Bermuda reinsurers resilient under extreme stress scenarios: BMA
Bermuda’s reinsurers have proven their capital strength and resilience, with the Bermuda Monetary Authority’s (BMA) latest stress test confirming stability even under severe global economic shocks.
The BMA has published the results of its ‘2025 Global Financial Crisis Stress Test – Long-Term Reinsurers’, an exercise designed to evaluate the island’s reinsurance sector under a simulated economic downturn.
The scenario, developed by the International Association of Insurance Supervisors (IAIS), mirrored conditions from the 2007–2008 global financial crisis, combining multiple market stresses, including widening credit spreads, a sharp drop in interest rates, equity and real estate shocks, and credit defaults.
Despite the severity of the test, the results point to a sector well-prepared to withstand turbulence. According to the report: “With a post-stress aggregate enhanced capital requirement (ECR) coverage ratio of 347%, the sector maintains significant capital buffers well above regulatory requirements even after absorbing the impact of multiple concurrent market shocks.”
The BMA highlighted that Bermuda’s regulatory framework and the statutory balance assessment SBA mechanism played a crucial stabilising role.
“The stress test results show the stabilising properties of Bermuda’s regulatory framework, particularly the SBA. With an average loss absorbency of 73%, the SBA framework reflects the robust risk and controls in place, providing significant protection against market volatility without compromising prudential safeguards.”
The findings also revealed that Bermuda’s long-term reinsurers hold conservatively weighted portfolios, dominated by fixed-income securities. While this approach softens the blow from equity and property market declines, it leaves reinsurers more vulnerable to interest rate and credit spread shifts.
One area of concern came from the management actions analysis, which tested how reinsurers would respond if cedents exercised contractual rights to reclaim risk under stress. Only three companies out of 106 showed potential vulnerabilities. One of these entities already has a recovery plan in place, while the other two—representing just 2% of Bermuda’s total long-term reinsurance reserves—will be required to develop robust recovery strategies under the BMA’s new framework introduced in 2024.
The BMA stressed that these isolated cases do not threaten the broader market, concluding that: “The current levels of exposures and capitalisation do not threaten the financial stability of the Bermuda market long-term, or the global life reinsurance market.”
Overall, the results reinforce Bermuda’s reputation as a resilient reinsurance hub, capable of meeting obligations to cedents and policyholders even in the most extreme financial scenarios.
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