Bridging protection gaps: natural catastrophes and retirement
Bermuda plays a critical role in developing innovative solutions to help tackle globally challenging insurance protection gaps. The Bermuda Monetary Authority provides the tailored regulatory frameworks that enable this to happen, says CEO Craig Swan.
Bermuda has established itself as a prominent global hub for insurance and reinsurance, able to provide the world with innovative solutions to help tackle globally challenging insurance protection gaps, in classes such as such as natural catastrophe, retirement, healthcare and cyber.
As the regulator for the island's financial services sector, the Bermuda Monetary Authority has established tailored regulatory frameworks that provide high assurance that the island will continue to meet policyholder needs responsibly.
As a leading global re/insurance centre, Bermuda provides tailored solutions that enhance resilience and help narrow protection gaps in an ever-changing business environment. In this way, the market plays a vital role in diversifying risks globally and helping stabilise insurance costs for customers residing in catastrophe exposed areas.
As evidence of the market's global significance, Bermuda insurers paid nearly $1 trillion in claims to policyholders worldwide between 2016 and 2023. Of this, the commercial property and casualty sector contributed approximately US$460 billion, and the commercial long-term (Life and Annuity) sector contributed approximately US$420 billion. In 2023 alone, Bermuda commercial (re)insurers paid nearly $200 billion in claims, with more than $100 billion of these claims paid by the commercial long-term sector.
“Bermuda insurers paid nearly $1 trillion in claims to policyholders worldwide between 2016 and 2023.”
Bermuda’s commercial markets
One key aspect of the Bermuda platform is the use of new ideas and technologies to reduce protection gaps and enhance resilience across multiple lines of business. This includes developing innovative forms of coverage, particularly in areas such as climate and retirement risk.
In helping address protection gaps, especially in the climate catastrophe field, reinsurers find the rising frequency and severity of natural catastrophe-related events are challenging their current assumptions. As the market reshapes its strategies and approaches, re/insurers have striven to develop tangible solutions that make a difference and keep pace with the fast-evolving risk landscape.
Despite facing various challenges, including the unique risks associated with a changing climate, the Bermuda insurance market demonstrates resilience against potential adverse impacts. The ability to meet policyholder obligations is evident in the 2023 Bermuda Insurance Property and Casualty Market Catastrophe Risk and Stress Testing Analysis results. As highlighted in the report, the value of global gross estimated potential loss assumed by Bermuda re/insurers from the major catastrophe perils (combined) has increased from $180.14 billion in 2022 to $184.75 billion in 2023.
With regards to life and annuity exposure, the Bermuda market's capital and liquidity resilience is highlighted in the 2024 Bermuda Long-term Insurance Market Analysis and Stress Testing Report. This shows the commercial long-term sector maintained a robust solvency position with a median pre-stress solvency ratio of 259% at year-end 2023, which is higher than the required minimum solvency ratio of 100%. For each single-shock scenario, the sectoral post-stress capital remains more than 200%. This figure underscores the sector's strong capitalisation and demonstrates that firms can absorb the impacts of prescribed stress scenarios.
Additionally, an analysis of the BMA’s enhanced liquidity stress test indicates that Bermuda long-term insurers maintain a substantial portion of their assets in liquid forms, resulting in high liquidity coverage ratios under normal and distressed circumstances when considered against the BMA’s minimum liquidity coverage ratio. A complementary report, Liquidity Risk in the Bermuda Long-term Insurance Market (August 2024), provides more information and a comprehensive analysis of the liquidity risk profile of Bermuda’s long-term insurers.
The Bermuda long-term market is adapting by proactively offering solutions to the widening retirement protection gap. In recent years, Bermuda's reinsurers have been raising new capital from diverse sources, including private equity firms, specialised asset managers and institutional investors, such as endowment and sovereign funds. Further strategies re/insurers have adopted to narrow the gap include injecting or expanding investment management and origination capabilities through various strategic relationships and partnerships with asset management firms.
In line with the BMA’s mission to protect policyholders, it has enhanced the regulatory framework to ensure it remains fit for purpose and accelerates the market’s contribution to narrowing protection gaps. For example, as the long-term sector has evolved and undergone significant transformation in recent years, the Authority has kept pace with emerging trends by enhancing the regulatory framework to ensure it remains agile and continues to provide robust policyholder protection.
Regulatory enhancements have included improving policyholder protection related to investment disclosures, reserving capital requirements, governance and risk management standards. As a result, the Authority now requires approval for life reinsurance block transactions to promote transparency and cross-border cooperation.
Introducing these kinds of regulatory enhancements has allowed the BMA directly to address the long-term sector's unique risks while acknowledging the growing demand for guaranteed retirement income. A white paper titled The Evolution of Asset-Intensive Insurance provides a comprehensive overview of regulatory standards designed to protect policyholders and to help maintain financial stability.
