ILS Bermuda Executive Roundtable 2021 – Insurance

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Despite the impacts of the Covid-19 pandemic and subsequent
restrictions on travel and face-to-face meetings, Bermuda attracted
a significant amount of startup capital in 2020 ahead of expected
reinsurance market firming.

Noting this, leaders and experts from across the ILS and
reinsurance sector started by discussing why fresh investor and
startup capital should choose Bermuda.

At the same time, Bermuda is still the favoured jurisdiction for
catastrophe bond issuance, evidenced by a record breaking 2020 for
this sub-segment of the ILS space. However, there’s now more
choice than ever for sponsors with new jurisdictions, notably in
Asia, increasingly looking to grow their market share.

With this in mind, participants highlighted Bermuda’s robust
risk transfer infrastructure, adaptive regulatory environment and
ability to innovate, and explored what the island must do to ensure
it continues to win new business.

While the pandemic has grabbed the headlines for the past 18
months or so, climate change remains and as the conversation has
intensified, the universe of sustainable and responsible investing
has expanded and is now often debated in the ILS space, and our
roundtable was no exception.

Alongside rising ESG demand and also elevated demand from more
traditional investors, the longevity of current market conditions
was questioned, as was the potential for the trapping of capital
from Covid related business interruption uncertainty.

BERMUDA ATTRACTED A LOT OF STARTUP CAPITAL IN 2020 AHEAD OF
EXPECTED REINSURANCE MARKET FIRMING, AS LOSSES RELATED TO THE
PANDEMIC COMBINED WITH THE LOWER FOR LONGER INTEREST RATE
ENVIRONMENT AND IMPACTS OF A PROLONGED SOFT MARKET STATE.

WHILE THERE’S SOME SIGNS THAT THE MARKET CYCLE IS CLOSE TO
ITS PEAK, CURRENT MARKET CONDITIONS ARE EXPECTED TO PERSIST. WITH
THIS IN MIND, AND ALSO THE FACT CONSOLIDATION REMAINS STRONG ACROSS
THE SECTOR, WHY SHOULD NEWCOS AND FRESH INVESTOR CAPITAL LOOK TO
BERMUDA?

TOM JOHANSMEYER: Having recently made the decision to move here,
I can tell you there’s a lot more advantage to Bermuda than
just the legal or regulatory benefits. I chose Bermuda because it
lives up to its reputation as the ILS community’s hub for
collaboration and innovation. PCS’s range of new solutions
– going back to our first steps into specialty lines loss
aggregation in 2017 – all came from Bermuda support.

The Bermuda market helped us develop our specialty lines
methodology (first for PCS Global Marine and Energy), delivered our
seed data for large onshore risk losses, and was instrumental in
getting loss reporting for Japan and cyber off the ground. And
Bermuda transacts – the rest of the world follows.

SHERMAN TAYLOR: The robust insurance infrastructure in Bermuda
has historically acted as a stabilising factor in times of great
market stress; the fresh capital deployed in the Bermuda insurance
market in the last six months signals increased investor confidence
and will ease capacity and rates concerns over time.

In the interim, we can expect further consolidation and changes
to the global insurance landscape. Bermuda’s deep insurance
roots, rich talent pool and commitment to innovation provide a
sense of confidence to investors, and this is one of the main
reasons why newcos and fresh capital continue to look to the
jurisdiction.

BRAD ADDERLEY: It’s the only market in the world
which has the following characteristics: One, there’s Solvency
II equivalence. Other than Switzerland or Hong Kong, who else is
Solvency II equivalent? At some point you’re going to write
European business. Two, you get NAIC approval for the U.S. market.
So, again, of our competitors, who has got NAIC approval and
specific jurisdiction approvals in different states? The others
don’t have it.

So, now I can write U.S. business, I can write European
business. Obviously, there’s conditions to all of that, like
the amount of capital, rating and track record, but you can’t
do them in any other jurisdiction.

But on top of that, when you think about Bermuda’s
competitors, who actually has a real reinsurance marketplace?
Whereas in Bermuda, you can come and actually do lots of deals
because people are around you. Well you can’t do that in all
the other jurisdictions. So, whether Bermuda is expensive or not,
there’s an ease to doing business because you’re surrounded
by it.

