Why Bermuda is life insurance heaven


What you need to know

  • Maryellen Coggins is the new President of the Academy for 2021-2022.
  • Index-linked variable annuities are really different from other variable annuities.
  • Some Medicare solvency monitors believe that a change in Medicare supplemental insurance rules could improve the solvency of the program.

Members of the American Academy of Actuaries met online last week and provided answers to some of the most pressing questions in life, health, and retirement insurance – including why US life insurers seem to all do business in Bermuda.

One speaker answered this question with a table in a presentation slide deck: Bermuda is gentler when it comes to how much a life insurer’s investment is really worth.

When a life insurer includes investments in their US risk-based capital ratio calculations, it must reflect regulators’ risk perceptions by lowering the value of private equity investments, infrastructure stocks, and some other types of investments by 47.4%.

When a life insurer does similar types of capital calculations for Bermuda regulators, the capital requirement for private equity investing is only 35.6% and the infrastructure stock fee is only 19.8%.

The rules mean that in a good year a life insurer who looks like a Clark Kent investor in the US will look like a Superman investor in Bermuda. It can afford to cut costs for customers, pass more profits on to owners, or both.

Investment rules of life insurers

Life insurance, annuity, long-term disability and other long-term policy issuers are far more reliant on investment income than major health insurers and most property and casualty insurance products in order to generate some of the income needed to settle claims.

U.S. regulators’ rules encourage life insurers to invest most of their money in high-rated corporate bonds, mortgages, and mortgage-backed securities.

Bermuda’s capital rules make it easier for local life insurers to attempt to increase returns by investing in assets such as public company stocks and private equity funds, which may expose the holder to higher risk but also offer higher investment returns.

The American Academy of Actuaries

Actuaries are people who have taken tests to show they understand the math involved in managing insurance companies, pension funds, and similar types of agreements.

The American Academy of Actuaries is a professional group for actuaries founded in 1965. The Academy works to show policy makers in federal, state and local politics how actuaries think about important political issues.

The academy’s teams address topics as diverse as the impact of COVID-19, how climate change could affect property insurance risk, and how changes in people’s life expectancy could affect social security, health insurance and retirement plans.

The Academy’s Annual Meeting and Public Policy Forum

Here are five questions the Academy members addressed in the Public Policy Forum sessions during their annual session, beyond the rules of Bermuda capital valuation.

1. Who is in charge of the academy now?

Maryellen Coggins of Boston succeeded Thomas Campbell as president of the group.

Coggins, who is President 2021-2022, is Managing Director, Risk and Capital Management Services at PwC.

The new president-elect is Kenneth Kent, an advisory actuary at Cheiron.

2. Does a registered index-linked annuity (RILA) or an index-linked variable annuity (ILVA) really differ from a traditional variable annuity?

Dodie Kent, Laura Hanson, Pete Weber and Ryan Berends answered this question in a slide deck for a session on the products known as RILAs or ILVAs or as buffered annuities, structured annuities or hybrid annuities.

The speakers said that from an insurer’s point of view, a RILA contract is very different from a traditional variable annuity because the RILA contract is “non-unitized,” meaning that the customer has no direct claim to the underlying assets. The holder of a traditional variable annuity is usually entitled to the underlying assets in the sub-account.

The investments are also different. An insurer invests a traditional variable annuity customer’s money directly in securities in the sub-account.

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