Bermuda’s Reinsurance Catastrophe Exposure Drops – Report

Bermuda Reinsurance Catastrophe Exposure Drops – Report | Insurance Business United Kingdom

Stress test results reveal resilience against potential adverse impacts


By Kenneth Araullo

The Bermuda Monetary Authority (BMA) has reported a reduction in catastrophe exposure for the Bermuda reinsurance market in 2022 due to a tightening market.

BMA analysis shows Bermuda insurers face significant exposure to the Atlantic hurricane hazard, with gross average modeled losses ranging from $832 million for 1-in-50-year events to $1.59 billion for 1-in-1,000-year events. This exposure exceeds that of other hazards over different return periods.

According to The Royal Gazette, the report also highlighted Bermuda’s extensive use of reinsurance, particularly for rarer return periods for Atlantic hurricane and earthquake perils in North America. This trend is part of the market’s resilience against potential adverse impacts, including financial market fluctuations and underwriting losses.

Bermuda’s insurance market, particularly Class 3B and Class 4 insurers, is subject to strict regulatory requirements. These insurers, which represent Bermuda’s largest commercial property and casualty companies, are mandated to submit detailed statements of their casualty risk management practices, including casualty returns. They must maintain statutory capital and surplus consistent with at least 99% terminal value at risk over a one-year time horizon.

Insurers report their catastrophe exposures, excess probability curves, average annual losses and probable maximum losses. In addition, they conduct comprehensive stress tests to measure the sensitivity of their authorized capital and surplus to adverse financial and insurance conditions.

How does the BLS assess reinsurers?

The BLS assessment assesses insurers’ capital adequacy under adverse conditions, providing a comprehensive understanding of the sector’s vulnerability to shocks. Climate change developments, including the increased frequency and severity of catastrophic events, are impacting strategies and outcomes for reinsurers and insurers.

The report notes that in 2022, Bermuda’s international reinsurance and insurance sector, like other global centres, faces challenges due to high inflation and uncertainty in the valuation of assets and liabilities. The tightening of monetary policy also significantly increased the cost of capital.

Despite these challenges, Bermuda’s market companies remain well capitalized, able to absorb unlikely and potentially significant losses, settle policyholder liabilities and meet regulatory capital requirements.

The BMA noted that catastrophic events since 2022, including Hurricane Ian, had led to a hardening of rates, prompting insurers to increase retentions, limit coverage and restructure programs. This resulted in a reduction in the catastrophe exposure assumed by Bermuda reinsurers.

The gross loss exposure assumed by Bermuda insurers decreased by 11.51% from $225.02 billion in 2021 to $199.11 billion in 2022. Additionally, the global gross estimated potential loss assumed by Bermuda insurers in large cat hazards also declined, leading to a reduced global market share.

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