The Bermuda insurance and reinsurance market remains on a path of substantial evolution but increasing notice is being taken of the “impressive growth” in the long-term reinsurance business.

It has come as the market has embraced the use of third-party capital structures and investor relationships, and included sidecars as an established and growing feature.

But market professionals believe there remains much more to come, that increasing business opportunity is driven to Bermuda because of its reputation for innovation, legislative agility and clear, evidence-based regulation.

Damian Cooper, Bermuda partner, PwC, during a recent Artemis Live video interview with Steve Evans, Artemis editor-in-chief, highlighted a continuous trend towards innovation in the relationships between cedents and investors or asset managers in what both agreed to be impressive growth in the life reinsurance market.

Mr Cooper said: "On the demand side from the life reinsurers, it's worth noting that, obviously, the reinsurers are fairly restricted. There's a real limit from a regulatory capital perspective on their ability to use debt financing, so they are relatively dependent on equity.

"Third party capital has really been seen as an attractive way to grow, given its relative cost and flexibility as a tool to fund that growth, and given just the size of where these life reinsurers are going, there is a constant need, or a fairly steady need, to attain new capital to be able to fund that growth.

“For the established reinsurers, the use of third-party capital and those sidecars also gives an opportunity to generate management-fee income, to create another revenue source for them as part of their wider return to their primary equity holders.

“Then also, depending on the source of third-party capital, it can be used to ensure you get a good long-term alignment of interest between a ceding company or an asset manager and creating that symbiotic relationship on the reinsurance side, and then on the supply side.

“The existing success of those third-party capital vehicles is generating their own appetite for people looking at an effective way to essentially invest into the life reinsurance market and to be able to partner up, or access the successful management teams, as they were, and their expertise in underwriting and asset management.”

Mr Cooper told Artemis Live that Bermuda had responded to the demand and its ability to do so was related to the island’s track record of innovation and the support it got from the legal and regulatory regime.

He said: “Look at the [Bermuda Monetary Authority] and what they did. We had the segregated accounts companies and then the Incorporated Segregated Accounts Companies Acts and Regulations in 2020, and so that created a good platform for people to build on.

“Then the BMA has also been very clear in terms of expectations of how a sidecar should be managed, what governance needs to be in place and what the structure is.

“That gives new entrants confidence when they're trying to market to potential investors as to what the structure should look like.

“And then from a cost perspective where sidecars have been a less expensive means to replicate new vehicles, the existing reinsurance ecosystem of Bermuda had a good track record in the P&C space of operating sidecars and they've been able to pivot their offerings to also support the formation of these structures and to help keep some of those cost barriers down.

“All of this, I think, is primarily where we're seeing this growth. I think it is an area that's going to continue to grow.

Mr Cooper said that for investors it had been seen as an attractive asset class, good diversification in terms of alternative assets.

He believes there remains a real shortage of capital in the global life insurance market and still plenty of opportunity to tap into.

He said: “I think what we're potentially going to see is more diversification. Bermuda and the industry have been fairly heavily focused on the North American market.

“My expectation in future is we're going to start to see an increasing geographic diversification as more regulators across the globe get more comfortable with the Bermuda structure and how it can support its domestic industry.

“I think that will continue to be a driver for additional third-party vehicles coming into Bermuda.

“I think that would be very exciting to see this broadening out to global life platforms looking to use Bermuda to house third-party capital structures.”

With such continuous innovation, Mr Cooper would not rule out the possibility for other opportunities with other structures, but he believes there remains far more to come from what is already in use.

He said: “I think there's still a fair bit to run in terms of the existing structures, in terms of what we're hearing and people really sort of utilising the incorporated segregated accounts companies.

“I think that has more run to go before people get into the next wave of innovation.

“But yeah, it wouldn't surprise me for people to be continuously looking at other ways to solve problems that are out there and find other ways to make it attractive for capital to get into the insurance ecosystem. And I would expect that to come through Bermuda.”