The Bermuda Monetary Authority is to increase its focus on climate change matters with the introduction of a regulatory and supervisory team specialising in the licensing and supervision of innovative business model proposals to address climate change risk and the associated protection gap.

The BMA said the team will also work with climate change risk solution service providers to the financial services sectors wishing to participate in the BMA’s innovation hub.

The organisation added that it recognises that the challenges posed by climate change continue to exacerbate, resulting in a tremendous impact on both communities and regulated entities.

With respect to industry impact, the organisation said that while recent BMA and Prudential Regulation Authority stress testing suggests that Bermuda’s re/insurers would remain resilient to a wide range of risk scenarios, the BMA’s data estimates that combined gross potential loss for the Bermuda commercial re/insurance market on major natural catastrophe perils is approximately $200 billion.

More specifically, the BMA’s analysis of the exceedance probability curves demonstrates that Bermuda commercial re/insurers are more exposed to Atlantic hurricane than any other peril.

The gross average modelled losses for this peril, across all companies, stretches from $772.6 million for the “one in 50-year” events up to $1.5 billion for the “one in 1,000-year” events, the organisation said.

It added that the economic impact on communities is even more profound. Citing a report by Aon, the BMA said out of 416 notable 2020 natural disaster events, the protection gap was roughly 64 per cent.

The BMA said developing countries suffer the vast majority of uninsured losses, noting that a 2018-commissioned Lloyd’s of London study attributed an estimated 96 per cent of the total global insurance protection gap to developing countries.

Accordingly, the BMA said, there is more opportunity for increased natural catastrophe financial support from the re/insurance industry, of which Bermuda has a high level of existing expertise.

Through this new team’s introduction, as well as other Environmental, Social and Governance initiatives, the BMA said it is committed to supporting industry’s pursuit of these opportunities and efforts to mitigate climate change business risks, alongside contributing to global solutions regarding climate change and the global insurance protection gap.

The BMA said the initiative will not be limited to the insurance industry; the team will be comprised of subject matter experts from across the organisation’s business units.

Paralleled with the upcoming introduction of the General Regulatory Sandbox, and the BMA’s existing regulatory sandboxes, the organisation said the move will further enable sectors throughout Bermuda’s financial services ecosystem to have the requisite regulatory and supervisory guidance, support and parameters as they pursue innovative solutions relating to climate change risk.

Craig Swan, deputy chief executive officer of the BMA, said: “As the Authority has historically done, it will continue to update its framework to ensure agility. The team’s initial focus will be on the insurance, investment funds and digital assets sectors, providing both incumbents and the widening array of entrants with an evolving framework that flexes to innovations and ESG considerations.”

He added: “The goal is to ensure industry and the BMA continue to use ‘cutting edge’ approaches in managing risks and opportunities, respectively. This ultimately will maintain Bermuda’s important role in assisting individuals, communities and businesses around the world to mitigate climate change risks and develop sustainably.”

The BMA said it will continue to have substantial dialogue with the Bermuda market on ESG and actively participate and support development and adoption of broad international and local standards and guidelines.

Interested parties, who have specific suggestions or business cases on the topic, including a desire to participate within one of the BMA’s regulatory sandboxes or its innovation hub, are advised to engage with the BMA by e-mailing climaterisk@bma.bm.

The BMA’s announcement comes just days after the chairman of the Bermuda Business Development Agency said he was convinced that the next wave of innovation for the climate risk finance should be done in Bermuda.

Stephen Weinstein, speaking to Newsweek magazine’s Country Reports section, said: “We are very excited about Bermuda expanding in the most adjacent space to natural catastrophe insurance: the growing market for climate risk finance.”

He added: “The world’s biggest problem, once we put the pandemic behind us, is the global risk of climate change. Climate change, apart from the obvious risks to health and biodiversity, accordingly entails significant financial risks to businesses and governments.”

In the report, Mr Weinstein said Bermuda was ideally positioned to emerge as the climate risk capital and “to play a disproportionate role in climate solutions and adaptation”.