Solvency II equivalence will drive exponential growth in Bermuda

Bermuda’s insurance industry will continue to grow exponentially over the five year period from 2014 to 2019, partly driven by Solvency II equivalence, according to Timetric’s Insurance Intelligent Center (IIC), a market intelligence company.

The IIC has predicted that the size of the Bermuda insurance industry will steadily rise to reach $167.1 billion by 2019, up from $102.3 billion in 2014, at a compound annual growth rate of 10.3 percent, on the back of a growth in external business including offshore and captives.

Timetric suggested that Solvency II equivalence has enhanced the reputation of Bermuda’s insurance industry. Equivalence is seen as a confirmation of approval for the Bermuda Monetary Authority’s (BMA) competence and more widely that Bermuda is the biggest financial location, the company said.

Other suggested benefits include less difficulty in regulating of cross-border business with European companies. Many European jurisdictions had constrictive regulatory provisions that Bermuda-based re/insurers will no longer have to follow.

Also there is increased investment from US and Canadian re/insurers in Bermuda as it will be a location that they can conduct from their European reinsurance operations, the IIC said.

Jay Patel, analyst at Timetric, said: “Solvency II equivalence is expected to simplify group supervision for Bermudian insurers with operations in Europe.

“This is because they are able to have a more efficient group supervisory structure regulated only by the BMA, recognized by European insurers as a group supervisor.”

The report also noted that the low number of major US catastrophes (measured in terms of the size of insured losses) in the past 10 years has meant that there is extra capacity in the Bermudian reinsurance market.
The rising popularity of alternative capital, which includes ILS and collateralized reinsurance, are adding to the capacity in the sector.