Regulators have seen new innovative captive insurance structures being developed, including ones to combat losses impacting vulnerable communities or jurisdictions.

The just-published Bermuda Monetary Authority Captive Report 2022, showed that the island’s captive market remained a leader among the captive jurisdictions worldwide and continued the growth seen in previous years.

The report, which covers 2021, also showed that the captive market maintained its strength and presence writing more than $24 billion in gross premium.

“The observed growth involves navigation into new innovative spaces, adjustment of strategies and, in many cases, expansion of traditional insurance lines,” said the report.

“In 2021, the authority noted increases and formations — averaging 17 per year in recent years — across the classes and lines of business relating to the construction industry, energy and employee benefits across various insurance layers, most notably deductible reimbursement coverage,” according to the report.

“With the redefined uses of current captives and the exploration and establishment of new insurance solutions designed to cover emerging risks, the authority has seen a number of innovative captive insurance structures being developed, such as those to combat losses impacting vulnerable communities or jurisdictions.”

The BMA said there were two key areas of focus in 2021: cyber and climate risk.

“Effective January 1, 2021, the Cyber Code of Conduct came into force with increased regulation around the cyber controls and security requirements of registered insurance entities,” said the report.

It said the BMA has continued to increase internal resources “in line with the importance of this risk”.

“In connection to cyber-risk underwriting, it is noted that captives continued exploring the possibilities and the implementation of new solutions in addressing pricing and capacity constraints experienced during the recent renewal periods.”

Following industry consultation, with an enhanced focus on mitigating climate risks, the BMA finalised its Guidance Note: Management of Climate Risk for Commercial Insurers in March 2023.

“This guidance is intended for commercial insurers based on a phased-in approach requiring full implementation by year-end 2025; however, it informs captives on governance and risk management expectations related to climate risk.”

The BMA said it had also noted that early industry studies have shown a positive correlation between captive owners and environmental, social, and corporate governance solutions and scores, compared to non-captive owners.

“The authority will continue to monitor developments in this area, as well as any captive-specific approaches and actions, to remain informed on the overall direction of ESG progress, as this area is expected to continue to evolve and grow.

“Captives continue to play a significant role in closing the climate risk protection gap by providing innovative solutions such as protection for low-carbon technologies. It is noted that these climate strategies are particularly pronounced when aligned with the underlying organisation’s business model.

“The authority continues to support innovation in this space and particularly supports the growth of emerging climate risk strategies within the captive insurance space in Bermuda.”

As in prior years, most of the risk assumed by Bermuda captives originated in North America and Bermuda, 72 per cent, followed by Europe at 12 per cent.

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2023-12-11-14-01-29-BMA-Captive-Report.pdf

• For the full report, see Related Media