A one-stop shop for captives

Bermuda continues to offer solutions to business owners to solve their complex insurance  problems through captive insurance vehicles.

The Bermuda captive insurance sector is the foundation stone of the Bermuda re/insurance industry and remains one of its key components.

The Island has long been one of the world’s leading captive domiciles. The Bermuda Monetary Authority (BMA) reported that there were 633 captives licensed in Bermuda at year end 2022, of which 186 were captives writing third party business; 269 wrote connected to related business; and 178 were single parent captives. By comparison, in 2021, there were 632 captives.

Of those, captives writing third party business write the largest volume of business with $18.3 billion in gross written premium out of a total of $31.3 billion. In 2021, captives wrote $29 billion with third party business accounting for $16.4 billion.

The sector as a whole had $142 billion in assets and capital surplus of $73.8 billion, compared to $150 billion in assets and capital surplus of $73 billion in 2021. Figure 1 shows the global sources of Bermuda’s captive insurance premiums.

In 2023, the BMA licensed 13 class 1 and class 2 insurers, compared to 16 in 2022. The first captive was licensed in Bermuda in 1962 and the Island has been an innovation hub for the industry since. Pioneered by luminaries such as Fred Reiss, the sector developed through the 1980s and 1990s when Bermuda dominated the sector.

If imitation is the sincerest form of flattery, the Bermuda captive sector should be blushing, because many offshore and onshore domiciles have developed captive regimes modelled on Bermuda’s. 

With many US states already welcoming captives, European countries such as France, Italy and the UK have now established regimes or are in the process of doing so.

Last year, Vermont claimed to have overtaken Bermuda as the largest captive domicile, although Bermuda disputes the claim. 

A one-stop shop

Bermuda specialises in complex structures and is increasingly using captives for employee benefits.

Bron Turner, partner at KPMG Bermuda, told Bermuda Risk Review’s sister publication Captive International last year: “Onshore jurisdictions have become more sophisticated in terms of legislation, a lot of which piggybacks off Bermuda.

“But in terms of Bermuda having a role to play in the captives market, we have the on-Island expertise in complex structures and insurance products with access to the reinsurance market, plus a regulator that understands these complexities and applies appropriate oversight.”

He added: “Bermuda is a one-stop shop. Within a day, and within walking distance, a well-planned trip will allow you to meet with all your service providers, as well as the BMA. So why would you want to go anywhere else?”

The Bermuda Captive Network is the umbrella organisation for captives in Bermuda. It was formed in late 2021 through a merger of the Bermuda Insurance Managers Association, the Bermuda Captive Owners Association and the Bermuda Captive Conference with the aim of promoting Bermuda as a world-class domicile in the global risk market. It is also the main advocate for the captives industry for legislative and policy changes for the sector.

While there have been no substantive changes to the captive regulatory regime in the last 12 months, advocates of the industry point to the development of incorporated segregated account companies, segregated account companies and innovative insurance and sandbox concepts as examples of how Bermuda and its regulator keep innovating.

Looking ahead In terms of new developments, captives are expanding into new lines of business.

AM Best, in a report on US captives published in August 2024, “Growing Captive Insurance Market Highlights Risk Management Expertise” said: “Since the pandemic, business interruption has frequently been customised by captive owners to ensure that they have some predictable coverage should a future event emerge.

“At the same time, group medical stop-loss has emerged as one of the fastest-growing coverages considered by captives due to increased medical inflation and the continued rise in healthcare-related insurance costs. Additionally, the cyber market has generally stabilised, though not softened, but rapidly escalating pricing has promoted captive owners to contemplate offering higher limits.

“Other potential risks and lines captives are being utilised for include directors and officers, professional liability, product liability and surety bonds.”

The Bermuda Captive Conference takes place on September 9 and 10 with panels including “Bermuda Captives: Setting the Standard in Jurisdictional Excellence” moderated by Grainne Richmond, head of captives at Aon.

IML chief executive officer Justin Doherty will moderate a session on “Innovative use of Captives”, while Jennifer Masters, Bermuda captive leader at Brown & Brown, will moderate a discussion on the impact of the Corporate Income Tax in Bermuda.

That session may throw more light on a topic of some uncertainty in Bermuda. The Corporate Income Tax is supposed to tax global companies with minimum annual revenues of €750 million or more.

Under the terms of the tax, if a country where the headquarters or subsidiaries of the company operate does not collect the tax, another government can.

Bermuda will introduce the 15 percent tax next year, but it is not yet clear whether and how any captives might be affected.

The industry’s leaders are acutely aware of the need to attract younger people into the industry. Leslie Robinson, senior vice president, head of underwriting and claims at WTW, told Captive International’s 2023 roundtable: “It is so important that we attract the younger generations into the industry, such as the Millennials, who can help our industry continue to be innovative.” 

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