Bermuda’s captive market balances regulation, resilience and reinvention

As global scrutiny around governance, transparency and AI-driven risk intensifies, Bermuda’s captive sector is seeking to preserve the regulatory flexibility that helped make it the world’s leading domicile. Captive Review investigates.

Bermuda’s position as one of the world’s leading captive insurance domiciles has long rested on a combination of expertise, regulatory credibility and market depth. Yet as the global captive sector evolves, the jurisdiction is increasingly being judged not simply on its historical dominance, but on how effectively it responds to new demands around governance, transparency and operational resilience.

Insights from the World Domicile Update 2025 published by Captive Review World Domicile Update 2025, combined with commentary from Fred Eslami, associate director at AM Best, suggest Bermuda is attempting to strike a delicate balance: strengthening regulatory oversight without sacrificing the flexibility that has historically made the domicile attractive to captive owners.

“Solvency II equivalency is critical, particularly for multinational captive owners seeking compatibility with both US and European regulatory frameworks.”

The broader captive market remains in a period of transition. According to the World Domicile Update, captive owners continue placing “more risk, or even new risks” into existing structures despite softer conditions emerging in parts of the commercial insurance market. This reflects a wider shift in how corporations view captives – no longer merely as cyclical insurance vehicles, but as strategic tools for enterprise risk management.

For Bermuda, this transition is particularly significant. The island remains deeply integrated into the global insurance and reinsurance ecosystem, with more than six decades of captive experience and a concentration of specialist expertise few jurisdictions can match. However, increased global scrutiny around governance and transparency has forced all major domiciles to reassess their regulatory frameworks.

Eslami believes Bermuda has adapted successfully to those pressures without undermining its competitive advantages.

“Solvency II equivalency is a critical element of Bermuda’s regulatory credibility,” he explains, particularly for multinational captive owners seeking compatibility with both US and European regulatory frameworks.

That equivalency has become one of Bermuda’s defining strengths. Unlike some competing domiciles, Bermuda negotiated a segmented regulatory arrangement with the European Union that differentiates between large commercial insurers and smaller pure captives or single-parent insurers. Under this bifurcated system, large insurers are subject to Solvency II-style oversight, while smaller captives operate under what Eslami describes as a “highly proportional risk-based framework”.

The distinction is important because it preserves regulatory flexibility for captive owners while maintaining international credibility.

“Initially, 10 years ago, captive owners were concerned about strict compliance rules applied to various size captives,” Eslami notes. “But today, Bermuda provides a unique flexibility that captive owners can benefit from.”

That flexibility appears to be resonating with the market. Eslami points to the stability of AM Best-rated Bermuda captives as evidence that confidence in the domicile remains strong. AM Best’s captive team currently rates 22 Bermuda-domiciled captives, and according to Eslami, none has sought to re-domicile over the past decade.

“Given the stability of our ratings for these captives and the fact that none of these has changed domiciles, this would point to the fact that Solvency II equivalency continues to be important and critical,” he says.

The comments come at a time when competition between domiciles is intensifying. The World Domicile Update highlights growing activity across North America, Europe and the Caribbean, with numerous jurisdictions attempting to attract new formations through legislative reforms, tax advantages and streamlined licensing regimes.

US captive states continue to expand aggressively, while European markets such as France are gaining renewed momentum following regulatory changes. Smaller offshore centres are also attempting to position themselves as more agile and cost-effective alternatives to established domiciles.

Against that backdrop, Bermuda faces pressure to demonstrate that stronger governance requirements do not compromise the commercial practicality of operating a captive on the island.

Some critics have argued that increasing compliance expectations risk eroding the flexibility that originally attracted captive owners to Bermuda. Eslami, however, rejects the suggestion that the balance has shifted too far towards regulation.

“We believe Bermuda has managed to preserve its proportional regulation effectively,” he says, again citing the stability of AM Best-rated captives and the absence of any meaningful re-domiciling trend among those entities.

The World Domicile Update suggests this balance between credibility and flexibility is becoming increasingly important as softer insurance market conditions emerge in certain commercial lines. While cheaper traditional insurance pricing can temporarily reduce the appeal of captive formations, regulatory quality might become a more decisive differentiator over the longer term.

“In general, most captives benefit from their own internal capabilities with strict underwriting practices and prudent risk management approaches,” Eslami explains. “While soft commercial markets could provide short-term premium savings, the importance of a strong regulatory environment and capital oversight could become critical differentiators.”

He argues that leading domiciles such as Bermuda and Vermont are distinguishing themselves by applying compliance standards proportionate to the size and complexity of captive operations, rather than imposing uniform rules across all entities.

That proportional approach might prove increasingly valuable as captives begin underwriting more complex and emerging risks. The World Domicile Update identifies ongoing diversification across cyber, climate and specialty exposures, with captive owners seeking greater control over difficult-to-insure liabilities.

Bermuda’s experience in sophisticated risk financing arguably places it in a strong position to capitalise on those trends. The jurisdiction has already become a leading centre for segregated account companies and cell captives, structures that allow organisations to access captive benefits without establishing standalone insurance entities. These vehicles are growing rapidly as companies seek more flexible and capital-efficient approaches to risk retention.

Yet the next phase of captive development might be shaped less by traditional underwriting issues and more by technological change.

Eslami identifies artificial intelligence and AI-driven underwriting as among the most important developments likely to influence Bermuda’s future regulatory landscape.

“Regulations around AI are continuing to be developed, yet these are complicated and ever-changing,” he says. “Those domiciles that leverage technology are in a better position to lead this next phase.”

The comments underline a broader reality confronting Bermuda’s captive industry. The domicile’s future leadership will depend not only on preserving its established strengths, but also on demonstrating agility in response to rapidly evolving risks and technologies.

For now, Bermuda appears to retain considerable advantages. Its regulatory credibility, Solvency II equivalency and deep insurance infrastructure continue to make it one of the world’s premier captive jurisdictions. But as competition intensifies and captive usage evolves, the island’s ability to balance innovation with proportional oversight might ultimately determine whether it remains the market’s defining domicile in the years ahead.

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