13 June 2016Bermuda analysis

Diamond jubilee for captives

The first Bermuda captive solution was created so long ago that it pre-dates by about a decade other corporate self-insurers formed in Bermuda by the ‘father’ of captives Fred Reiss, who developed the concept and coined the term ‘captive insurance’.

Shell International formed the Island’s first international insurer in 1956, retrospectively referred to as a captive, before Fred Reiss came to Bermuda in the 1960s.

The Royal Dutch/Shell Group had set up a company in Bermuda in 1949 to service the motor vehicles trade, after the introduction of the motorcar in 1947. The 1956 incorporation of Petroleum Insurance Limited (PIL) was designed to coordinate Shell’s worldwide risk management strategies.

In the 1950s Shell—and several other oil companies—saw tangible benefits in self-insuring a large portion of their risks, enabling closer risk monitoring, and through the subsequent decades, Bermuda’s captives industry has thrived to become one of the most respected and reputable in the world.

We have grown much from our humble beginnings. Our latest statistics indicate that there is no shortage of jurisdictions that are today seeking captive insurance business. According to Business Insurance Magazine, there are almost 70 captive domiciles—many of them US states—and the total number of captives worldwide has mushroomed to nearly 7,000.

According to Bermuda’s integrated financial services regulator, the Bermuda Monetary Authority (BMA), Bermuda incorporated 22 new captives last year, out of a total of 64 new re/insurers. The US remains by far our most important customer in this class, but we still managed to help provide insurance coverage for a diverse range of risks, including oil and natural gas drilling in Canada and drivers’ insurance in Peru.

"No other domicile can boast the deep pool of captives professionals found here: accountants, actuaries, insurance managers, lawyers, brokers and a host of other leading professionals."

The BMA also cites that there are some 800 captives operating in Bermuda, holding assets exceeding $196 billion and writing gross premiums of $55.3 billion and just under $40 billion in net premiums. Capital and surplus is just under $80 billion.

Captives form an important part of the make-up of the combined Bermuda insurance and reinsurance market which last year wrote gross premiums of more than $150 billion (net premiums of more than $116 billion) against assets of $583 billion. Capital and surplus was $214 billion.

The Bermuda Insurance Management Association (BIMA) is an association of professional insurance managers and other captive service providers in Bermuda. It exists to protect the interests of its members and their clients under management—more than 1,200 insurance and reinsurance companies.

BIMA works with a number of groups, including the BMA. The authority recently achieved equivalence with the European Union under the Solvency II regime.

Through a six-year effort led by the BMA, Bermuda won recognition from the European Commission that the Island’s prudential supervisory framework is fully equivalent to regulatory standards applied to European reinsurance companies and insurance groups under the Solvency II Directive.

For six decades our international business sector has undergone a significant evolution. Today, thanks to considerable growth, we have become a substantial force in the worldwide industry. And it all grew out of the world’s premier captive insurance market.

No other domicile can boast the deep pool of captives professionals found here: accountants, actuaries, insurance managers, lawyers, brokers and a host of other leading professionals who work every day to help institutions establish and maintain effective risk financing solutions.

Our success has made Bermuda a special place to conduct business, especially international insurance business.
While we are a small village of 64,000 people, we stand alone as being world-class in a competitive global insurance and reinsurance community.