Comment - Bermuda, an island paradise for insurer outsourcing

By David Walker

When preparing reports on outsourcing and investment performance, a certain rhythm in the disclosures of insurers becomes familiar.

From European chief investment officers (CIOs) for 2020, it sounded like this: We expected to lose money on shares - but we didn't. We expected yields to be diluted – and they were. The asset managers running our alternative investments gave uncorrelated returns, we invested some more with them during the year.

At Bermudians, by contrast CIOs were singing to a tune along those lines: In 2020 we expect to lose money from shares - but instead our returns were commonly double-digits. We expected our yields to be diluted – and they were. We are generally satisfied with the various multi-year outsourcing arrangements we have with independent asset managers for alternative investments. Or rather, so-called 'alternatives' that are so common on Bermuda general accounts that they aren't really 'alternative' anymore. We gave those managers more to manage in 2020.

Bermuda's CIOs are funding capital calls from general partners they're locked to, often for many years, adding to different kinds of hedge funds, and finding intellectual property- and asset-financing funds to invest in.

And it is not just eclecticism in asset classes.

When Insurance Risk Data unearthed more than 100 Bermuda insurers outsourcing investing for the inaugural Insurer Investment Outsourcing Opportunities & Performance - Bermuda 2022 report, it found about 90 different managers being named – not far off a new manager for each outsourcer.

The 1,300 insurers named in Insurance Investment Outsourcing Opportunities - Europe and Bermuda 2022 have between them over 500 different managers for their outsourcing.

So, what gives?

In short, 'alts'.

One insurer's 'other' investments include hedge funds, direct lending funds, private equity funds, property funds and CLO equity tranched securities. For another, waiting up to 270 days to redeem, limited partners include large-cap buyouts, specialist buyouts, distressed, real estate, and co-investments.

For another, the menu includes mid-market North American privately-originated, performing senior secured debt, pre-IPO private equity, climate infrastructure and even "investments in a facility established by the US Federal Reserve that provides financing to US company market participants for levered asset purchases with a focus on asset-backed, commercial mortgage and CLOs".

'Mainstream' and 'cheap' also appear on Bermudians' outsourcing rosters, for instance Vanguard, Russell, iShares and BlackRock.

But the fee arrangement one insurer describes for HPS Investment Partners - and presumably those for CQS, Highbridge, Apollo Asset Management Europe and Zimmer Partners – surely cannot be cheap , but must be 'good value'.

The more than 60 investment professionals sitting inside Bermuda insurers - unearthed and named by Insurance Risk Data – no doubt help identify value for money.

For its many CIOs outsourcing, Bermuda is indeed somewhat of a paradise for managers with skills for sale.