21 May 2018Analysis

Bermuda's captive insurance industry: a vote of confidence from the top

Providing solutions to all sectors

Jeremy Cox, chief executive of the Bermuda Monetary Authority, describes how 2017 was a successful year for captives, and why he is optimistic for the Island’s future growth.

How successful was 2017 for Bermuda and its captives market?

Bermuda had a total of 739 captives on its register as at December 31, 2017, with gross written premium of $54 billion.

Seventeen new captives were registered in 2017, compared to 13 in 2016. The majority of new captives originated in the US, with others coming from Europe, Canada, Australia and Latin America.

Among the coverages written through the new captives were general liability and workers’ compensation for a Canadian conglomerate; nursing homes in the US; and medical stop loss cover for employees. Already in 2018, the Bermuda Monetary Authority (BMA) has registered four US-based captives writing a mixture of healthcare/workers’ compensation and property cover.

Were there any noticeable trends or risks covered?

New 2017 captives covered a diverse range of risks, particularly among the class 1 captives, which experienced significant growth year on year (12 new class 1s were registered in 2017 compared to four in 2016).

In terms of the types of business being written, the new class 1s covered a diverse range of risks, from Canadian conglomerates writing general liability and workers’ compensation; to US healthcare captives insuring nursing homes; and medical stop loss cover for employees.

What trends are you seeing in Bermuda’s captives market?

Trends reflected in the Bermuda captives market include mergers, acquisitions and consolidations, and turning multiple captives into one, as part of cost-saving measures. Usually the business is still being written via an existing vehicle. Bermuda continues to see heightened interest in captives solutions from both Latin America and Canada.

Are there any captives types you expect to see an increased demand for?

Generally speaking, Bermuda remains one of the few captives domiciles which does not concentrate in certain industries or specialise in any one kind of business underwritten for specific industries. Instead, it is home to a broad range of industries utilising captives as a key risk management tool.

Parent companies of Bermuda’s captives operate in a wide variety of industrial sectors, led by financial institutions (18 percent); shipping, transport and storage (14 percent); and automotive, manufacturing and retail (11 percent).

How has Bermuda managed to maintain its position as the world’s leading captives domicile?

Bermuda maintains an internationally respected credibility as a global re/insurance market with experienced service providers and a respected regulator. This carries over into the captives industry which is supported by Bermuda’s role as one of the world’s top three re/insurance markets and the leading jurisdiction for the issuance of catastrophe bonds.

BMA takes the role of gatekeeper to Bermuda’s re/insurance market seriously and every application undergoes intense scrutiny. As a supervisor, it is our job to ensure Bermuda’s outstanding reputation as a financial services centre stays intact.

While Bermuda remains the world’s leading jurisdiction for captives formations, it’s not about the number of captives on the Bermuda register—it’s about the quality of business being conducted here. That’s the Bermuda brand, and the BMA will continue to apply the regulation needed to protect it.

How has insurtech impacted Bermuda and the captives sector?

With technology being a leading force in the global re/insurance marketplace, we can expect to see more captives availing themselves of insurtech solutions. Emerging business lines include cyber and healthcare. We continue to see heightened interest from areas with emerging enterprise risk management frameworks like Latin America and Asia.

BMA continuously seeks to use innovative new technology. For example, it incorporated new technology into its supervisory processes with the introduction of an electronic statutory filing system in 2016 to allow for more robust data collation on Bermuda captives/special purpose insurer (SPI) filings, with those findings published as the BMA Captive-SPI Report 2017.

Tell us more about the report. What did it cover specifically?

The BMA Captive-SPI Report 2017 highlights results collected from an electronic statutory filing return system submitted as of September 30, 2017. The system is applicable only to limited purpose insurers classes 1, 2, 3, A and B, and SPIs.

Data in the report is presented in four main ways:

  • Business written by geographical region, lines of business and industry of the parent company;
  • Industry utilisation of Bermuda captives, their premium shares and the industry profile of the market;
  • Balance sheet composition of assets, liabilities and investment allocation; and
  • Profitability indicators.

The report predominantly covers general business captives, ie, classes 1, 2 and 3 insurers, as they comprise 24 percent, 32 percent and 27 percent, respectively, of financial returns. Class A and B insurers accounted for less than 2 percent of submitted filings and were therefore not material to the data findings.

Bermuda: the favourite for captives

The Hon. E. David Burt, JP, MP, the Premier of Bermuda, describes why he believes the Island remains the domicile of choice for captives.

Bermuda provides the ideal economic, political and infrastructure conditions to support the development of the captives industry. This government continues to foster a business environment that is resilient and nimble, one that has proved to be competitive and pass every test, even in difficult times.

Bermuda has substantial intellectual capital and insurance and financial services expertise, keeping the Island on the cutting edge in the development of innovative captives programmes and solutions.

In tandem with captives and the wealth of insurance expertise is an excellent infrastructure of professional services, such as accountants, auditors, actuaries, bankers and lawyers.

“Our captives clients find other, often related, opportunities because of Bermuda’s major insurance and reinsurance markets.”

All this would be great for the world’s leading captives domicile, but there is much more. Our captives clients find other, often related, opportunities because of Bermuda’s major insurance and reinsurance markets.

That is why we refer to the Island as a one-stop shop for much of a company’s insurance purchasing needs.

We can fill up the pages of a publication explaining what makes the Bermuda captives domicile valuable to our corporate clients. Instead, I invite you to spend time working with the world’s leading captives experts. They have innovative solutions to corporate risk management needs.