Notably, the commercial frameworks in Bermuda possess full Solvency II equivalence, making it one of only two jurisdictions worldwide with this recognition. In addition, Bermuda is one of only seven jurisdictions to hold Qualified Jurisdiction status and one of three jurisdictions with Reciprocal Jurisdiction status. The BMA also regularly participates in the work of standard-setting bodies such as the International Association of Insurance Supervisors (IAIS) and the Sustainable Insurance Forum, where global issues surrounding protection gaps are frequently discussed.
Bermuda’s ILS and captive markets
Protection gaps can place considerable, long-term stress on financial systems. One solution to narrowing protection gaps and fostering innovation lies in the Insurance-Linked Securities (ILS) market. Despite elevated catastrophe losses and trapped collateralised capital, recent industry innovations and regulatory advancements have supported responsible innovation, spurring new opportunities for growth within the ILS sector. Additionally, property catastrophe/retrocession continues to be the primary business line written under these catastrophe bond issuances, with mortgage bonds also remaining a key segment within the ILS bond market. As of 2024, Bermuda’s global share of ILS exceeded 90%.
Cyber bonds are one of the most notable innovations in the ILS market over the past year. With these vehicles now registered in Bermuda, new opportunities exist to plug the cyber gap with additional risk coverage. In 2023, Bermuda-based ILS vehicles issued $670 million in cyber-specific ILS, creating critical additional capacity towards addressing the estimated $900 billion annual cyber protection gap, according to the IAIS GIMAR report. Further, given the rise of geopolitical risks, the industry also continues to explore the use of terrorism cat bonds to provide additional capacity for terrorism-related losses or hybrid bonds to cover perils such as political violence, war or cyber terrorism.
In parallel, Bermuda's captive market is robust and offers an innovative, stable platform to diverse industries worldwide. In 2022, the market wrote more than $31 billion in gross written premiums and held more than $142 billion in assets at year-end, according to the 2023 BMA Captive Report. That year, the leading captive parent industry sectors were: energy, power and utilities (26%), healthcare (17%), automotive, manufacturing and retail (11%), construction (11%) and shipping, transport and storage (11%). Consequently, Bermuda's mature captive market has provided tailored solutions that might not otherwise exist. This has allowed businesses and governments to address specific challenges and perils in vulnerable communities and jurisdictions.
Bermuda-focused solutions
Significant protection gaps in many lines of business present opportunities for insurers to distinguish themselves and achieve favourable outcomes. To drive progress in this direction, in 2024, the BMA and Lloyd's launched Cohort 14 of the flagship Lloyd's Lab Accelerator Programme. Under the theme 'Shaping the Future of Reinsurance in Bermuda', participants will address some of the world's most pressing challenges in climate risk, emerging and man-made risks, and sustainable insurance models, to name a few. During the intensive 10-week programme, the selected teams will have the opportunity to develop their proof of concept from Bermuda, leveraging the resources of the BMA and the broader market.
Equally important are the BMA’s regulatory sandbox and innovation hub. Introduced in 2018, the platform allows for the controlled exploration and testing of innovative solutions in the Bermuda market. To date, 12 insurance sandbox companies have been licensed, with seven graduating to full insurance class licences. The platform has also facilitated the growth of breakthrough business models, especially those that tackle the climate protection gap. Examples include blockchain-based parametric insurance for natural catastrophes, AI-driven underwriting for previously uninsurable climate risks and insurance marketplaces (both decentralised and centralised) that connect capital to vulnerable communities. Beyond traditional forms of coverage, these initiatives have supported digital platforms by facilitating trading in insurance-linked securities focused on climate risks.
The sandbox and innovation hub have also expanded the investor base for catastrophe coverage and proactively addressed challenges like the “trapped capital” problem. In this context, the sandbox and innovation hub continue to support Bermuda’s evolution as a centre for catastrophe reinsurance and climate resilience through innovations such as micro tagging technologies for supply chain monitoring, smart contract platforms for cross-border climate risk transfer, and parametric coverage models tied to the renewable energy sector.
Looking ahead, the BMA will continue working with stakeholders and our regulatory peers to support a thriving and vibrant financial services sector. The Authority remains dedicated to upholding a proactive supervisory framework that aims to reduce protection gaps and leverage innovative solutions as the market evolves.
For more information on the Lloyd’s Lab Cohort 14, the regulatory sandbox and innovation hub, and reports published by the Bermuda Monetary Authority, visit www.bma.bm.
Craig Swan is chief executive officer of the Bermuda Monetary Authority.
For more news on Bermuda Risk Review 2025, click here.
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