BMA: reinsurance sector passes stress test
The island’s property and casualty insurance and reinsurance sector has proved to be resilient to potential adverse impacts, the Bermuda Monetary Authority has reported after a stress-testing exercise.
The island’s financial services regulator has released a 35-page report based on 2023 year-end data titled Bermuda Insurance Property and Casualty Market Catastrophe Risk and Stress Testing Analysis.
Bermuda’s insurance and reinsurance sector is regulated and supervised by the BMA. As part of its regulatory and supervisory measures, the organisation requires all Class 3B and Class 4 insurers to submit a capital and solvency return, which includes a catastrophe return detailing the insurers’ and reinsurers’ catastrophe risk management practices.
Drawing from the information in the returns, this report gives an overview of the catastrophe risk exposure assumed by Bermuda’s insurance and reinsurance sector. It also assesses the sector’s capacity to absorb shocks from various adverse financial markets and underwriting conditions.
The report analyses whether Bermuda insurers and reinsurers are adequately capitalised to withstand severe but remote losses from various possible events that might adversely impact their economic balance sheets (ie, economic assets, economic liabilities and capital and surplus).
This report also reviews Bermuda insurers’ levels of reliance on reinsurance, including identifying risk concentrations.
The BMA wrote: “The stress test results demonstrated that the Bermuda insurance [and reinsurance] market is resilient to potential adverse impacts, including the financial market, catastrophe and other underwriting loss scenarios.
“These results highlight the industry’s overall resilience and establish Bermuda insurers’ [and reinsurers’] ability to absorb these unlikely and potentially large losses while still having capital remaining to settle policyholder obligations and meet regulatory capital requirements.”
However, the BMA added: “The exclusion of all other classes, such as special purpose insurers, limits the conclusions that could be drawn from the results of this survey.
“Therefore, the results should be viewed as reflecting a segment of the industry and not the exposure of the entire Bermuda insurance market, which is larger than what is presented in this report.
“It should also be noted that the report does not consider mortality catastrophe risk because it excluded the long-term (life) insurers.”
Addressing Bermuda’s catastrophe risk exposure, the BMA said: “For 2023, the year-on-year gross loss exposure assumed by Bermuda insurers increased 2.69 per cent, from $199.11 billion in 2022 to $204.46 billion in 2023.
“The amount of ceded loss decreased by 2.63 per cent, from $121.67 billion in 2022 to $118.47 billion in 2023. As such, the net loss exposure assumed by Bermuda insurers increased by 11.04 per cent, from $77.44 billion in 2022 to $85.99 billion in 2023.”
• For the full report, see Related Media
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