AURORA SWITHENBANK: When we were looking to set up Vantage, the
choice of Bermuda was easy. Our chairman, Dinos Iordanou, and our
CEO, Greg Hendrick, have long-standing experience building and
operating Bermuda-based businesses. The pool of underwriting and
operational talent on the island is deep. And Bermuda provides this
platform within a strong and consistent legal framework supporting
capital formation. It is the reason why investors are comfortable
with the jurisdiction, having done extensive due diligence and
having had good historical experiences in Bermuda.

Bermuda remains the premier jurisdiction for newcos and the hub
for ILS capital formation, and on a personal note, I’m thrilled
to call Bermuda my new home.

DARREN REDHEAD: For us at Kinesis/LCM Bermuda provides an
infrastructure/resources in service providers and most important a
willingness/understanding from regulators to help you adapt to
changing market conditions.

KATHLEEN FARIES: Bermuda is known for being able to balance its
robust regulatory framework with being nimble and commercial. This
is a very difficult balance especially when you are also a Solvency
II regime. In addition, many of the other jurisdictions that are
competing for this start-up activity appear unable to rival the
level of expertise, experience and “plumbing” that
Bermuda has built up over the years.

AARON GARCIA: Investor capital should look to Bermuda because it
is a tried and tested centre of excellence for risk taking. Over
the past decade, the island has consistently maintained its global
reputation as ‘world’s risk capital’ due to the strong
leadership of Bermuda insurers, reinsurers and asset managers, and
their ability to work hand in glove with the Bermuda Government and
regulators.

This mutually beneficial relationship has enabled Bermuda to
create a regulatory framework that fosters a culture of innovation
and customer-lead service, whilst also meeting international
regulatory standards. For example, the introduction of the special
purpose insurer (SPI) legislation in 2009 which enabled Bermuda to
gain global recognition in the alternative risk transfer market.
It’s this unique balance of discipline and creativity that
helps create unparalleled opportunities for investors, making it an
attractive choice for new capital.

2020 WAS A RECORD BREAKING YEAR FOR CAT BOND ISSUANCE AND, SO
FAR, 2021 IS BREAKING RECORDS ONCE AGAIN. BUT WHILE BERMUDA REMAINS
THE DOMICILE OF CHOICE FOR CAT BONDS, HOW DOES THE ISLAND MAKE SURE
IT CONTINUES TO WIN NEW BUSINESS AMID THE RISE IN OTHER ILS
JURISDICTIONS?

RICHARD LOWTHER: The key to Bermuda continuing as the domicile
of choice for all forms of ILS hinges on remaining competitive in
key areas:

Speed to market – For the major onshore domiciles looking
to make inroads into ILS, it is hard to see how their large and
complicated regulatory framework can be as nimble and develop the
inhouse expertise to match Bermuda. ILS structures continue to
evolve and innovate at a fast pace and there is a steep learning
curve for law makers and regulators. Overall, however, ILS is a
small asset class comparatively. Allocating adequate resources to
appropriately regulate ILS makes sense for a concentrated
specialist domicile like Bermuda but less so for onshore financial
centres.

Competitive costs – Institutional investors are under
enormous pressure from their stakeholders with regards to the fees
they pay their managers. The knockon impact to ILS in Bermuda is
not only to offer competitive fees but also to advocate for helping
to compress all aspects of the insurance value chain and offering
competitive, ‘turnkey’ structures.

Attracting and retaining talent – A by-product of the
global pandemic has been an acceleration in virtual meeting and
remote working technology. The ‘digital nomad’ concept
favours the quality-of-life benefits of living in Bermuda and will
help to retain talent. Bermuda must remain competitive with
transparent and expeditious immigration and continue to invest in
local education and infrastructure.

KATHLEEN FARIES: While the jurisdiction continues to lead the
way, Bermuda must keep increasing the competitive landscape in view
as the business can easily go elsewhere. The jurisdiction’s
talent pool has long been a competitive advantage and they must
intentionally ensure that they continue to foster and attract
talent to Bermuda.  Additionally, in order to improve and
evolve the volume and liquidity of these assets, complacency must
be avoided and the sector must be open to listening to the needs
and demands of the business.

