Wightman: re/insurers seizing compelling opportunities

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PwC Bermuda leader gives perspective on Class of 2020-21

Navigate Bermuda sought the perspective of Arthur Wightman, PwC Bermuda insurance and territory leader, on the root causes and significance of the influx of new companies and capital into the Bermuda re/insurance market, known as the Class of 2020-21. Below are our questions and his responses.

Why has it happened?

Businesses are seizing compelling opportunities in a market that has long needed to harden to better reflect the impact of climate change and the overall global risk environment including future pandemics and cyber-crime.

A more favourable interest rate environment also plays a significant role.

Covid-19 has upended lives, businesses, and societies worldwide. The pandemic also accelerated shifts in societal attitudes and commercial realities, while making it much clearer what really counts, and what doesn’t. As an insurer or reinsurer, the immediate impact includes tens of billions of dollars in claims losses. A crisis that has left no countries untouched has also raised questions about conventional risk assumptions and the boundaries of insurability.

The shift in societal attitudes is reflected in the heightened focus on sustainability, social inclusion and other environmental, social and governance (ESG) issues. Society will be looking to reinsurers to take the lead in areas ranging from bridging the protection gap to tackling climate change.

Another driver of change includes the surge in digital capacity and connectivity, which is opening up new frontiers in data-driven decision making and business growth. As the pandemic-led’ shake-up gathers pace, the need to upgrade capabilities, refocus resources and ensure that products and services remain relevant is becoming ever more pressing. These pressures are adding further impetus to deal activity within the insurance industry.

Beyond consolidation, this includes targeted acquisition to boost innovation and divestment of non-core operations as part of a deals-led recovery.

What comes through strongly from both our market observations is that industry leaders should be prepared to steer their businesses differently from how they would have done before the pandemic. Bermuda’s Class of 2020-21 is leading the way.

Why is it happening in Bermuda and what’s the significance of this for the island’s re/insurance market?

Bermuda is the world’s reinsurance marketplace. It has shown that it is the place to deploy capital in a manner that is fast, effective and efficient. A major attraction includes the speed and flexibility that capital can be put to work in Bermuda.

The fact Bermuda is at the forefront of the global market growth, highlights its continued appeal as a centre of expertise and innovation. The island’s insurers and reinsurers are also leading innovation in risk prevention and risk transfer (e.g., parametric cover and insurance-linked security solutions), which are likely to be even more important in a pandemic-impacted market. Bermuda expertise in modelling natural catastrophe exposures is another key factor as is its geographic position between Europe and the United States.

The bulk of the investment is coming from established groups with an existing presence in Bermuda. Bermuda has become the go-to domicile for run-off, and the market is also seeing new ventures including sidecars and further expansion of the life reinsurance sector. The life reinsurance sector in recent months has experienced an unprecedented level of mergers and acquisitions (M&A) activity, as Covid-19 has accelerated an industry restructuring brought on by prolonged low interest rates and the emergence of private equity investor interest.

As the recent Bermuda:Re+ILS article on the Class of 2020-21 noted, the period will be looked back on, not only as the year(s) of Covid-19, but also as “the genesis of an impressive cohort of new re/insurance companies in Bermuda … arguably the strongest group of new company formations for a generation”.

It should also be noted that the class of 2020-21 is very significant for Bermuda, not least because the continued success of the reinsurance market has supported the Bermuda economy as it deals with the devastating impact of Covid-19. Bermuda Monetary Authority figures show a total of 72 new re/insurance entities established themselves in Bermuda last year, including five intermediaries, underscoring the market’s resilience and continued global importance.

How is the new breed of re/insurer different from incumbent competitors?

Significantly, the new starts do not have the legacy issues of the incumbents. The advantage of being legacy-free is they are able to invest in and use data and technology to move faster and be client-focused organisations.

  • Five defining trends we see for reinsurers include:
  • The race is on to digitise and deliver more for less
  • Capital injection and data-enabled innovation drive renewed growth
  • Stakeholders expect you to be part of the solution
  • Strengthening deal momentum accelerates transformation
  • ESG (Environmental, Societal, Governance) is now a central part of strategy and performance.

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