.”

Part of the community

Abir collectively represents the biggest re/insurance employer in Bermuda and 70% of its members’ workforce is local – native Bermudians, spouse of Bermudians and permanent resident certificate holders. Its members also support on-island employment among service providers and allocate funding for educational scholarships and charitable donations.

An island of just 21 square miles and 65,000 people, Bermuda has “the most talent-rich density” of any re/insurance jurisdiction in the world, Huff says. “Only in Bermuda do the school kids and taxicab drivers know about the actuarial profession. The re/insurance sector is so significant to the economy and to the lifestyle of Bermuda its communities are aware of the career opportunities.”

Bermuda is ‘the most talent-rich density’ re/insurance jurisdiction in the world Mike P Shepherd/Alamy Stock Photo

An example of this is the free “special topics in insurance” foundational insurance and reinsurance online course Abir sponsors at Bermuda College in conjunction with St John’s University in New York. Notably, the Bermuda chief executive of the island’s first re/insurance company, AIG’s Catherine Duffy, led the lesson on the history of the Bermuda market, on January 22.

Quality of leaders

Abir, which celebrated its 30th anniversary in 2023, announced last September its member companies had reported record gross written premium of nearly $145bn in 2022, up from $128bn in 2021.

“Thirty years ago, people thought Bermuda was a one-shot deal and you couldn’t even have a company that was rated by S&P, but the level of sophistication that has taken hold is just astounding.” Recent illustrations of that sophistication include, Huff says, Arch Capital’s elevation to the S&P 500 in late 2022 and RenaissanceRe’s acquisition of Validus Re, which means Bermuda is now home to the fifth-largest global P&C re/insurer.

More proof of the jurisdiction’s international standing is the quality of leaders Abir attracts, Huff adds.

Pina Albo, chief executive of Hamilton Insurance Group, is into the second of her two-year term as Abir’s chair. Albo, who led Hamilton’s listing on the New York Stock Exchange last November, will soon be joined by Mark Cloutier, executive chair and chief executive of Aspen Insurance Group, as Abir’s first deputy chair. Stephen Catlin, executive chair of Convex, continues to serve as second deputy chair.

“Mark has led a turnaround at Aspen that has been heralded in insurance and reinsurance circles,” Huff says, “while Stephen celebrated his 50th year in the industry last year and Convex remains the largest insurance start-up in the world.”

Executives of their calibre are drawn to Abir, Huff continues, “in recognition of the relevance of the Bermuda market”.

Notably, the so-called “Class of 2020” – the latest influx of new re/insurance capital and companies to Bermuda – is led by industry veterans, such as Mitch Blaser and Mark Wheeler of Mosaic Insurance, Charles Cooper of Canopius Reinsurance and Trevor Carvey of Conduit Re.

The reputations of such “seasoned executives” have produced a “flight to quality” by investors, who are “very well informed” of the regulatory and market advances taking place, Huff says.

“There was certainly a ‘Class of 2020’ but what we have now is an all-school assembly in terms of Bermuda’s ability to raise capital, when necessary,” he adds.

Climate central

Such experience has produced an “orderly” adjustment to the new hard market in P&C, Huff says, “with the discipline of not deploying capital at any cost”.

The Bermuda market is adjusting to the “new normal” for global re/insurance losses of more than $100bn in annual P&C claims. The organisation’s history to date is “bookended”, Huff stresses, by Hurricane Andrew in 1992 and Hurricane Ian in 2022.

“Climate, natural catastrophe, weather-related risks – they are what Bermuda re/insurers cut their teeth on and, in that sense, they have been building the world’s climate risk capital since 1993,” he says.

“There is a growing appreciation of the coverage Bermuda has historically provided in that space and when you think about the talent necessary to underwrite natural catastrophes and climate-related risk, that’s where you see the upper hand going to Bermuda. We have the scientists, meteorologists and weather modellers already in place.”

Bermuda’s reputation for this expertise is well-known internationally and is why Abir’s climate risk committee, which is chaired by RenRe’s head of global public sector partnership, Jeffrey Manson, has forged partnerships with, for example, the Insurance Development Forum and ClimateWise.

US issues

The challenge and opportunity of the new hard market may be one and the same thing, Huff says, in that re/insurers have moved into a period of “rate adequacy”.

“That is such an important barometer around the world, whether you’re talking about climate risk, social inflation, government subsidies or overall risk management,” he adds.

An ongoing challenge is educating policymakers not to mask the true cost of risk with “well-intentioned proposals” that are actually interventions in free markets.

Two examples affecting Bermuda, Huff says, are the US National Flood Insurance Program, which is government subsidised, and talk of a taxpayer-based US federal reinsurance pool.

Huff is a former NAIC president and he also sat on the US Financial Stability Oversight Council. A former partner at law firm Dentons, moreover, he understands the machinations of social inflation, an issue that continues to preoccupy Bermuda’s re/insurers.

The enactment of legislative reforms over the past 18 months targeted at the insurance market in Florida has helped boost confidence in Bermuda, Huff says.

“What we’re seeing is companies that have always been nat cat are dialling up some of their capital to be deployed. And early numbers in terms of getting a handle on property claims litigation in Florida look very positive,” he adds.

Huff refers to Florida’s disproportionate share of lawsuits, a situation that seems to have improved, even before the 2023 reform laws had an impact. The latest data from the Florida Office of Insurance Regulation shows in 2022 the state accounted for almost 15% of claims filed nationwide, but almost 71% of claims litigation in the entire US. That compares with the 8% and 79% it reported for 2021.

The importance of Florida for Bermuda re/insurers cannot be overstated, Huff says. For example, Hurricane Ian will be a $13bn loss for the Bermuda market, which is as much as 25% of the overall loss. Any legal abuse – social inflation – just adds to the cost to re/insurance customers, he adds.

“The metrics for the effectiveness of the reforms will be how much capital is coming back to Florida to address some of the nat cat risk there,” Huff says.

Partnerships with UK market

As a British overseas territory, the relationship between Bermuda and the London market has always been strong. Abir entered into a memorandum of understanding last year with the Association of British Insurers, which Huff says serves to “further institutionalise relationships”.

Bermuda has a “strong and symbiotic” relationship with Lloyd’s and Abir members provide some 44% of capacity to that market. Additionally, they contribute 32% of reinsurance capacity to the UK government-backed terrorism reinsurer, Pool Re.

Bermuda’s international standing will also be evident from the resurgence of interest Huff predicts in how insurance-linked securities (ILS) can complement risk management.

“There was a period of issues with ‘trapped capital’ and loss and we’ll see what the next set of earnings calls produce, but there’s certainly a great deal of interest in ILS capital, such as in cyber,” he says, adding the term ILS “overcomplicates” what it is – third-party, non-balance sheet capital.

Huff concludes: “ILS is certainly significant in Bermuda and some of the largest ILS managers are also some of the largest reinsurers because third-party capital follows the expertise that manages a balance sheet of their own.”