Jeffrey Wade
On March 5, 2019, Bermuda announced the launch of the world's first technology-driven insurance and reinsurance risk and capital exchange. The Bermuda Insurance Exchange, founded by ChainThat, is a blockchain-driven risk and capital exchange for the insurance and reinsurance market. The exchange will allow broker, reinsurance, and insurance companies to access capital markets using blockchain. The Bermuda Insurance Exchange will be implemented in stages, initially providing the framework for a traditional reinsurance market, including placement, accounting, settlement, and claims.
| Characteristics | Values |
|---|---|
| Bermuda's position in the insurance industry | Bermuda is the third-largest insurance market in the world, serving as a key insurance hub and the largest supplier of catastrophe reinsurance to US insurers. It is also the pre-eminent market for ILS (insurance-linked securities) products. |
| Regulatory framework | Bermuda has a commercially sensible regulatory framework that has adapted to meet the needs of the market for the use of new technology. The Bermuda Monetary Authority (BMA) is the independent regulator responsible for licensing and supervising insurers. |
| Taxation | Bermuda has two bilateral taxation treaties with the US and has committed to enforcing US tax law collection under the US Tax Information Exchange Agreement (TIEA). It also has 40 bilateral TIEAs with all major trading partners. |
| Innovation | Bermuda has been referred to as the "world's risk capital" due to its innovation, entrepreneurialism, and leadership in the insurance industry. It has established an Insurance Regulatory Sandbox and an Innovation Hub to attract insurance technology (InsurTech) companies. |
| Diversity and Inclusion | The island's two most significant industry associations, the Association of Bermuda Insurers and Reinsurers (ABIR) and the Bermuda International Long-Term Insurers and Reinsurers association (BILTIR), actively support and encourage diversity and inclusion in the insurance industry. |
| Ownership | Bermuda-owned and European-owned insurers represent approximately 20% and 15% of the market, respectively, while US companies own about 60% of active commercial insurers. |
| Environmental Stewardship | ABIR members are committed partners in local conservation and environmental stewardship efforts, supporting preservation programs for Bermuda's unique architectural and historic heritage. |
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What You'll Learn
Bermuda's role as a global reinsurance hub
Bermuda has long been regarded as a global reinsurance hub, with a robust regulatory framework, sophisticated infrastructure, and a strategic location that make it an essential player in the industry. The island has over 1,100 reinsurance companies, managing assets surpassing US$1.6 trillion and representing around 35% of the global reinsurance market.
Bermuda's appeal as a reinsurance hub is further enhanced by its geographic location, attracting business from the US, which accounts for about 70% of the island's long-term market. The island's regulatory framework is designed to meet international standards, and its status as a Qualified Jurisdiction by the US National Association of Insurance Commissioners (NAIC) allows for streamlined regulatory requirements when conducting business with US insurance clients. Bermuda's robust solvency position, with a median solvency ratio of 259% as of year-end 2023, also contributes to its attractiveness.
However, Bermuda faces challenges in maintaining its status as a global reinsurance hub. The increasing regulatory complexity and the demand for new talent are outpacing supply, with Bermuda becoming a less attractive destination for new entrants due to its high cost of living and ongoing housing crisis. Additionally, new regulations, such as the Inflation Reduction Act (IRA) of 2022, have made transactions with US companies less attractive due to higher taxes on reinsurance premiums.
To address these challenges, the BMA is actively working to upskill its workforce and attract new talent. Bermuda's insurance industry is also adapting to market needs, such as the increasing demand for reinsurance from a diversified range of counterparties, by establishing new reinsurers associated with alternative asset managers. The BMA's robust regulatory framework and Bermuda's commitment to compliance with international standards continue to reinforce the island's position as a trusted global reinsurance hub.
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Regulatory changes and challenges
Bermuda has a robust regulatory framework, a sophisticated infrastructure, and a strategic location, making it an essential player in the insurance industry. As the third-largest insurance market in the world, Bermuda has a commercially sensible regulatory regime, an international stock exchange, and a well-developed financial and legal services sector.
The Bermuda Monetary Authority (BMA) is Bermuda's insurance regulator. The BMA has established two innovation tracks: an Insurance Regulatory Sandbox and an Innovation Hub, both designed to attract insurance technology (InsurTech) companies. The BMA has also published various papers and consultation papers, such as "Supervision and Regulation of PE Insurers in Bermuda" and "Proposed Enhancements to the Regulatory Regime for Commercial Insurers" (CP2), which have led to legislation. These regulatory reforms will strengthen the (re)insurance sector.
