Experience meets experimentation:

How healthy is the captive market in Bermuda?

Bermuda remains the unrivalled leading captive domicile in terms of the conventional vital signs—gross written premiums, capital and surplus, and total assets. In 2020, our captive insurers wrote approximately $24 billion in gross premiums, reported over $66 billion in capital and surplus and held roughly $138 billion in total assets.

These “health” metrics alone highlight our market’s global significance. Yet, as the longest-established captive domicile, we understand that our market’s maturity and stamina are built on more than capital. It is also built within a healthy environment, where there is the ability to innovate and the space to explore new lines of business—both while being prudently and pragmatically supervised.

Because of this balance between experience and experimentation, we continue to see the interest of new entrants and industry’s commitment to growing the Bermuda captive market and expanding in both traditional and emerging risks. To some degree, our captive market is an archetype of the economic concept of creative destruction—the cycle of dismantling structures to make way for new, innovative structures.

Captives, by their nature, are built to have limited life cycles and will run off once they have fulfilled their purpose. Because of the health of our market and broader financial services ecosystem, and parent companies increasingly seeing the value in creatively structuring their risk programmes to address emerging threats, the captives being “dismantled” are often making way for the next innovative structures.

As a lead domicile for captives, what do you see as the major benefits to ensure this continues?

Bermuda offers the full range of benefits—just about everything but the kitchen sink. Regarding expertise, the Island has a quality pool of service providers who specialise in insurance entities and its per capita concentration of employed actuaries is among the highest in the world. Additionally, one cannot ignore the access to the local reinsurance market and the Island’s proximity to the US, the UK and Europe for easy travel.

From the regulatory perspective, first and foremost, the Bermuda Monetary Authority (BMA) welcomes industry engagement and interaction with prospective entities from an early stage in their application process. Our supervisory regime and framework is sophisticated and transparent in its development, offering clear expectations and guidance for a myriad of entity types.

It is also pragmatic and proportionate, understanding that there is no one-size-fits-all and that, depending on an entity’s nature, scale, complexity and risk profile, the regulatory and supervisory expectations may vary. In short, Bermuda has the ‘who’, ‘what’ and ‘where’ to support entities throughout their lifecycle.

How many new captives tend to be formed in Bermuda every year?

Over the last several years, we have averaged 17 new captive registrations. This consistency is not only seen in registrations, but also in the interest expressed and explored by current and potential captive owners. Particular interest is focused on cell use, both under the Segregated Accounts Companies Act 2000 and, increasingly, the Incorporated Segregated Accounts Companies Act 2019, which now contributes to a large part of the increased growth in the premiums written by the Bermuda captive insurance market.

Is the BMA considering any new lines of business? Would any of these impact the current regulations or the BMA’s supervisory approach?

The rule of thumb is that as risks emerge, so do new lines of business that help protect against those risks. The trending risks will surprise no one—cyber and climate continue to feature prominently, including in a recent Eurasia Group report and the Allianz Risk Barometer 2022. Parallel to this, in recent years, we have seen significant growth in cyber and innovative climate resilience and mitigation lines of business, both of which have found a place where they can continually evolve and grow within Bermuda’s captive market.

Creating a space that allows for this, though, starts early. When current and potential registrants proactively engage the BMA on new business, it does more than simply keep us abreast of industry developments or the entity’s plans. It allows us to provide guidance on the business’ suitability for the market and any licensing considerations of which they should be aware.

During these conversations, if the business fits the Bermuda market and the high bar we set for our registrants, there are two options. Option one: we consider how a given business best fits within the available licensing framework and how to appropriately oversee any new risks it may bring to our market. The flexibility of our regime, with its range of classes and the robust assessment, licensing and supervision process it has in place for each of these, allows captive and commercial entities the opportunity to call Bermuda’s market their home.

Option two is for innovative structures that are not fully developed or defined. For these, the best fit may be our insurance sandbox or the Innovation Hub, where companies are allowed to build their product with close guidance from the Authority in a controlled space before applying for registration in our existing classes. As we work closely with companies in these emerging spaces, we can enhance our regime and expertise, where necessary, to be appropriately positioned to supervise the structures adequately once they are fully registered entities.

How does the captive sector contribute to the Bermuda financial services landscape and the wider economy?

I have shared with you what captives get by coming to Bermuda, but they also contribute a good deal. They bring an enormous amount of expertise to the island and the sector. In 2017, PwC surveyed the captive sector, on behalf of the Bermuda Insurance Management Association, to identify the captive sector’s contribution to Bermuda.

According to the survey, in 2017, Bermuda captives employed over 500 people in Bermuda and contributed roughly $174 million annually to the Island’s economy. Some of this was through service revenues that feed directly back into other areas of our financial services sector, such as investment management and banking. It also includes payments toward payroll tax, social insurance and commercial rent.

The survey confirmed that, throughout their entire lifecycle, entities create significant financial benefits for locally-based stakeholders, such as law and audit firms and corporate secretarial and actuarial services, yet they also fuel Bermuda’s other industries, such as business tourism. In 2017, they brought in corporate visitors who accounted for 7,100 hotel nights, they created $1.8 million in restaurant/food spending and they paid $200,000 in taxi services.

These numbers, though, do not take into account the personal spending of captive employees with home rentals, supermarkets, retail stores, schools, banks, leisure activities, utilities and so much more.

Finally, the captive industry serves as an indicator. With the 60th anniversary of the first Bermuda-domiciled captive coming up this year, it illustrates that one person can come to our jurisdiction with an innovative idea and make a lasting impact on a nation’s economy and for the greater good of global insurance initiatives—a lasting impact that has, decade in and decade out, continued to grow and evolve.

Are any regulatory changes being considered for 2022 that might impact the captive sector?

While we continuously review and refine our frameworks to align with international standards, address emerging risks and create space for our entities’ innovation and evolution, there are no significant regulatory changes currently being considered that will impact the captive sector.

Are there any other thoughts you would like to share on the captives market?

Bermuda has always been an enigmatic island; nautical myths aside, the captive industry has served as a compelling part of that storyline. This diverse group of entities has thrived by providing much-needed protection against the world’s long-standing traditional exposures and is proving innovative in the face of emerging risks.

Given the complex geopolitical, environmental and technological risks companies are increasingly facing, captives will continue to be the right solution for many. Their ability to evolve with the market and their parent company’s risk positions them to be utilised in a greater capacity and increasingly creative ways here in Bermuda.

The BMA and Bermuda value our captive sector, and we look forward to continuing our role as a capable partner to quality entities looking to mitigate their risks and restructure their risk management programmes. We have a history of evolving with our markets, including the insurance market’s innovation, and our ability to respond to new opportunities and structures gives captive owners a unique value proposition.