The global reinsurance market is in a state of flux and every regional market and hub faces the same threats, but some are better equipped than others to overcome them. Bermuda is looking strong: it benefits from a robust and well-respected regulator, a vibrant marketplace, a central geographical position between Europe and the Americas, and the fact that it is a well-established centre of re/insurance excellence.
Recent M&A activity has underlined the industry’s confidence in Bermuda. Two of the sector’s largest recent deals happened on the island: AXA’s acquisition of XL Group and AIG’s purchase of Validus. The winners and losers in these and other deals remain to be identified, as does potential benefit to the wider market, but they show clear faith in the domicile.
Outcomes will depend ultimately on how new parents manage the companies they have bought, and on market dynamics in the coming months and years. M&A fallout is just one of many tests re/insurers and brokers must grapple with, alongside high levels of loss activity across the globe. Natural catastrophes alone have delivered more than $200 billion in claims over the past two years, inflicting serious losses particularly on retrocession markets, but reinsurers in Bermuda have responded well, and remain solidly capitalised.
The Bermudian market has always been adept at responding and adapting to challenges. Its very creation was a response to the U.S. liability crisis of the 1980s. Since then, it has demonstrated laudable performance in testing environments including the capacity crunches of the 1990s, 2002, and 2006. This track record is another reason Bermuda remains an attractive place to do business.
The Bermuda Monetary Authority (BMA) is an undeniable strength. The regulator is well respected and agile, characteristics which position Bermuda as a viable and secure place to do business. Its achievement of Solvency II third-country equivalence with the European Union regulation in 2016 is another milestone that puts the market ahead of some other competing jurisdictions.
Local re/insurers’ catastrophic risk stress-testing and modelling practice, recently detailed in a high-level overview (the BMA’s third annual catastrophic risk report), instils further confidence. The 2017 findings show that the Bermuda market’s modelling practice is advanced, and its resilience to catastrophic events high. All that bolster’s Bermudian risk carriers’ reputation of being well capitalised and technically proficient.
ILS is here to stay, and Bermuda has a resounding lead. According to BMA research, 74.2% of total outstanding ILS capacity was issued in Bermuda at the end of Q3, 2018. The market’s experience in this still-specialist area, alongside a ‘can-do’ attitude, favourable regulation, and appropriate tax advantages drive the majority of investors and funds to continue to choose Bermuda, even as other domiciles play catch-up.
These attributes, coupled with Bermuda’s innovative pedigree and its ability to meet customer’s evolving needs, will ensure that Bermuda remains at the forefront of the global re/insurance market. To learn more about how Bermuda can help with your risk transfer challenges, please contact me directly.