Bermuda Monetary Authority releases report on islands’ captive market

A report on Bermuda’s captive market by the Bermuda Monetary Authority (BMA) has revealed that two thirds of captives originate from North America, and two thirds are ‘pure’ captives. Financial institutions continue to be the most significant industry of parent companies (16%), followed by shipping, transport and storage (12%), automotive, manufacturing and retail (11%), and healthcare (10%). The second annual BMA Captive Report 2018 notes that 16% of insurers are in run-off, 17% of insurers have segregated accounts, and 67% of the market originates from North America (a 5% increase from the prior year). In 2017, as in the prior year, the majority of risk assumed by Bermuda captives originated in North America and Bermuda (69%), and Europe (19%) – some 75% of captives have a parent in these domiciles. The BMA says there was an increase in business written from the US and a reduction in EU business (by 4%) in 2017, compared to 2016. Property coverage represented 53% of all business written by Bermuda captives in 2017, compared to 55% in 2016. The main property lines in 2017 were property and casualty catastrophe (43%), warranty and residual value (21%), and property damage and business interruption (15%). Casualty coverage represented 47% of all business written by Bermuda captives in 2017 compared to 45% in 2016. The primary casualty lines for 2017 were general liability (26%), workers compensation and employers liability (24%), and motor (20%) Significant year-on-year percentage increases were seen in professional liability, which grew from $0.7bn in 2016 to $2.1bn in 2017; and general liability, which grew from $2.5bn in 2016 to $3.6bn in 2017. “Although not yet significant in premium size, the greatest year-on-year percentage increase was experienced by the cyber risk line of business, which saw an increase in premium of $26.3m to $42.0m in 2017, a nearly twofold increase in premiums written,” commented Craig Swan, managing director, supervision, (insurance) at the BMA. “This report provides further insight and transparency about how Bermuda’s innovative (re)insurance market continues to evolve and develop.” The report states that the premium share of the Bermuda captive market continues to be dominated by captives focused on financial institutions (46%), shipping (12%) and energy (7%). It also notes that 65% of Bermuda’s captives are pure captives, underwriting only the risk of its parent and/or affiliates. Overall, captive structures are relatively unchanged compared to the prior year: pure captive (65%), rent-a-captive (7%), group captive (6%), association captive (3%), agency captive (1%) and other (19%). In 2017, the median loss ratio and combined ratio for Bermuda general business captives was 54% (49% in 2016) and 77% (75% in 2016) respectively. The report notes that the increase in loss ratio was the result of insurers paying claims primarily related to natural catastrophes in 2017, adding that overall, the combined ratio is relatively unchanged as insurers restructured in a bid to increase operational efficiency. The BMA also released its first annual BMA Alternative Capital Report 2018. Mr Swan said: “The steady growth of alternative capital within the Bermuda insurance market, particularly following the 2017 losses from Hurricanes Harvey, Irma and Maria, indicates that Bermuda continues to be a trusted centre for insurance risk securitisation.” The report reveals that the aggregate exposure of non-life (re)insurers backed by alternative capital was approximately $51.9bn at year-end 2017, while gross written premiums were $3.9bn. Bermuda’s share of total capacity was approximately 58% of the global alternative capital market.

Bermuda Monetary Authority releases report on islands’ captive market

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