Certainly, there is still a tremendous amount of potential
innovation that could be applied to securitization of risk and
Bermuda could and should lead on this innovation by leveraging the
Digital Asset regulatory framework already adopted in the
jurisdiction (DABA).

TOM JOHANSMEYER: Frankly, there’s no substitute for
transacting. Bermuda needs to show that it can continue to lead the
world in fresh and useful ideas, but it also needs to turn them
into practical, repeatable reality. Innovation isn’t calling in
every favor you can to show that you can get an exotic or unusual
transaction to market. Rather, it’s identifying a difficult
problem, developing a solution, and showing that the solution is
relevant enough that it can – and will – be done
again.

BRAD ADDERLEY: Clearly, you’ve seen some cat bonds
done in Singapore, more so this year than ever. Put simply, when
they subsidise it, why would they not use the money. But the
question is, what happens when that money runs out?

We’ve been working with the BMA to ensure that the
experience in Bermuda is as easy and as seamless as possible for
the ILS space.

What’s happened is, the BMA has been really, really
good about this, they said fine, let’s look at what we’re
doing, let’s look at how we’re doing it and let’s
improve it. Let’s improve our system and let’s improve how
we go about it.

SHERMAN TAYLOR: Insurers recognise that value for money is not
necessarily the same thing as the lowest cost. Bermuda successfully
competes by providing high quality, low friction service, while
simultaneously keeping the island’s pricing and speed to market
highly competitive. This is how Bermuda sets itself apart in a
crowded global insurance sector. Ultimately, it is Bermuda’s
value for money proposition that will keep it in its position as
the leading domicile for ILS.

AURORA SWITHENBANK: Bermuda remains the go-to for cat bond
capital raising. Vantage’s debut cat bond earlier this year
used Bermuda as its domicile. I think it’s difficult for other
jurisdictions to catch up with Bermuda, given the ecosystem of a
strong legal and regulatory framework, top-notch service providers,
and a large number of significant domiciliary sponsors and
investors.

As has historically been the case, I think remaining open to a
dialogue with sponsors, service providers, funds, and end investors
and being thoughtful and balanced around emerging issues and trends
– such as ESG – will inform any further evolution in
the framework surrounding cat bonds.

AARON GARCIA: If we, as market participants, ensure that we
continue finding innovative solutions to better serve our clients
– whether that’s addressing an evolution in standard
practices, such as ESG, or to absorb new areas of risk, such as
cyber and pandemic – the island will continue attracting
opportunities.

DARREN REDHEAD: As I said previously, speed to market is a big
advantage/understanding current market conditions really helps
Bermuda maintain its pre-eminent position.

CLEARLY, RESPONSIBLE AND SUSTAINABLE INVESTING CONTINUES TO
GAIN REAL MOMENTUM, SO WHAT MUST BERMUDA DO TO ENSURE IT
ATTRACTS THE GROWING BASE OF ESG FOCUSED INVESTORS?

BRAD ADDERLEY: I think one, the BMA has come up with its
own guidance, looking to ESG and making sure things are ESG
compliant. Two, I think we could argue that cat bonds, generally,
have always been ESG compliant. Why? Because they are about
protecting the environment. And three, we have a history of it here
in Bermuda. In fact you have things like Africa Risk Capacity
reinsuring flood and drought reinsurance in poor nations in Africa.
What could be any more ESG than that?

So, I think Bermuda, in some ways, has been doing this
for years, before ESG became a hot topic. It now is an important
focus, and Bermuda needs to do a better job talking about ESG and
what it is doing, and what it has been doing naturally over the
years.

SHERMAN TAYLOR: Bermuda must treat ESG as the “new
normal” of business, and there are already encouraging signs
that the key players in the jurisdiction are fully on board. In the
ILS sector for example, market participants have long recognised
the necessity of incorporating ESG into their activities in order
to continue to access fresh capital. The next logical step for
Bermuda is to introduce regulations to combat green-washing in the
jurisdiction. This will keep Bermuda in step with the rest of the
world and attract the rising tide of ESG focussed investors who are
becoming a powerful force in the capital markets.

