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Bermuda captive market: Moving from maturity to innovation and growth

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Bermuda captive market: Moving from maturity to innovation and growth

Managing Director of our Bermuda office, Alison Dyer discusses the maturity of Bermuda’s captive industry its promising outlook following the introduction of new insurance and corporate solutions to the jurisdiction.*

*This article first featured in Captive Review Magazine in June 2020.

Bermuda’s captive industry is widely recognised as a mature market with access to excellent insurance talent, top tier service providers, leading (re)insurers and a robust, yet commercially minded insurance regulatory framework. As one of the oldest captive domiciles and with many of its captive owners’ large Fortune 500 companies and multinational enterprises, Bermuda is considered the global leader, with more than 700 captives generating an estimated US$40 billion in gross written premiums annually. 

But, is the jurisdiction evolving in order to remain the leading captive domicile and attract prospective captive owners – how is it staying relevant?

Embracing innovation

The advent of Insurtech in the global (re) insurance industry has not gone unnoticed in Bermuda, and the Bermuda Monetary Authority (BMA) has actively sought to fold this modernisation into its insurance legislation. 

Amendments to legislation created a ‘regulatory sandbox’ aimed at giving technology-based insurance startups an environment to incubate their business for a limited period of time. This allows them to test new technologies and offer innovative products, services, and delivery mechanisms to a limited number of policyholders (or other clients) in a controlled setting with appropriate oversight from the BMA. These companies can subsequently register as a normal insurer after the incubation period ends. There are appropriate safeguards to protect policyholders and counterparties of companies, with time limits, reporting requirements and disclosure requirements built into the ‘regulatory sandbox’.

New insurance classifications and licenses, aimed at insurers carrying on business in an innovative or experimental manner were introduced. The ILT class was created for insurers carrying on long-term business and the IGB class was created for insurers carrying on general business. A new licensing regime was also introduced for insurance intermediaries, insurance brokers and insurance managers carrying on business in an innovative or experimental manner. 

Insurtech is already being widely incorporated into the global (re)insurance market; a simple example is that ten years ago, when filing out a home insurance policy application, a policyholder may have been required to obtain and provide information such as the distance from the property to the nearest fire hydrant. However, today an insurer may use tools like ‘Google Earth’ to obtain such information when providing a quote. With the growing trend of technology being applied to traditional insurance, the Bermuda captive industry is well positioned to attract and develop fresh interest, as insurers seek to test their innovative and experimental ideas in the controlled environment provided by the BMA. 

Incorporated cells add to Bermuda's appeal

Bermuda also introduced the Incorporated Segregated Accounts Act 2019 (ISAC Act) in 2019, which sits along side the existing Segregated Accounts Act 2000 (SAC Act), which existing piece of legislation is widely used by captives in Bermuda. 

The ISAC Act introduced the option of creating segregated cells with legislatively provided separate legal identity. This adds another layer of ring fencing to segregated accounts business that is popular with captives. Many jurisdictions now have segregated cell or protected cell legislation but not all offer incorporated cells as an option. Although not exclusively aimed at the insurance industry, the innovations provided by the ISAC Act add to Bermuda's captive insurance solution offerings.

Expanding global reach and accessibility

Another feature of Bermuda’s mature captive market is its extensive global reach. Bermuda is often referred to as the “risk capital of the world” and the maturity of its captive market inspires confidence. Many of the world’s largest multinational corporations and publicly traded companies choose to domicile their captives in Bermuda, and while most Bermuda captives have traditionally been North American and European facing, Bermuda is also a popular captive domicile for insurers from other parts of the world including Africa, Asia and Latin America. 

Bermuda's sophisticated technological infrastructure and inter-connectivity enables captives to operate with a global reach. The island is close to opening its new, expanded airport that will add to ease of travel for the facilitation of physical meetings as necessitated by the Economic Substance Act.

A mature market committed to regulatory excellence

The maturity of Bermuda’s captive market means that it is well placed to provide economic substance for insurers in the jurisdiction. Owing to the breadth and quality of supervision of insurance companies in Bermuda, captives have generally found that they were already operating with a decent level of substance that could be refined to meet the requirements. 

Bermuda regulators' proportional, risk-based approach continues to strengthen its captive market. This is highlighted by the fact that Bermuda remains one of only two non-EU jurisdictions that enjoy Solvency II equivalency, which was granted by the European Commission in 2015. This demonstrates Bermuda’s commitment to enhanced regulation and innovation and the EU’s views on Bermuda’s insurance regime being on par with their own. At the same time as Solvency II equivalency was granted, Bermuda was approved as a qualified jurisdiction by the National Association of Insurance Commissioners, further distinguishing Bermuda’s high regard as a global insurance hub. 

Bermuda's sophisticated regulatory approach is not limited to its insurance industry. Notably in early 2020, Bermuda was recognised for its AML/ATF regime by the Financial Action Task Force. It is also a leader in tax transparency and has a high level of compliance co-operation and information exchange. 

The depth and stability of Bermuda’s captive market means it can potentially play a role in creating needed capacity and filling coverage gaps arising from ‘“newer’” perils such as cannabis related risks, cyber risks, and even pandemic risks. The current coronavirus pandemic has highlighted that there may be significant coverage gaps related to business interruption risks, and that there will likely be a need for greater insurance capacity to cover risks such as travel interruption and worker’s compensation. 

The relevant Bermuda regulators are also taking a progressive approach to the cannabis industry and have said that as a matter of policy, as long as the business is being carried out in a country where cannabis is legalised, Bermuda will allow the business.

Looking forwards

A jurisdiction embracing solutions, Bermuda’s mature captive industry is not only open for business, but it is also inviting a new wave of modern insurers armed with innovative ideas, technology and systems that are enhancing its position as a practical and efficient captive domicile, equipped to face the challenging landscape of the (re)insurance market.

Supporting captive success

Our team provide a full suite of administration and fiduciary services to the ILS and captive market from our Bermuda, Cayman and BVI offices, ensuring that all structures remain compliant with applicable regulations in each jurisdiction. If you would like to discuss how we could support your captive needs, please get in touch via my profile below or learn more here.

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