Captives perform better on ESG metrics: BMA report
Captive insurers did better than non-captives in the realm of environmental, social and governance (ESG) and have also helped develop innovative solutions for the protection of low-carbon technologies.
That is according to a new report from the Bermuda Monetary Authority covering 2021, though only released this week.
The report also confirmed numbers of formations in that period. The Bermuda captive insurance sector saw an increase in underwriting and formations in the construction, energy and employee benefits sectors in 2021, it confirmed.
The annual report said that 17 new captives were formed in the 2021 calendar year, with the largest proportion - 23% or four - in the administrative and support services area. Agriculture, mining, forestry and fishing; construction; healthcare; and shipping, transport and storage each produced two new formations or 12% individually.
Overall, captives owned by financial institutions become the largest writers of premium with 18% of the total, followed by energy at 15% and shipping, transport and storage being the third largest sector with 13%.
"Of the new formations, 14 were classified as ‘pure captives’, writing only the risks of the parent company and/or affiliates; two were classified as insurer/reinsurer and one was classified as ‘rent-a-captive’," the BMA said.
It added: "In 2021, the Authority noted increases and formations (averaging 17 per year in recent years) across the classes and lines of business relating to the construction industry, energy and employee benefits across various insurance layers, most notably deductible reimbursement coverage. The market is recognised for its maturity, strength and endurance, noting last year’s celebration of the 60th anniversary of the first captive established in Bermuda."
The report also noted that early industry studies showed "a positive correlation" between captive owners and ESG solutions and scores (particularly on social and governance aspects) compared to non-captive owners.
It added: "Captives continue to play a significant role in closing the climate risk protection gap by providing innovative solutions such as protection for low-carbon technologies. It is noted that these climate strategies are particularly pronounced when aligned with the underlying organisation’s business model.
"The Authority continues to support innovation in this space and particularly supports the growth of emerging climate risk strategies within the captive insurance space in Bermuda."
It added: "The Bermuda insurance market is synonymous with innovation. With the redefined uses of current captives and the exploration and establishment of new insurance solutions designed to cover emerging risks, the Authority has seen a number of innovative captive insurance structures being developed, such as those to combat losses impacting vulnerable communities or jurisdictions.
"Additionally, there are notable pivots in the energy and agriculture sectors – specifically parametric insurance covers. With the increased focus on Environmental, Social and Governance (ESG) initiatives at the parent level, the BMA recognises captives’ commitment to transitionary measures and ESG solutions. Captives have informed the Authority of the varying ESG considerations pertaining to their industry, demonstrating significant improvements in the metrics tracking progress.
"While the BMA continues to expand the supervisory regime to create a suitable framework to include emerging structures, the captive insurance classes continue to offer solutions with appropriate oversight for those captives, covering risks of this nature related to an organisation’s exposure. An example of this expansion is the introduction of the Incorporated Segregated Accounts Companies Act 2021, where there is a shift towards companies availing themselves of this new insurer structure."