The primary statute governing insurance-related activities in Bermuda is the Insurance Act 1978, which applies to any person carrying on insurance business in or from within Bermuda, including insurance intermediaries and insurers. The BMA has the authority to establish higher capital requirements, such as the 150% Enhanced Capital Requirement (ECR). While the minimum coverage is set at 100%, the BMA expects insurers to maintain a Target Capital Ratio of 120%. The BMA requires prior approval of all long-term block reinsurance transactions and has implemented the Insurance Sector Operational Cyber Risk Management Code of Conduct, which applies to all registered insurers.
Bermuda has also adopted a risk-based approach to regulation, incorporating the core principles of the International Association of Insurance Supervisors (IAIS). This provides for greater oversight of companies with riskier profiles. Bermuda is on the list of 'qualified jurisdictions' by the National Association of Insurance Commissioners (NAIC), which means Bermuda-domiciled commercial (re)insurers are eligible for reduced (re)insurance collateral requirements.
However, there are challenges to Bermuda's position as a global reinsurance hub. The NAIC's 2022 amendments imposed stricter capital and collateral requirements on non-US reinsurers, increasing the tax burden on US companies working with Bermuda reinsurers. Regulatory changes in the US and the UK have also complicated relationships with global reinsurers. Bermuda-based reinsurers and international firms with ties to Bermuda must adapt to stricter regulations, enhance their compliance frameworks, and adopt advanced regulatory technologies to ensure real-time monitoring and reporting.
Bermuda's regulatory framework will likely continue to evolve as the BMA adapts to the dynamic market.
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Bermuda's insurance market robustness
Bermuda has a sophisticated, innovative, and well-regulated insurance market. It is referred to as the "world's risk capital" due to its innovation, entrepreneurialism, and leadership in the insurance sector. Bermuda has been a key player in the insurance industry for over 40 years, initially emerging as a leader in captive insurance. Captive insurance companies are self-insurance vehicles set up to insure the risks of their parent company and/or affiliates. Bermuda became an attractive domicile for captive insurers due to its economic, social, and political stability, strong infrastructure, proximity to North America, and a legal system based on English common law.
Today, Bermuda continues to be a hub for reinsurance, particularly catastrophe reinsurance, serving as the largest supplier to US insurers. The island has a robust regulatory framework for the insurance industry, led by the Bermuda Monetary Authority (BMA). The BMA is an independent, non-governmental body responsible for licensing and supervising insurers and reinsurers operating in Bermuda. The BMA has established innovation tracks, such as the Insurance Regulatory Sandbox and the Innovation Hub, to attract insurance technology (InsurTech) companies and foster digital innovation in the industry.
Bermuda's insurance regulation meets or exceeds international standards, and the jurisdiction has been recognised by the US National Association of Insurance Commissioners (NAIC) as a "qualified jurisdiction." This recognition grants Bermuda-domiciled (re)insurers eligibility for reduced collateral requirements. Bermuda has also adopted a risk-based approach to regulation, incorporating the core principles of the International Association of Insurance Supervisors (IAIS). The BMA regularly assesses the operations of (re)insurers and classifies them based on their nature, scale, and complexity.
The Bermuda insurance market is currently navigating a challenging yet competitive environment across all lines of business. Carriers are adapting to changing market dynamics while maintaining underwriting discipline. The property sector faces intense competition, while casualty markets experience pressure from nuclear settlements and capacity reduction. However, financial lines, particularly D&O and cyber, benefit from robust competition, stabilising rates, and steady capacity. Bermuda's established regulations, solvency regime, and pool of expertise are expected to contribute to the market's resilience in the face of a new 15% tax rate.
Overall, Bermuda's insurance market demonstrates robustness through its ability to adapt to market changes, embrace digital innovation, maintain a strong regulatory framework, and meet international standards. The jurisdiction's attractiveness to insurers and reinsurers, particularly in the captive and catastrophe reinsurance sectors, underscores the market's robustness and global recognition.
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Bermuda's risk-based approach to regulation
Bermuda has long sought to make itself an attractive home for reinsurance businesses. In recent years, there has been a transformational increase in the value of life liabilities reinsured to Bermuda. The Bermuda Monetary Authority (BMA) is Bermuda's insurance regulator. Over the years, Bermuda has adopted a risk-based approach to regulation, incorporating the core principles promulgated by the International Association of Insurance Supervisors (which provides for greater oversight of companies with riskier profiles) and regulations applicable to commercial insurers pursuant to the European Union's Solvency II Directive.
The BMA's regulatory framework is likely to continue to evolve as the authority continues to adapt to a dynamic market. The BMA requires prior approval of all long-term block reinsurance transactions, which are particularly prevalent among PE Insurers. This approval process addresses the following factors of the transaction and requires companies to submit information explaining and supporting the rationale for the transaction. The BMA has established two innovation tracks, an Insurance Regulatory Sandbox (Sandbox) and an Innovation Hub, both designed to attract insurance technology (InsurTech) companies. The Sandbox provides an innovation framework for companies interested in testing new technologies, business models, offering innovative products, services, and delivery mechanisms to a limited number of clients in a controlled environment and for a limited period.