The recent announcement that the Lloyd’s market will no
longer provide new insurance cover for thermal coal-fired power
plants, thermal coal mines, oil sands, or new Arctic energy
exploration activities from 1 January 2022 is a clear signal that
the ESG is becoming more significant to the insurance market. As a
result, capital could be freed up and redeployed into the ILS
market if the right framework is in place.

KATHLEEN FARIES: A key aspect moving forward for not only
Bermuda as a jurisdiction but the ILS sector as a whole is the need
to develop a unified ILS ESG framework. Given Bermuda’s
position in the sector, they certainly could lead the way in this
initiative. Furthermore, Bermuda is the centre of risk transfer for
natural, weather-related catastrophes and there is the potential to
extend this expertise to a leading position in climate related risk
transfer and financing.

The investor community are increasingly reviewing the ESG
properties of their portfolio, sourcing ESG compatible risk and
prioritizing ESG reporting. With this in mind, Bermuda should be
listening to investors and using their desire for sustainable
investing moving forward to determine how the intellectual capital
and experience in Bermuda can be leveraged to offer investors real
value.

AARON GARCIA: Interest in ESG performance – from
regulators, investors, media, customers & employees has never
been greater. As leaders in the (re)insurance industry, we have an
important part to play in helping our customers prepare for and
navigate this complex issue. While ILS is an intrinsically positive
asset class with its role in protecting society against the
earth’s perils, attracting ESG-focused capital requires us to
go beyond this. At Hiscox, we believe that the benefits of an ESG
approach to ILS investing is tangible. For example, from an
environmental point of view, quantifying the impact of climate
change on risk is essential to achieve sustainable returns.

AURORA SWITHENBANK: Different regulators, investors, and
third-party validation firms have varying definitions of what
constitutes ESG. Right now, there isn’t a lot of consensus on
some basic questions like which ILS securities could be considered
ESG investments. Consistency of definitions is one of the areas
where I see a lot of struggle.

I think there’s a lot of scope for engaging with the
industry and investors to set standards for disclosure and
definitions – without creating burdensome or overly
bureaucratic incremental reporting requirements.

We see milestones being established across different industries
to achieve various ESG goals by 2030 or 2050. I think re/insurers
should also consider such goals to set an objective to strive for.
In that way, we will have progress, and even if we don’t
achieve these distant goals, it can form the basis of an ongoing
dialogue.

RICHARD LOWTHER: Where Bermuda could help lead ESG investing is
to support the development of an independent scoring and evaluation
framework to grade ILS strategies and managers on ESG. Large
institutional asset owners such as pension, sovereign wealth and
endowment funds are at the forefront of promoting ESG investment
mandates. To attract these investors, Bermuda already offers
‘institutional-quality’ asset management infrastructure but
formalizing an ESG framework would further cement the domicile as
the leading place for blue-chip capital.

TOM JOHANSMEYER: Specifically, the Bermuda market needs to
identify original risk that needs sufficient capital and can be
executed without the need for side deals and other concessions. The
problem is an analytical one. Take solar power. One of the biggest
problems in solar right now is hail. Instead of evaluating new
technology relative to historical weather swaths and representative
losses, you’re more likely to see a focus simply on loss runs.
That’s not how you get progress. There’s an industrywide
perspective that can make solar easier to write in the face of
difficult threats like hail.

WITH STRONG PRICING EXECUTION ALREADY EVIDENT IN THE CAT BOND
MARKET, DO YOU FEEL THAT RISING INVESTOR DEMAND, COUPLED WITH ADDED
ESG DEMAND, COULD BRING ADDITIONAL CAPITAL AND RISK PUSHING THE
WIDER ILS MARKET INTO A PHASE OF SOFTENING? AND, WHETHER YOU FEEL
THIS WOULD BE A HEALTHY REPRESENTATION OF CAPITAL EFFICIENCY?

TOM JOHANSMEYER: ESG is going to be tricky. If anything, rising
ESG demand could act as a constraint on new capital flowing into
the ILS market. Two years ago, ILS funds could convince end
investors that a catastrophe focus was inherently ESG. Those days
are gone. We need to develop real ESG products now. The first fund
to launch one that is sustainable, repeatable, and feasible
economically could gain a profound first-mover advantage.

