Bermuda's life reinsurers face many challenges — but they're also optimistic about their growth prospects.

That is the conclusion of a report on the sector by international accountancy firm PricewaterhouseCoopers.

"Life goes on... Exploring the diversity and development of the life (re) insurance market in Bermuda" was the company's first analysis of this substantial segment of the Island's reinsurance market.

Bermuda market life (re)insurers were asked to identify the top issues facing them, in 2010. Growth was the number one issue among respondents. Second was capital levels and allocations, third management of regulatory burden, fourth was embedding capital and risk management within day-to-day operations, while the fifth biggest issue was the need for improved management information.

"The industry has gone through a turbulent time with a number of new entrants entering the market, with some of those new entrants leaving the market shortly thereafter, in addition to the established companies closing down," the report stated.

"During this period, retail consumers have become wary of certain products due to volatility and credit concerns."

One of the report's authors is PWC Bermuda partner Dan Grady. He said: "Low interest rates, lingering concerns over the liquidity in the investment markets and a soft economic environment have created a considerable amount of uncertainty for the Bermuda life (re)insurance market.

"Global regulatory initiatives such as Solvency II in Europe and the Bermuda Monetary Authority's renewed focus on life (re)insurers will create both challenges and opportunities for the industry."

Asked about their reasons for choosing Bermuda as a domicile, most respondents said the key attraction was "reasonableness of regulation", with tax advantages second.

Mr. Grady said the Island had attracted several new life reinsurers over the past year and a half.

"Bermuda offers the ability to start up companies quickly and that is very compelling," Mr. Grady said.

"We have seen a wave of new companies in this sector in the past 12 to 18 months. One of the reasons for growth in life reinsurance is the recent financial crisis.

"The impact of the crisis has left some US and European companies in need of more capital. Reinsurance can be a form of capital and so some of them are looking to cede more business than they would otherwise have done."

The report found that 73 percent were not considering a change of domicile. The remaining 27 percent, who were considering a move, said key to that decision would be the outcome of regulator the Bermuda Monetary Authority's consultation on replacing the existing capital solvency regime.

Bermuda's current minimum solvency requirement of $250,000 was considered beneficial by most respondents. But the BMA has published a consultation paper on proposals to change the regime, with comments invited by October 29. A quarter of respondents hoped to see the status quo maintained, while 43 percent would like to a see a principles-based approach used. Only 13 percent hoped to see a Solvency II style model.

Solvency II is the name given to the new insurance solvency rules set to take effect in the European Union in 2013. Some respondents did believe that no change to Bermuda's solvency regime would lead to a reduction in business ceded from Europe.

Staffing and work permit issues was another challenge of operating in Bermuda identified by more than half of respondents, while almost a quarter noted the cost of operating on the Island.

The PWC report found that the biggest geographical sources of business for the Island's life (re)insurance sector were Continental Europe (46 percent) and the US (37%). Asia, where an expanding middle class of growing affluence is emerging, represented five percent of business.

Those companies already present in the Asia market believed there would be growth there, but there was little interest from those not in Asia to entering that market.

Mr. Grady said the sector had weathered a period of uncertainty. "Almost all respondents believe there will be growth "across most lines of business, but it will be interesting to see when and how this comes to fruition."

A copy of the full report can be downloaded from the PWC website at www.pwc.com/bermuda, or by calling Erica Martin on 299-7275.