Bermuda has the opportunity to make itself the reinsurance centre for a growing industry worth hundreds of billions of dollars, according to a top New York-based fixed-income asset manager.Cliff Corso, CEO and chief investment officer of Cutwater Asset Management, which has more than $30 billion in assets under management, spelled out the huge potential for the Island in fixed annuity life reinsurance.The Island is better known for its property and casualty re/insurance industry, but Mr Corso said a prolonged period of ultra-low interest rates was stoking interest among hedge funds and private-equity firms in the life annuity reinsurance business.An annuity is a contract between a buyer and an insurance company that is designed to meet retirement and other long-range goals. The buyer makes a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to the buyer beginning immediately or at some future date.The life insurers who dominate the industry seek to profit by making more in returns from their investment portfolios than they pay out in annuities.Mr Corso and his staff at Cutwater make regular trips to Bermuda, working with insurers on management of their fixed-income assets.“I think there’s a huge demand for reinsurance for fixed annuity life contracts,” Mr Corso said. “One of the greatest benefits, in terms of supply to Bermuda, is that, given the rate curve and where it sits today, and given the capital requirements of the insurers, there’s still a significant potential supply of reinsurance in fixed annuity life into Bermuda.“We have spent a lot of time working on our models with our insurance partners on the Island, as well as conversations with potential cedants, and the potential supply is hundreds of billions.“There are already some players, but I think there will probably be more entrants coming to the Island to handle the potential demand for reinsurance. That’s our view, given the dynamics of the rate environment, and given the attractiveness of Bermuda as a place that is innovative and solution-oriented and that’s proven.”Several hedge funds entered the Bermuda reinsurance market last year, as new companies were established on the Island by Daniel Loeb’s Third Point and Steven Cohen’s SAC Capital Advisors, as well as John Paulson’s Paulson & Co entering into a joint venture with Bermuda reinsurer Validus Holdings. All of those have been focused on property and casualty reinsurance, but Mr Corso said yield-hungry fund managers in the US are increasingly turning their attention to the long-term side of the reinsurance business.“I can tell you that we’ve had multiple conversations with higher return-seeking investors, who might not necessarily want to create their own reinsurer because of the complexities of it, but do want to partner with firms who do know how to manage the assets and the liabilities,” Mr Corso said.“There’s been a lot of interest over the last 12 months, the last three months in particular.”“I think the recognition there is that one person’s asset is another person’s liability. The yield curve is very low and it’s not a bad time to lock in long-dated liabilities, to work off of through time to try to produce better than single-digit returns.”David McCollum, Cutwater’s managing director of sales and marketing, said the Island was well-placed to capitalise on growing annuity reinsurance business, especially from the US.“Many private-equity firms are looking very hard at this space now,” Mr McCollum said. “When you look at the United States, Bermuda is going to be the ideal location. But there are a lot of these annuity businesses all over the world, so will Bermuda have it all its own way? Possibly, possibly not.“One of the things the regulators in Bermuda are constantly thinking about is the competition they have with other jurisdictions, such as Switzerland and Singapore.”The way the Bermuda Monetary Authority has provided the necessary frameworks for new insurance products to flourish over the years gives the Island an edge over rivals, Mr Corso said.“Bermuda has a great competitive advantage, just by proving the mentality of innovation from the regulatory body, while balancing it with prudent oversight,” Mr Corso said. “That’s a balance that’s very hard to get, but that Bermuda has been able to achieve.“Our belief is that this will likely be a very large opportunity for Bermuda. Frankly, as rates rise, it unleashes further tranches of long-dated liabilities for reinsurance. So it’s not a one-shot trade, this is a secular opportunity in all different rate environments.”A good example of this potential is provided by Athene Holdings, which was set up in Bermuda by New York-based private-equity firm Apollo Global Management in 2008.Just last week, Athene announced it had acquired the US annuity and life insurance operations of British insurer Aviva for a purchase price of around $1.55 billion.“With this acquisition, Athene is a leader in the fixed annuity space,” said James Belardi, CEO of Athene in a press statement from the company. “The purchase of Aviva’s US annuity business will add significant scale to our retail sales and reinsurance operations and provides Athene with best in class operational capabilities.”Aviva USA, to be renamed Athene USA, will be the parent for Athene’s US operations and will be headquartered in West Des Moines, Iowa.However, guaranteeing future payments to annuity buyers can be a risky business, especially when markets crash and asset values plunge. Bermuda-based Scottish Re Group, for example, went into run-off after posting huge investment losses related to sub-prime mortgages in 2007 and a net loss of more than $2.7 billion in 2008.“Anything can be risky, but the driver in the way we think about it, is that you have assets and liabilities and they have to be managed in such a way that the assets out-earn the liabilities, with a minimum of volatility,” Mr Corso said.“You need to be careful and you need to be working with firms that can match the liability to the right assets — not just today but through time.”