Bermuda captives to remain bifurcated under Solvency II
The Bermuda Monetary Authority is one of the essential elements contributing to the success of Bermuda’s insurance market and at the Bermuda Captive Conference, Timae Flood, Deputy Director, Insurance Supervision dispelled myths and provided updates on Bermuda’s captive regime.
Flood said Bermuda has enjoyed European Commission Solvency II equivalence since January 2016. Explaining that Bermuda has always taken a pragmatic approach and recognised that simply replicating the Solvency II provisions would not have been practical or adequate due to the unique nature, scale and complexity of the Bermuda market, the BMA undertook extensive work that included consideration of the powers and responsibilities of supervisors, the governance systems they saw with the assessments and group supervision.
Through the regulatory regime, the equivalent provisions under the Solvency II directive do not apply to Bermuda captives, therefore previous captive classes are not impacted by the Solvency II equivalence.
Extensive discussions were held in Europe that resulted in maintaining a regulatory regime that is uniquely appropriate for commercial insurers, reinsurers and limited partners insurers. Benefits include contracts between EU insurers and Bermuda reinsurers which are treated in the same manner as reinsurance contracts entered into within the EU. The BMA regulations absolve the captive groups from being subject to additional burdens arising from dual group supervision.
Reinsurers with cross-border operations have been able to comply with the relatively common requirements of regulation and supervision which has allowed them to reap the benefits of economies of scale and expense reduction due to a significant reduction in administrative burden on the bifurcation of the regime.
The BMA specifically carved out the limited purpose classes and Flood clarified that the BMA has no intentions and is not under any pressure to remove bifurcation of the regime.
Flood said the BMA has completed extensive work to educate the captive market on the regime being risk based and commensurate with the nature, scale and complexity of Bermuda-based captives, ensuring the captives are not at an operational disadvantage conducting business.
The BMA see captives in every stage of their life cycle with some that have come to the end of their cycle in addition to increased M&A activity. This impacts every industry and there is often strategic debate around the number of captives to maintain in cases where two parents have merged, or one has been acquired by the other. There will be cases where the decision is made to consolidate and reduce the number of captives because very often both organisations have at least one or two captives in their portfolio
In most of those cases, it is the Bermuda captive that is retained, and the BMA continues to see growth in captives that use a segregated account structure as governed by the segregated accounts Companies Act 2000 or the more recently introduced Incorporated Segregated Accounts Act 2019. The data reflects a consistent increase in the number of segregated cells in operation and over the last few years captive business property and catastrophe accounts for 28% of the market share, warranty residual value at 12% and general liability at 10%, property damage and BI also at 10%. Of that share the BMA is seeing increases in deductible reimbursement coverages previously retained and increases on the cyber and property lines as organisations note renewal challenges based on pricing and capacity constraints.
Flood said the Bermuda captive market continues to thrive is expected to continue to grow from strength to strength for another 60 years and beyond. The BMA sees continued interest from new entrants and the BMA is always open for discussions on potential thoughts or where the captives would like to transition or any that have any new or novel ideas.
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