U.S. Needs Bermuda to Boost Annuity Supply, Regulators Say

Astrid Jaekel, the chief risk officer at Aegon, said at the BILTIR conference that Aegon likes operating in Bermuda because it understands that life insurers can use illiquid assets and careful asset-liability matching strategies to support long-term life and annuity products.

Regulators’ views: Mais, the NAIC president, acknowledged the need for careful regulatory monitoring, or “guardrails.”

“The number one goal is consumer protection,” Mais said. “You have to ensure solvency. Is a company able to pay? And market conduct: Is the company willing to pay? But it goes beyond that.”

In addition to making sure that the products that exist are safe, regulators have to make sure that consumers benefit from having access to a vibrant, competitive insurance marketplace, Mais said.

“We don’t want to stifle the market,” he said. “We’re a market that supports innovation.”

Craig Swann, the chief executive officer of the Bermuda Monetary Authority, the agency that oversees Bermuda insurers and reinsurers, said private equity firms and the Bermuda reinsurance market are critical to overcoming the damage that low interest rates did to life and annuity issuers after the financial crisis.

Swann cited Swiss Re estimates that, as of 2022, the world faced a $106 trillion retirement assets gap.

One reason for the gap is that, from 2012 through 2022, the returns life and annuity issuers were earning on their invested assets were so poor that, instead of writing new annuities and pension plans, they ended up returning $275 billion in capital to shareholders in the form of dividends and share buybacks.

The alternative insurer view: Darryl Herrick, co-head of reinsurance at Global Atlantic, and Michael Pagano, head of insurance coverage in the financial institutions group at Apollo, defended the approach that the new private equity owners are taking to managing life and annuity reinsurance companies and those companies’ investment portfolios.

Assets that are relatively illiquid, or difficult to convert quickly into cash, can be just as safe as the high-grade corporate bonds that life and annuity issuers have traditionally put in their portfolios, and there is no reason for long-term institutional investors, or long-term retail retirement investors, to accept low returns in exchange for a high level of liquidity, Herrick and Pagano said.

“Why do we have daily liquid index funds in our 401(k)s?” Pagano asked. “That’s the longest liability that you’ve got on your balance sheet. That’s the retirement income the individual is meant to be saving for. They can turn that into cash tomorrow. Why? What is the reason for that?”

Grotto Bay Beach Resort & Spa in Hamilton Parish, Bermuda. Credit: Nicola Muirhead/Bloomberg