10 June 2019Analysis

Bermuda captives see increased utility as commercial market hardens

With the hardening of the commercial insurance market for many lines of business, captives are being used more for either increasing retentions or new lines that were traditionally placed in the commercial market when it was softer.

This is according to Oceana Yates, senior vice president at Quest Management Services, who spoke to Captive International head of this year’s Bermuda Captive Conference.

“We are seeing this increase in interesting from all industry sectors,” said Yates. “I’m really seeing this particularly in medical malpractice and auto lines at the moment in the US, but the brokers are saying the market is hardening throughout the property and casualty lines.”

The Council of Insurance Agents & Brokers’ (CIAB) Commercial Property/Casualty Market Report Q1 2019 suggested commercial pricing by account size increased an average of 3.5 percent in Q1 2019, compared to a 2.4 percent increase in Q4 2018 and 1.6 percent in Q3 2018. This trend began in Q4 2017, with average rates increasing moderately, indicating firming market conditions across all-sized accounts.

Commercial auto continued to experience the largest premium price increase at 8.8 percent, compared to 7.0 percent in Q4 2018. Furthermore, commercial property saw the largest increase relative to its Q4 2018 increased, from a 2.9 percent increase in Q4 2018 to a 5.9 percent increase in Q1 2019.

Yates also noted that there is an increasing use of captives for different lines, for example medical stop loss, environmental exposures and cyber, and there is also a big push for digital asset business and insurtech.

Last year, Bermuda enacted the Companies and Limited Liability Company (Initial Coin Offering) Amendment Act 2018—also known as the ICO Act— the latest move on the part of Bermuda’s government to expand the range of businesses that operate on the Island, as well as to encourage more technology-related companies to open on Bermuda. ICOs can be used to raise funds for re/insurers but in many places are not regulated.

This new legislation affects those who are interested in creating, promoting, investing in and using ICOs and digital assets, as well as companies who are seeking to raise capital through ICOs.

“These continue to showcase the innovation that has been a hallmark of Bermuda,” added Yates.

She continued: “Innovation has been key to our jurisdiction’s success. The regulator has been, and continues to be, very proactive and responsive to industry concerns and innovations. Bermuda has been very successful in balancing appropriate regulation and oversight with the business needs of its constituents and that has kept the doors open for business.”