The Insurance Act 1978 and its related regulations (the Insurance Act) grant the BMA authority to establish higher capital requirements, such as the 150% Enhanced Capital Requirement (ECR). Depending on an insurer’s risk profile, the BMA may impose capital add-ons and dividend restrictions/prohibitions, require capital maintenance agreements, and mandate liquid contingent capital sources, along with appropriate liquidity management tools. The BMA is focused on risks in PE insurer transactions: complex structures, conflicts of interest, higher ratios of investments in illiquid assets, and how shareholder investment timelines map to the duration of insurance liabilities.
The BMA is committed to providing open, transparent regulatory frameworks and requirements, which are consistent with international best practice, and to applying and enforcing these requirements sensibly and consistently in a firm but fair manner. Underpinning the BMA's supervisory work programme is the Authority’s risk-based framework. This ensures that Bermuda's standards are appropriately calibrated to its wholesale and domestic financial markets and that its supervisory resources are applied to those firms that pose the greatest risk. This risk-based approach has been endorsed by a variety of international regulatory and standard-setting bodies. The Authority uses a risk-based framework to conduct its supervisory programme, which enables it to carry out the responsibilities placed on it by various Acts in an effective and efficient manner.
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Bermuda's insurance sector ownership
Bermuda has long been a key insurance hub, with a sophisticated, innovative, and well-regulated jurisdiction for insurance. The Bermuda Monetary Authority (BMA) is responsible for the licensing and supervision of insurers and reinsurers, as well as insurance intermediaries such as managers, brokers, agents, and salesmen. The BMA has established an Insurance Regulatory Sandbox and an Innovation Hub to attract insurance technology (InsurTech) companies. The primary statute governing insurance-related activities in Bermuda is the Insurance Act 1978, which grants the BMA authority to establish higher capital requirements and impose dividend restrictions.
Any person carrying on "insurance business" in or from Bermuda must be registered as an insurer under the Insurance Act 1978 by the BMA. Bermuda-domiciled commercial (re)insurers are eligible for reduced (re)insurance collateral requirements under the National Association of Insurance Commissioners' (NAIC) Credit for Reinsurance Model Law and Regulations. The BMA has also been listed as a 'qualified jurisdiction' by the NAIC since January 1, 2015.
There are some restrictions on foreign ownership for insurers registered as "local companies" in Bermuda. These companies must be controlled by Bermudians, and at least 60% of their shares must be beneficially owned by Bermudians, with some exceptions. Bermuda's insurance sector has been praised for its stability and ability to contain contagion risks, with insurers holding capital reserves well above regulatory minimums.
The BMA has also been proactive in addressing emerging trends and concerns in the insurance industry. For example, the BMA introduced the Insurance Sector Operational Cyber Risk Management Code of Conduct in October 2020 to promote the stable and secure management of information systems. Additionally, the BMA has clarified its position on the oversight of (re)insurers owned or supported by private equity and alternative asset managers. The BMA has proposed significant amendments to the Insurance Act 1978 to enhance its regulatory framework for group supervision and maintain Bermuda's reputation as a robust international financial centre.
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Frequently asked questions
Bermuda is a well-regulated jurisdiction for insurance and is the third-largest insurance market in the world. It has a commercially sensible regulatory regime, an international stock exchange, a sophisticated infrastructure, and a strategic location between the US and European markets. Bermuda has also been referred to as the "world's risk capital" due to its innovation, entrepreneurialism, and leadership in the insurance sector.
The Bermuda insurance market is regulated by the Bermuda Monetary Authority (BMA), which is an independent, non-governmental body responsible for the licensing and supervision of insurers. The primary statute governing insurance-related activities in Bermuda is the Insurance Act 1978, which applies to any person carrying on "insurance business" in or from within Bermuda, including insurance intermediaries and insurers.
Bermuda has a robust regulatory framework, a sophisticated infrastructure, and a strategic location, making it an essential player on the world stage. It is also the pre-eminent market for ILS (insurance-linked securities) products and has a successful domicile for entities operating in the fintech space. Bermuda is also known for its innovation, with the BMA establishing an Insurance Regulatory Sandbox and an Innovation Hub to attract insurance technology (InsurTech) companies.
One of the challenges faced by the Bermuda insurance exchange is the increasing competition from other regions, such as Asia, which is well-positioned to become a global reinsurance challenger. Additionally, there are concerns that the failure of an entity supervised by the BMA could result in onshore regulatory action and a reduction of Bermuda's presence in the global insurance space. Bermuda-based reinsurers and international firms with ties to Bermuda also need to adapt to stricter regulations and enhance their compliance frameworks.