The challenge for the ILS market is to achieve ESG relevance
while being so far away from the original risk. I’ve been asked
several times. Reinsurers and ILS funds can’t influence
claimant behavior and even struggle to influence insurers on ESG.
Once you work your way up to the retro market, it can take forever
to see the risks you cover – if you even get to at all.

RICHARD LOWTHER: Ultimately, one should not confuse the
structural competitive advantage ILS has to assume peak zone cat
risk with a lack of underwriting discipline. ILS investors demand
high levels of transparency, impose granular investment guidelines
and require frequent fair value reporting on their portfolios.
There are simply fewer places to hide ‘soft market sins’ in
an ILS fund.

One must also not assume that ESG driven demand for ILS
investing means writing business at lower margin. Targeting
capacity as part of an ESG framework has strong societal benefits
but providers of cat capacity need to be adequately compensated for
the risk they assume.

BRAD ADDERLEY: We clearly see people commit more money
to this marketplace. We have people like Integral with Richard, and
some of the largest ILS funds recently have been formed with $500
million, $600 million, which says a lot about the people running
the firms, right. So, we see these funds growing; there’s no
question about that. So therefore there’s more capital in the
marketplace from ILS funds. That has to affect the price of these
products. It has to affect the products themselves. It’s got to
because we’re not talking about $100 million coming in,
we’re talking about $500 million coming in or $600 million
coming in. Which, to me, has to affect the market and soften
it. 

AURORA SWITHENBANK: I think the tightening we’ve seen in the
cat bond market is being driven by a reassessment of the value of
the liquidity of those securities, something I’d thought was
long undervalued by the marketplace.

Of course, when new capital flows into the space, it has the
potential to drive pricing; however, the amount of capital flowing
into ILS is dwarfed by the capital movement in the broader
reinsurance market. Although the reinsurance and ILS markets can
get out of step, they are still tethered, and any mismatches
correct over time. ILS investors and funds have shown good price
discipline in recent renewals cycles and I expect that discipline
to continue.

KATHLEEN FARIES: Investors will always seek the best yield and
best execution. The move to collateralized reinsurance over the
last 5-8 years has been coupled with challenges and in some
instances surprises for investors given the level of nat cat events
and most recently the exposure to COVID related claims. It would
appear that many investors are interested, at least for the time
being, in securitized risk that has a bit more certainty around
terms and returns.

The ILS market should shift our focus to how we can deliver
securitized climate risk related products to capital as efficiently
as possible in an effort to increase the volume of potential
assets, rather than diluting the traditional pool of UNL risk that
is in the market. Climate risk is one example but there are
certainly others that are in need of more capacity and product
innovation such as cyber risk.

Ultimately, the re/insurance market is permanently cyclical and
pricing will always be a function of capital supply and demand for
products. The ILS market needs to become less reliant on property
cat exposures and find ways to structure and price other classes of
business.

SHERMAN TAYLOR: The ever-shifting dynamics between capacity,
pricing and demand will lead cycles in the insurance market, and a
phase of softening is inevitable.

One reason why capital is moving from the traditional
reinsurance market to the ILS market is the search for more capital
efficiency. The ILS market has responded well to this challenge,
and the asset class is considered a very good representation of the
best use of capital.

DARREN REDHEAD: Even with surplus capacity we have seen
continued price increases, which in my view is required to maintain
pricing adequacy, I think there is a realisation that as a sector
we need to maintain this momentum.

IT’S BEEN MANY MONTHS NOW SINCE THE ONSET OF THE GLOBAL
PANDEMIC, BUT IS COVID BI-RELATED TRAPPING STILL A THREAT TO
THE MARKET? AND, IF SO, THEN STRUCTURALLY HOW CAN FUNDS WORK
TO OVERCOME THIS?

SHERMAN TAYLOR: BI remains a concern as long as Covid remains a
threat. Fund managers must build the right portfolio of ILS that
can withstand shocks and still remain within tolerance limits of
performance. This may require the fund to have ready access to a
greater level of insurance expertise, and, as such, large ILS fund
managers may even need to bring new and enhanced insurance
resources in-house.

