Bermuda capacity increase not material at industry level: AM Best

While Bermuda and London saw significant capital inflows in 2020, new capacity has not materially impacted overall industry capacity, according to AM Best.

“While the bolstering of capacity at company level is not insignificant, it does not currently represent a material addition to industry capital, particularly when combined with existing third-party capital capacity,” explained AM Best.

In a special report, titled London and Bermuda Attract Capital as Insurance Market Conditions Improve, AM Best noted that new capacity could have some impact on prices, but a number of other factors will be similarly influential.

Expectations of a broad market hardening have attracted significant capital raising activity in both Bermuda and London. In Bermuda the inflows have supported a number of launches in 2020, including Conduit Re and Vantage. Ark, an established Lloyd’s player, attracted significant new capital and converted its license in Bermuda to allow it to write third party risk.

Capital also found its way to the insurance sector due to the lack of other opportunities, noted AM Best. “The low interest-rate environment has forced investors – particularly institutional investors – to look further afield for yield opportunities,” it explained. “The risk and reward calculation posed by the insurance industry in a hardening market may look more attractive to existing and new investors.”

Private equity funds have contributed to the inflows, AM Best said, alongside industry capital and public placements. Third party capital has continued to flow into the sector, although the pace of inflows has slowed, the rating agency said, partly due to a period of high severity losses.

“There have been issues surrounding collateral release, which has resulted in a renewed focus on credit and dispute risk,” AM Best added. “So while the catastrophe events of 2017 and 2018 represented a significant test of alternative capital use and affirmed the persistence of third-party capital owners, they also led to a re-evaluation of return requirements and governance structures.”