Resilience and growth: Bermuda strides forward

Timae Flood of the Bermuda Monetary Authority talks with Captive International about what the year has been like for the captive market on the Island—and what lies ahead.

What has the year been like for captive registrations in Bermuda so far?

The Bermuda captive market has shown remarkable resilience in the face of current market conditions, with positive signs of growth. Pricing and capacity constraints experienced upon renewals have led many organisations to expand their use of captives. This year, we have seen steady registration activity, which we expect to continue for the remainder of 2024.

Our Assessments and Licensing Committee is gearing up for an active year, with the momentum expected to carry through 2024.

Beyond the new registrations, we have seen significant growth in the segregated and incorporated segregated accounts sector through the introduction of new cells, with a number making the inspiring strategic shift into their own stand-alone captive. In addition, we continue to witness the expansion of existing captives with new lines of business and structures introduced.

Specific lines of business seeing notable increases are property lines and cyber lines. Timae Flood, BMA

Our proactive efforts to engage with companies early in the process have opened up opportunities for them to be part of the industry’s growth. We are already in discussions with those working toward a formal licensing application, providing guidance on appropriate classifications. We are also ready to provide input on any gaps in draft applications to ensure a seamless process once the formal application stage is reached. The growth in the number of applications relating to material changes, where we approve the strategy shifts, gives companies advanced knowledge of opportunities in the captive insurance space before contracts are finalised, making them an integral part of the industry’s growth.

Specific lines of business seeing notable increases are property lines and cyber lines—two lines immediately impacted by the market’s constraints. In terms of structure, many companies have assessed their approach and determined that now is the time to move forward with coverage over previously self-retained layers. They have identified Bermuda as their jurisdiction of choice.

Why is Bermuda a leading captive domicile?

Bermuda boasts the strength of a long history in the captive market, beginning over 60 years ago with the introduction of the first captive. Since then, the supervisory regime and the market have continued to evolve, focusing on pragmatic and proportional supervision. The Bermuda Monetary Authority (Authority or BMA) is dedicated to creating an environment that fosters the growth of the captive insurance market and supports the ongoing innovation for which the Bermuda captive market is renowned.

While Bermuda’s regulatory environment has achieved significant regulatory standards such as US NAIC reciprocal jurisdiction and EU Solvency II equivalence, it is important to highlight Bermuda’s success on achieving bifurcation for the captive insurance sector, ensuring that the regulatory requirements would remain commensurate with the risks posed in the captive sector, and separate from those imposed on commercial insurers.

We have a sophisticated market comprising experienced service providers who are well-versed in the requirements of our legislation. Additionally, they understand that the Authority’s approach to supervision is rooted in applying strong principles established to create a unique environment appreciated by our registrants.

Bermuda’s robust legal system, based on British common law, supports this unique environment, demonstrating its effectiveness throughout the decades. This, combined with a stable regulatory environment aiming to foster communication and connection with the Bermuda market, defines Bermuda as a leading captive domicile. Participants within the Bermuda insurance market are also afforded a one-stop-shop benefit in accessing all necessary parties within our business district. Additionally, direct access to Bermuda’s renowned reinsurance market adds significant value.

What can you tell me about the collaboration with Bermuda and Lloyd’s of London?

On March 14, 2024 the BMA and Lloyd’s signed a Memorandum of Understanding (MoU) to promote innovation and collaboration in the international insurance market. The agreement represents a mutual commitment to supporting, developing and facilitating the exchange of insurance industry expertise and knowledge.

In signing the MoU, both parties agreed to jointly navigate regulatory developments and explore related opportunities by leveraging the Lloyd’s Lab. In addition, educational training and remote learning programmes will be delivered to the market through the Lloyd’s Academy and across the Lloyd’s global network.

Lloyd’s and the BMA announced a joint initiative called the Lloyd’s Lab earlier in the year. This 10-week fast-track insurance innovation incubator draws upon the skills and talents within Bermuda’s insurance sector. The programme facilitates ground-breaking solutions and new advancements in insurance by bringing together experienced individuals and teams to solve complex industry challenges using a creative, entrepreneurial approach.

Through the MoU, Lloyd’s and the BMA will also collaborate to promote and deliver a reinsurance theme for Cohort 14 of the award-winning Lloyd’s Lab Accelerator programme, as well as working together on wider initiatives such as the BMA’s regulatory sandbox and innovation hub.

