The future of Bermuda’s long term insurance industry
An article in investment publication ThinkAdvisor raises the spectre of life insurance companies moving their domiciles en masse to Bermuda.
ThinkAdvisor is the publication that features “all the investment news, in-depth analysis, market data and tools financial advisors need to grow their businesses and their bottom line”.
Insurance editor Allison Bell writes: “Will all annuity issuers move to Bermuda?
“Many Americans who are planning for retirement would love to live in Bermuda, and so would many of the life insurers that provide their annuities,” she begins.
She said it raised a critical question that has helped shape annuity issuer coverage this year and would continue to shape issuer coverage in 2022.
Cheekily, her question is: “Will all of the publicly traded US annuity issuers become digital nomads and end up sharing a swanky beach villa in Hamilton, Bermuda? (There’s a nice one on Airbnb, on 5.5 acres of unspoiled landscape, for $15,000 per night.)”
She explains: “The Financial Accounting Standards Board is moving toward making the big, publicly traded US life insurers put more of the fluctuations in the estimated value of their assets, liabilities and risk management arrangements in quarterly earnings.”
Bell quotes Fitch Ratings analysts: “Fitch expects new, more punitive GAAP accounting rules, Long-Duration Targeted Improvements, effective in 2023, will factor into management strategies on in-force businesses in 2022. The new GAAP accounting rules represent the most significant change in the history of the US life insurance industry.”
Affecting any life insurer’s financial reports prepared using GAAP, they include rules that may bring some more transparency to the inner workings of life insurance companies.
Bell said: “Some publicly traded life insurers have responded to the new, mark-to-market accounting pressure by getting themselves acquired by policyholder-owned mutual life insurers, which need not report quarterly earnings in FASB’s US generally accepted accounting principles format.
“Other annuity issuers have sold themselves to property and casualty insurers, which might have investors that are more used to earnings volatility, or to publicly traded investment companies that have found ways to present life insurers’ quarterly earnings in a pleasing light.
“But the most popular strategy seems to be for US-based life insurers, with earnings reports that flow into the cold GAAP mark-to-market light on the Securities and Exchange Commission’s Edgar system, to be acquired by private equity companies based in Hamilton, Bermuda.
“Bermuda has insurance regulators, too, and the life insurers based there still have to show their financial statements to state insurance regulators and rating agencies.
“The idea is that the regulators and the rating analysts are better than retail investors and mutual fund managers at seeing through what GAAP does to mark-to-market wrinkles, pimples and pot bellies, and appreciating the graceful longevity risk management souls within.”
The Bermuda International Long Term Insurers and Reinsurers (BILTIR) is the formal association representing the long-term insurers and reinsurers in Bermuda.
BILTIR represents 63 long-term insurance, reinsurance and servicing companies in Bermuda who provide life and annuity products and employ more than 600 people on the island, some 60 per cent of whom are Bermudian.
The long-term sector in 2019 had $667 billion in assets under management and BILTIR companies provided nearly $500 million in direct and indirect expenditure to the Bermuda economy.