Insurers more reliant on reinsurance: BMA


The level of insurers’ reliance on reinsurance for perils increased in 2017 compared with 2016, according to the Bermuda Monetary Authority (BMA).

This was among the findings in the BMA’s ‘BSCR Stress Testing and Modelling Practice Analysis 2017 report’, which reviewed the industry’s overall resilience to potential catastrophe events.

While insurers’ reliance on reinsurance and/or other loss mitigation instruments varies for each peril, the aggregate loss impact showed that the level of reliance on reinsurance has increased.

On average insurers ceded close to 50.0 percent of gross losses in 2017, an increase of around 5 percent year-on-year.

Perils that have potential for the largest losses, such as Gulf Windstorm, Miami-Dade Hurricane and San Francisco Earthquake are heavily reinsured.

The report showed that insurers are using a variety of  reinsurance methods to cede some of their cat exposure, which include the traditional property catastrophe contracts, quota share contracts, insurance-linked securities (ILS) protection and industry loss warranty contracts among others.

Bermuda insurers have also lowered their net catastrophe exposure in 2017 compared to the previous year by about 2 percent.

The decrease was primarily driven by the decrease on the net loss impact of Gulf Windstorm (3.0 percent), Miami-Dade Hurricane (3.0 percent) and Northeast Hurricane (2.0 percent) compared to 2016, the BMA noted. The majority of the perils have either seen a minor decrease of their net loss impact or their impact has stayed relatively the same.

Furthermore, insurers have increased their statutory capital & surplus by 12.0 percent, the report showed. Consequently, the overall industry’s resilience to potential catastrophe events has further strengthened compared to last year.

The global share of gross estimated potential loss assumed by Bermuda insurers on major catastrophe perils (combined) increased by about 2.0 percent. The increase in the statutory capital & surplus and global share are largely attributed to the inclusion of more insurance entities in the survey, the report said.

Furthermore, Bermuda insurers have increased their average gross exposure between 2016 and 2017 by 9.2 percent. The variation within the sample in 2017 increased significantly with few companies having large increases in their exposures and many smaller firms with smaller exposures. The 90th percentile exposure reached $3.3 billion, up by 14.0 percent since 2016. Average net exposure dropped by 4.8 percent between 2016 and 2017, while the variation of exposures within samples increased as in the case of gross exposures. The 90th percentile net exposure dropped by 15.5 percent in 2017. The largest exposure for Bermuda insurers is North Atlantic Hurricane with average gross exposure between $773.5million for “1-in-50” year events up to almost $1.5 billion for “1-in-1,000” year event.

The data show that the purchase of reinsurance becomes less pronounced at higher risk layers, the BMA noted. The median insurer retains 49.2 percent of the gross exposure for “1-in-50” year events, while the median insurer retains 57.3 percent of the gross exposure for “1-in-1,000” year events.

BMA, Report, Reinsurance, Catastrophe, Bermuda

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