Captive insurers are beginning to play a vital role in closing the climate risk-related protection gap, a new report by the Bermuda Monetary Authority suggests.

The BMA Captive Report 2021 is based on an aggregation of the electronic reporting data submitted by industry.

It highlights the market results from the 2020 year-end statutory financial returns with a focus on the general business captive insurers — Classes 1, 2 and 3 insurers.

The BMA said the two key emerging risks of note are cyber, specifically ransomware, and climate.

Of climate risk, the report said: “The authority has observed approaches to climate risk that propel underlying organisations and their captives forward.

“For instance, companies are implementing measures to embed climate risk into key decision-making processes and are formulating efforts to increase climate risk awareness throughout their organisations.

“These actions positively impact captives from a risk perspective and equally uncovers opportunities for both the parent companies and their captives.

“Captives are beginning to play a vital role in closing the climate risk-related protection gap. An example of this is the excess capacity being deployed in innovative ways, such as supporting low-carbon technologies where, historically, the insurance industry may have had less experience in the early stages of these technologies.

“The BMA expects further captive developments with the mitigation of climate risk in the future. Additionally, the authority supports continued innovation in this space and is interested in emerging strategies for captives in the Bermuda market.”

The report said: “Bermuda captives and their parent companies continue to pay close attention to cyber-risk as well as the significant increase in the cost cyber insurance in the commercial market.

“In this regard, the BMA has noted a significant growth increase in the number of organisations using their captives for cyber insurance as part of the overall management of the risk.

“This is once again an example of captives coming to the forefront of risk management discussions and being used more broadly to secure the necessary coverage and effectively manage the cost of organisational risks.”

By the numbers:

• The captive insurance industry wrote more than $24 billion in gross premium written in 2020

• 65 per cent of the market has a “traditional captive” company structure

• 71 per cent of the risk assumed by the market originates in North America and Bermuda

• 16 per cent of insurers are in run-off

• 17 per cent of insurers have segregated accounts

• Demographics of the parent companies of Bermuda captives are led by financial institutions (14 per cent), followed by automotive, manufacturing and retail (12 per cent) and shipping, transport and storage (12 per cent). Captives of parent companies in the healthcare industry remain steady at 10 per cent of the market

• The provision of short-tail coverages represented 65 per cent of all business written by Bermuda captives in 2020 compared with 58 per cent in 2019.

• In 2020, 12 new captives were formed, down from 22 in 2019, with the leading industries of the parent company being 17 per cent from energy, power and utilities, shipping, transport and storage and wholesale and retail institutions.

• Premium share of the Bermuda captive market continues to be dominated by captives focused on energy, power and utilities (14 per cent) and financial institutions industry (14 per cent), followed by administrative and support services (13 per cent) and shipping, transport and storage (13 per cent).

• In 2020, 35 per cent of all business was in longtail lines, compared with approximately 42 per cent in 2019 and 39 per cent in 2018.

• The Bermuda captive market was profitable in 2020, both collectively and at each class level.

• The authority noted loss and loss expense provisions combined with unearned premiums totalling $40 billion (29 per cent of all liabilities) and capital and surplus of more than $66 billion and minimal balances due (4 per cent of liabilities).