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October 15, 2024 at 10:57 AM
What You Need to Know
- The world faced a $106 trillion retirement asset gap in 2022, Swiss Re estimates.
- Speakers at a life and annuity conference in Bermuda emphasized the big capital hole left by years of low interest rates.
- A top insurance regulator emphasized the need for both consumer protection and innovation.
U.S. regulators are thinking about how Bermuda’s reinsurance market can help create an adequate supply of life insurance policies and annuities as well as the need to maintain high safety standards.
Andrew Mais, the Connecticut insurance commissioner and National Association of Insurance Commissioners president, talked about the product supply problem recently at a life and annuity conference in Bermuda that was organized by Bermuda International Long Term Insurers and Reinsurers.
Mais noted at a BILTIR conference panel about cross-border reinsurance that every NAIC president chooses a theme.
“My theme is ‘mind the gap,’” Mais said.
In many areas, “there is an increasing coverage gap,” Mais said. “Probably, the biggest single gap is in retirement products. People need more life products. People need more annuities.”
But, over the period after the 2007-2009 financial crisis, when central bankers kept interest rates especially low in an effort to nurse struggling borrowers back to health, “the capacity to support those products was nil,” Mais said.
Regulators’ job has been to understand and monitor the new reinsurance, investment and capital-raising strategies used to address the product supply gap, Mais said.
What it means: U.S. life and annuity issuers need Bermuda to help revive their sputtering supply of capital.
The backdrop: U.S. life and annuity issuers depend on investment earnings on stored-up premiums as well as the premium revenue to fund their product obligations.
Bermuda tends to make it easier for reinsurers based there to invest in instruments that come with more market risk or duration risk but pay higher returns.
U.S. life insurers have reinsured more than $600 billion in life and annuity business through Bermuda reinsurers since 2017, according to Moody’s.
Some observers, including Sen. Elizabeth Warren, D-Mass., have asked whether private equity-backed owners and increasing use of offshore reinsurance are weakening consumer protections.
Bermuda is developing new capital counting regulations meant to address observers’ concerns, but officials there note that the European Union already classifies Bermuda as a jurisdiction with standards equivalent to the EU’s own Solvency II standards and that the NAIC already classifies it as a reciprocal jurisdiction.