Have there been any captive regulation changes in Bermuda in the past year or two?

A significant draw to Bermuda’s captive market is the regime’s stability. With this in mind, we are mindful of implementing changes and employing a transparent approach to engage impacted parties well ahead of any changes. We aim to be well informed on any challenges posed to our market based on the intended changes while maintaining a high standard of supervision and oversight.

While there has not been a significant change to the regime itself, we will clarify processes and stances on key points to the market in cases of uncertainty. In the last two years, one enhancement we can note was the Authority’s clarification of the material change process for captives introducing new related party business. This move ensured captives could effectively implement organisational strategy changes in cases of minimal risk.

The BMA continues to greatly value the Bermuda captive market. We reinforce our commitment to facilitating the captives’ ability to effectively operate as leading risk management tools for their parent companies.

What is the BMA’s main message to the captive industry in 2024?

The Authority wishes to convey our commitment to seeing the Bermuda captive market continue to thrive as it has historically. We confirm our commitment to a pragmatic, proportionate approach to the supervision of the market and our availability to discuss both traditional and innovative structures being introduced via our registered captive companies.

The Bermuda market continues to grow from strength to strength with the resilience necessary to pivot in the face of challenges. Our market numbers speak for themselves: In 2022, Bermuda captives wrote more than $31 billion in annual premiums, supported by over $142 billion in assets.

We reaffirm our commitment to ensuring quality participants of good standing are given the appropriate tools to succeed in the Bermuda captive market. We aim to employ a transparent approach to fostering collaboration and remain mindful of the challenges in today’s environment that impact companies’ ability to conduct business.

The Bermuda captive market is known for innovation. While we continue to enhance our regime with the introduction of new licence classes (for example, the Innovative Insurer classes), we also highlight the continued ability to establish new captive entities that house novel structures or products should they fit the classification requirements in our traditional captive classes.

We have a robust assessment and licensing process that undertakes a rigorous review of those wishing to access our captive market and the insurance market. We continue to uphold the highest regulatory standards.

We emphasise our team’s responsiveness in discussing concepts as early as the feasibility study stage. We remain available to offer guidance on the BMA’s expectations and requirements, tailored to the specific nature, scale and complexity of the product presented to us. Bermuda’s captive market strength and historical track record speak for themselves. We are confident that Bermuda will remain a leading captive jurisdiction with the proven power to carry us through another 60 years.

What lies ahead for the BMA in 2025?

Vision

We aim to be a globally respected and trusted financial services regulator enabling solutions for customer needs. Our continued commitment includes enhancing the BMA’s regulatory and supervisory regimes to meet the evolving needs of today’s financial services companies.

It will be vital for the BMA to continue building relationships with the market and for captive/parent company representatives to keep pace with the needs and operational considerations of Bermuda’s registered entities. This will help ensure that Bermuda’s legislation and regulatory policies are well aligned to facilitate a continually progressive marketplace in the future. Another key focus is building out the Insurance Code of Conduct to uphold the importance of financial transparency, consumer protection and education initiatives.

More details on our vision can be found in the BMA Business Plan 2024 and BMA Annual Report 2023.

Challenges

Challenges will always vary from captive to captive; however, the BMA foresees a need for many captives to update their policies and continually reassess their limits as risks evolve.

Increases in claims, such as those related to an increasingly litigious market, will develop over time. Likewise, the severity of claims due to climate change is also expected to pose greater challenges for captives. One positive trend is that boards are monitoring the impacts of these risks and updating the captives’ processes and policies accordingly to ensure appropriate risk management and mitigation.

Growth opportunities

Growth opportunities also point to future innovation in the captive market. As new products enter the market, there is always a need for an open-minded approach to addressing coverage in areas that are not considered traditional. Therefore, parent companies’ ability to house these coverages in a captive and the Authority’s support of sound business plans to facilitate speed to market will be of significant value.

The BMA Captive Report 2022 speaks to the role of captives 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 risk climate strategies within the captive insurance space in Bermuda.

Timae Flood is Deputy Director, Insurance, at the Bermuda Monetary Authority.

Click here to read Captive International's Bermuda Focus 2024 publication. 

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