Covid-19 is still an ongoing event with cases open across
several jurisdictions and, as such, trapping is still a threat.
Reacting quickly to find solutions that increase the efficiency of
capital, while having healthy side pockets to protect future
investors and fronting companies, is the key to mitigating
this.

At Hiscox ILS, with our in-house fronting capabilities, we were
pleased to have been able to offer an efficient solution to trapped
capital which our investors welcomed as amongst the best available
in the market.

DARREN REDHEAD: A threat may be too strong a word, but yes
it’s an issue with the ILS sector due to its funding of risks
rather than a promise to pay. It is more advanced in difficult
conversations re coverage and aggregation of events.

RICHARD LOWTHER: At Integral, we were fortunate to launch with a
clean slate and no legacy Covid BI issues. Generally, we did not
see capital trapping as an ILS industry-wide issue but there were
some consequences, particularly in the retrocessional market.
Ultimately the retro market appeared to ‘kick the can down the
road’ with capital being rolled. Our concern is that this came
at a cost of incumbent ILS managers having to accept a lower price
to get renewals done.

ILS provides abundant competitive capacity most efficiently when
the coverage is clean and focused on natural catastrophe exposures.
BI capital trapping erodes the ‘low correlation’ benefit
that is key to many ILS investors and is frustrating. Vague
contract wording where coverage is ‘including but not limited
to…’ introduces coverage uncertainty and ultimately benefits
no one.

TOM JOHANSMEYER: It’s not just Covid-19. There’s plenty
of trapping risk outside the pandemic, and we’re hearing about
it all the time. Predictions of an active storm season could only
exacerbate that risk. It’s not just cat. PCS has reported on
lots of marine and large onshore risk losses over the past 18
months, some of them in the area of US$1 billion insured. Managing
trapping risk – without trying to impede the appropriate
holding of collateral pending loss development – requires a
data solution. Period.

From what I’m hearing up and down Front Street, most
questions about trapping involve either party taking a self-serving
opinion, collecting whatever supporting information they can find,
ignoring the rest, and pressing their case as hard as they can.
I’m surprised the market didn’t get tired of this in the
wake of Typhoon Jebi, with all the litigation that followed.
Instead, parties need to return to the use of independent, credible
data. We launched our entire specialty line to help address this
very risk (trapped collateral, as well as inappropriate/inaccurate
reserving). And we’re still at it. Our latest database, with
sister company Xactware, provides daily insight into catastrophe
loss development, which provides ground-level loss information to
help parties to a trade determine whether collateral really needs
to be held.

TO END, DO PANELLISTS FEEL THAT THERE’S ROOM FOR GREATER
INNOVATION IN THE REGULATORY AND LEGAL STRUCTURING FIELD TO
POSITION BERMUDA AT THE FOREFRONT OF THE NEXT WAVE OF ILS
GROWTH?

DARREN REDHEAD: For me the innovation tends to come from
managers/investors. The BMA are very receptive/open to
innovation.

BRAD ADDERLEY: I think there’s always room to make
things better. Can Bermuda improve its regulation and restructure
itself to help attract more business, or more capital, or more
products? So, my view is, yes. My view is, secondly, it’s
happened and it’s happening.

The first thing to explain is, we know we’ve had for
a while the sandbox, which was formed for people to create
businesses where you don’t even know there’s a business out
there, you’re not even sure that there’s a marketplace, but
you’ve got the sandbox licence. We then created the innovative
licenses. So, that is already in place, and people are using it,
right. So, that’s clearly a positive. And, of course, some
people would argue, we don’t want regulation, therefore, maybe
we’ll be in a jurisdiction which doesn’t have regulation,
because it’s easier to do business in that
jurisdiction.

I don’t think Bermuda is standing still, I think
Bermuda is going with the tide and being sensible. I think
we’re constantly tweaking ourselves and trying to improve
things, and making sure we stay where we are. Which is, making sure
we’re Solvency II equivalent still, making sure we’re NAIC
approved still, and making sure the new wave of InsurTechs are
formed in Bermuda.

