Bermuda PM defends ‘robust’ insurance sector after Re777 crisis

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Bermuda’s prime minister has defended the soundness of the island’s life reinsurance sector, saying “you can never prevent all problems from happening”, following a crisis at a Hamilton-based reinsurer linked to private equity firm 777 Partners.

The British Overseas Territory is a global center for reinsurance, particularly policies covering buildings against natural catastrophes. In recent years, it has grown in importance as a place for life insurers to offload their longevity and investment risks.

Global regulators have increasingly warned about the potential implications of ceding a large amount of long-term debt to Bermudian reinsurers owned or linked to private equity groups.

Bermuda’s 777 Re has been plunged into crisis after taking significant exposure to assets linked to Josh Wander’s Miami-based investment firm, from soccer clubs to budget airlines.

“You can never prevent all problems from happening, and I think everyone accepts that,” Bermuda’s prime minister, David Burt, told the Financial Times in an interview in his London office. “What matters is how you deal with (them)”

Burt, who is also the finance minister, highlighted the work of the Bermuda Monetary Authority, the financial regulator, to clamp down on related party investments following the problems at Re777.

“It’s accepted that we have a very strong and robust regulatory system,” Burt said, “where we’ve made sure to tighten the rules. . . to ensure that our international regulators, who may have raised these particular concerns, know that we take these issues seriously.”

The bigger risk, he added, comes from jurisdictions “that may have similar types of companies (but) don’t have the level of insurance regulatory oversight that we have in Bermuda.” The autonomous territory’s financial sector is considered to have equivalent or reciprocal status with European and American solvency standards.

The BMA “has been at the forefront of addressing concerns about EP-owned insurers” and has had significant engagement with other international regulators, he added.

Burt highlighted a 2023 paper by the BMA on managing the specific risks of private equity ownership and how it has tightened its rules, including around investments.

The prime minister – on a trip to visit UK and EU policymakers – also addressed growing concerns about natural disaster insurance.

Bermuda’s insurance market “will hang in there and be able to properly assess those risks,” Burt said, adding that he was optimistic that cyclical effects would ease the pressures on consumers. “Markets will adjust.”

The island is “leaning heavily” into climate risk financing tools that can improve the resilience of areas that are vulnerable to natural disasters, he said.

In recent years, Bermuda has dominated other insurance centers, including London, in newer areas of insurance such as insurance-linked securities, which allow investors to put their capital against insurance risks through structures such as catastrophe bonds.

Burt said rival insurance centers in Europe, the US and Asia “want to eat our lunch and we’re just trying to make sure that we not only maintain what we have, but that Bermuda (continues to be) known for innovation”.

Bermuda, which Burt said has “a long history of being a cooperative and transparent jurisdiction”, will adopt the global minimum tax rate for multinationals of 15 per cent from January. Industry experts and analysts expect the Cayman Islands, which is outside of Solvency II, could begin to attract more life reinsurance business.

“We’re not worried about what other jurisdictions are doing because we know we’re a leading jurisdiction and (that) means you’re going to be aligned with global norms,” ​​he said. “There’s a reason there are more people than companies in Bermuda – because we focus on substance.”