Captive report shows continued resilience

The latest BMA Captive Report shows the continuing resilience of the island’s captive market, with “profitable underwriting, strong capital and ability to pay claims”, according to the regulator.

“The market is expected to continue to thrive, moving forward incorporating both traditional and emerging risks,” the report states.

The 2020 report published on Thursday, reviews market results from captive’s 2019 year-end financial returns, focussing on business written, industry utilisation, balance sheet composition and profitability indicators.

It offers insights into the structure of captives in the market and exposures, with 64% of the market “pure captives” and 62% of the risk assumed originating from North America and 23% from Europe. Financial institutions continue to be the largest users, accounting for 14% of captive parents, followed by two groups: automotive, manufacturing and retail; and shipping, transport and storage. Both account for 12%. Healthcare (10%), energy, power and utilities (9%) and professional services (8%) account for much of the rest.

In 2019, 14 new captives were formed, with 30% by administrative and support services parents and 21% by financial institutions. Half were pure captives, while 36% were classified as group captives.

Among the key findings from the report are that Bermuda’s captive market coped well with the Covid crisis, taking steps early to evaluate its impact.

“As time has progressed, the impact of the pandemic has continued to decrease because of the effective implementation of mitigation strategies across the market. On the advice of the Authority, the captive market appears to have taken a prudent approach to any reduction of capital through the period, given the uncertainty of the effects,” it notes.

It also noted a growth in underwriting by captives of cyber risks, although this still accounted for less than 1% of business written. Property and casualty catastrophe cover account for half of short tail coverages, followed by warranty and residual value (19%), marine (13%) and property damage and business interruption (10%). Workers compensation/employers liability (23%) and general liability (21%) dominated long-tail lines.

Craig Swan, BMA Chief Executive Officer, said: “The island’s captive market is time-tested. Across decades, it has withstood various threats and continues to take advantage of emerging opportunities. This, alongside the captive expertise that resides in Bermuda, contributes to its position as the leading captive domicile in terms of both premiums written and capital to support the business underwritten.”