BERMUDA REMAINS THE WORLD’S LEADING CAPTIVE DOMICILE

As we enter the third year of unprecedented global uncertainty brought about by the COVID-19 pandemic, Bermuda’s dominance of the captive insurance sector continues to withstand the test of time.

Since the father of captive insurance, Fred Reiss, created the world’s first captive in Bermuda 60 years ago, businesses have been able to rely on Bermuda to protect themselves, their employees, and their stakeholders from potential pitfalls.

While the number of competitor domiciles increases almost annually, there are several reasons why Bermuda is unique as a captive domicile, including our decades of experience, the quality of business being written here, and our innovative spirit.

60 years of captive experience

The captive insurance concept was conceived in Bermuda with the creation of International Risk Management in 1962. As Bermuda’s captive market has grown, so too has an unprecedented knowledge base of service providers on the ground in the city of Hamilton. As the decades rolled on, Bermuda grew to become the world’s risk capital.

According to the latest figures from our consolidated financial services regulator the Bermuda Monetary Authority (BMA), Bermuda’s total risk market comprised around 1,200 re/insurance entities writing net premiums of $158.4 billion with capital of $313.5 billion. In addition to captives, Bermuda is home to one-third of the world’s global reinsurance market (according to the most recent report of credit rating agency AM Best based on property/casualty net premiums earned). In addition to life business, many of these commercial re/insurers specialize in property catastrophe lines of business that close the protection gap for some of the communities most vulnerable to climate risk.

At the turn of the 21st century, Bermuda became the dominant global insurance-linked securities (ILS) market, with over 90 percent of the world’s issued ILS structures. As at year-end 2021 the Bermuda Stock Exchange had 1,294 listed securities, of which 232 are investment funds and 757 are ILS.

This combination of property catastrophe re/insurance expertise and ILS dominance—especially for catastrophe bonds—is the cornerstone of what makes Bermuda the perfect platform to become the world’s climate risk finance capital.

Quality business

From modest beginnings, today Bermuda is home to almost 700 captives writing net premiums of $24.7 billion and holding capital of $78.5 billion. Many of our captives are long-standing, having been created more than 20 years ago, and they remain active today.

New players continue to want to be a part of the dynamic Bermuda risk market. According to the BMA, a total of 17 new captives were added to the Bermuda register in 2021, a year-on-year increase from 12 registered in 2020.

Unlike other domiciles that may specialise in just one line of business, Bermuda’s captive market is diversified, with a good mix of short tail (including property and casualty catastrophe) and long tail lines (including workers’ compensation and employers’ liability and general liability) being written here.

In terms of the geographic location of risks being underwritten, 62 percent of the risk assumed by Bermuda captives originates from North America and Bermuda, 23 percent is from Europe and 5 percent is from Japan.

Just as there is no one dominant line of business, the demographics of Bermuda’s captives’ parents are equally diverse. “Financial institutions” make up 14 percent of captive parents, followed by “automotive, manufacturing and retail” and “shipping transport and storage” both at 12 percent. Ten percent of Bermuda captive parents come from the healthcare industry.

Spirit of innovation

As an isolated island nation in the middle of the Atlantic, Bermuda is used to looking toward the horizon to see what is heading in our direction. In addition to being forward-looking, all the key players in Bermuda’s ecosystem can move quickly to make the necessary changes to ensure the regulations are future-proofed to enable to lines of business to be written, such as cryptocurrency and climate-related risk.

In addition, there is a regulatory sandbox where companies can test new technologies/business models on a limited number of clients in a controlled environment for a limited period, as well as an innovation hub for entities not yet ready for the sandbox or still developing their proof of concept.

Looking ahead

In this environment of hardening rates, with the pandemic disrupting economic conditions and creating emerging risks, Bermuda captive owners continue to find new and innovative uses for their captives.

The primary objective of the Bermuda Business Development Agency (BDA) is to promote and protect, in collaboration with government and the private sector, sustainable and equitable economic growth and prosperity in Bermuda.

Our team of professionals at the BDA is focused on expanding and diversifying Bermuda’s economy and is equally committed to supporting Bermuda’s legacy sectors such as the captives market, the industry which laid the very foundation upon which Bermuda’s risk market was built.

We congratulate CICA on its 50-year anniversary and look forward to another prosperous half-century for captive insurance in Bermuda.

For more information, visit: bda.bm

David Hart is the chief executive officer of the Bermuda Business Development Agency. He can be contacted at: info@bda.bm