TOM JOHANSMEYER: There’s a lot more room, although I’d
say the regulatory aspect is only a small piece of it. Our industry
needs to focus first and foremost on bringing more original risk
into the market. As an industry, we’re spending more time
shaving fractions of a basis points off Florida wind deals and
trying to argue numbers over collateral holds than we are figuring
out how to bring new risks to market. That needs to change. Where
necessary, the regulatory and legal environment should be flexible
enough either to accommodate original risk or adapt to it with
relative ease. What our community needs to focus on is bringing
more original risk to market. Everything else should help remove
friction from that process.

SHERMAN TAYLOR: Regulatory and legal frameworks can sometimes
create unnecessary friction cost for an ILS vehicle, and sensible,
well balanced regulations are always welcome. With many domicile
options available today, there will always be room for innovation.
Bermuda has done well to create a favourable environment for ILS
and further adjustments are imminent, with a view to attracting the
next wave of ILS.

AURORA SWITHENBANK: There is always room for greater innovation,
and there’s sometimes a need for evolution based on events;
this extends to the regulatory and legal environment. One of the
most powerful tools for driving innovation is open communication
among the various stakeholders. In particular, recognizing the
highly sophisticated nature of the vast majority of ILS investors,
there’s room to streamline structures and corresponding
regulatory frameworks to allow for faster times to market for new
products and more cost-effective transaction execution. I think
Bermuda has done a good job of balancing innovation and prudent
regulation in the past and have every confidence they will continue
to strike this balance while embracing transparency and engagement
with key constituents.

Vantage was formed with the idea that better access to data,
combined with more transparent communication, will provide creative
ways to grow the marketplace, whether through traditional balance
sheets or ILS structures, and preferably both. That communication
between regulators and stakeholders is a key element of
Bermuda’s continued success.

KATHLEEN FARIES: Bermuda would be wise to continue to listen and
partner with the business, as well as using the expertise and
robust regulatory framework they currently have, to deliver swift
execution on transactions and new co activity. Moving more quickly
to a digital infrastructure for all of the necessary approvals and
required documentation would also be a smart move for Bermuda.
Leading the market on digital KYC/AML and a “connected”
and standardized compliance framework would be a big step forward
in providing real value for clients.

AARON GARCIA: As an asset class, ILS is still in its infancy and
has plenty of room for growth. The last four years have provided
many data points for investors to understand how structures work
when events happen. Specifically, it offers the industry an
opportunity to develop a way to solve the trapped capital
conundrum, be that through in-house mechanisms or through
third-party legacy risk-transfer solutions.

At Hiscox ILS, we concentrate on continuing to make our
structures more capital efficient, which has been a core component
of our value proposition since the launch of our Funds in 2013. We
believe that existing investors and the new wave of ILS growth are
likely to target capital efficient structures that can trade
sustainably through the uncertainty of unpredicted events and the
changing cycles of the market.

RICHARD LOWTHER: Innovation is always essential to sustaining a
competitive advantage. Bermuda has a demonstrable track record of
reinventing itself after market dislocations. On a continual basis,
the island is evolving the regulatory and legal framework with
innovations such as the recent Incorporated Segregated Accounts
Companies Act and the Collateralized Insurer licencing framework
etc.

One immediate focus for Bermuda should include joining with the
many other likeminded countries in formulating a response to the
recent G7 communique calling for the implantation of a global
minimum corporate tax. It is honestly quite astonishing that the
largest economies in the world would agree to cede sovereignty over
their corporate tax systems. Bermuda over the decades has paid
billions of dollars to satisfy insured claims in the wake of
massive insurance events. Tax increase at the corporate level will
most assuredly be passed along to the consumer exacerbating the
protection gap, not reducing it.

Bermuda re/insurance companies have substantive operations on
the island, which should help demonstrate that significant business
is generated here. The appeal of Bermuda is not solely related to
tax. Bermuda is the home to one of the largest global re/insurance
markets, has developed infrastructure, proximity to the US and
strong regulatory framework.

Bermuda needs to continue to promote the fact that tax
efficiency does not mean tax secrecy. Many are unaware that Bermuda
has dozens of Tax Information Exchange Agreements (TIEAs) with
major OECD countries. This framework for exchanging information
between countries helps enforce tax laws and demonstrates the
island’s commitment to transparency.

Originally Published by Artemis, August 2021

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