Overview of Bermuda Monetary Authority and Nat-Cat Protection Gap
In-depth look at Bermuda Monetary Authority's role in closing the natural catastrophe protection gap. Explore Bermuda's reinsurance industry, regulatory framework, and international contributions. Learn how Bermuda is addressing climate risk finance and disaster insurance coverage to support countries like Slovenia. Understand the background and development of Bermuda's insurance market.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
INTERNAL Overview of the BMA and Bermuda s Role in Closing the Nat-Cat Protection Gap Bermuda Monetary Authority (Authority or BMA) INTERNAL
INTERNAL Table of Contents PART II: Bermuda s Role in Closing the Nat Cat Protection Gap PART I: Overview of the BMA Bermuda - a small island with a global mission Role of reinsurance Role of the BMA BMA background - Development of the insurance framework 1. Bermuda commercial sector 2. Sound regulation and supervision of the ILS Sector 3. Bermuda captive sector 4. Innovative insurer regime Journey toward equivalence (Solvency II and NAIC status) Bermuda s insurance market International work Bermuda claims paid to the European Union (EU) Recommendations Slovenia Conclusion INTERNAL
INTERNAL Part I: Overview of the BMA INTERNAL
INTERNAL Bermuda -a small island with a global mission Yes, this global mission includes Slovenia! Located between the US and Europe with strong links in both directions Important player for climate risk finance. Bermuda's role has never been more globally relevant Effects of climate change creating the potential for unprecedented catastrophe losses in the coming years Important player in the efforts to increase insurance coverage in disaster-prone countries: Rich experience in natural catastrophe re/insurance and deep expertise in the science of catastrophe risk management INTERNAL
INTERNAL Bermuda - a little island with a global mission For the aforementioned reasons, we feel close to the specific challenges of Slovenia: Catastrophic floods took place on 4 August 2023 Floods and landslides affected 183 of Slovenia's 212 municipalities Slovenian Government has provided EUR 515.9 million to date to help people, municipalities and the economy And finally this matter also touches me closely: Severe flooding occurred in Emilia-Romagna region of Italy in May 2023 (my region!) Overall economic cost estimated: EUR 9 billion Costliest weather catastrophe on record for Italy INTERNAL
INTERNAL BMA background: Development of the insurance framework The Bermuda Monetary Authority (BMA) is the sole supervisor for all (re)insurance entities and groups (those falling under the scope of the BMA regime for group supervision) Bermuda's (re)insurance industry operates globally. Bermuda is a large and diverse reinsurance market. Bermuda's framework has, therefore, been adapted to fit the nature, scale and complexity of its insurance market and to reflect the mainly wholesale nature of the business written in Bermuda. INTERNAL
INTERNAL BMA background: Development of the insurance framework Framework Milestones 1978 Implemented the Insurance Act 1978 1995 Established captive and commercial insurer classes 2008 Implemented the Risk-Based Capital (RBC) requirements for Property and Casualty (P&C) insurers 2010 Introduced Own Risk and Solvency Assessment (ORSA) requirements 2011 Introduced Group supervision and supervisory colleges and RBC requirements for long-term insurers 2013 Implemented Internal capital model requirements 2015 Introduced enhanced governance requirements Introduced the Economic Balance Sheet (EBS) - an economic valuation framework further enhancements were made in 2018 2024 to the BSCR 2016 + INTERNAL
INTERNAL Journey towards equivalence Equivalence Milestones 2015 Earned United States National Association of Insurance Commissioners (NAIC) Qualified Jurisdiction Status Economic valuation requirements, enhanced public disclosure requirements Earned full and permanent Solvency II Equivalence Status Article 172, Article 227 and Article 260 2016 2019 Earned US NAIC Reciprocal Jurisdiction Status Common framework for Internationally Active Insurance Groups Holistic framework and Insurance Capital Standard (ICS) implementation 2021 + INTERNAL
INTERNAL Bermuda s insurance market Bermuda has a well established and sophisticated insurance market. Total Gross (Re)insurance premiums of over $300 billion $300 billion Leading captive jurisdiction: writing gross premiums of $40 billion $40 billion Major Major commercial (re)insurance sector: about 350 commercials and 190 Special Purpose Insurers (SPI) commercial (re)insurance sector Alternative Capital: Bermuda has the largest share (around 70%) of the global alternative capital market Largest share of the global alternative capital market INTERNAL
INTERNAL Bermuda claims paid to the European Union (EU) Bermuda continues to have a significant impact on claims payment to the countries within the European Union. INTERNAL
INTERNAL Bermuda claims paid to Slovenia Bermuda insurers have paid $67.7 million in claims to Slovenia from 2019 to 2023 Cumulative P&C claims paid amount to $67.3 million / 99% of all claims paid Bermuda Insurers Claims Paid to Slovenia By Type of Business 25,000 Thousands 22,523 20,000 15,000 13,623 11,761 10,472 10,000 8,948 5,000 95 75 64 64 53 0 P&C Long-Term P&C Long-Term P&C Long-Term P&C Long-Term P&C Long-Term 2019 2020 2021 2022 2023 INTERNAL
INTERNAL Recent Bermuda Exposure to Major Cat Events Bermuda has also had a significant impact on claims payment to major events around the world with an estimated Gross Exposure of $26.4 billion in respect of some of the major events around the world over period of 2021 to 2024 These events include Texas Winter Storm Uri (2021), Hurricane Ida (2021), Hurricane Ian (2022) and Francis Scott Key Bridge (2024) INTERNAL
INTERNAL Part I I: Bermuda s Role in Closing the Nat Cat Protection Gap INTERNAL
INTERNAL Role of reinsurance Availability perspective: Reinsurance increases capacity by pooling and diversifying risks and providing access to a wider capital base. Product perspective: Reinsurers partner with their clients to provide sustainable risk-mitigation solutions through both traditional and innovative products. Insurance products need to be available, affordable and adequate. On the traditional side, reinsurance is itself a risk mitigant Understanding: Reinsurance contributes to data and modelling skills and expertise (Re)insurance markets play a critical role in absorbing damages and losses from natural hazards. With climate change, and increasingly severe or frequent extreme weather events, the future cost of insuring natural catastrophes becomes a critical issue. Protection gaps cannot, therefore, be addressed by increasing insurance penetration alone. INTERNAL
INTERNAL Role of the BMA 1. Bermuda commercial sector: Major perils covered: Hurricanes/typhoons/cyclones/windstorms, earthquakes, floods, wildfires and droughts. All these perils have material protection gaps globally Bermuda plays the role of a key reinsurance market in the global economy allowing for geographical diversification of risk and thereby contributing to reducing the protection gap The global nature of many reinsurers allows them to offset large risks in one region against risks in other regions The robustness of the Bermuda regulatory regime has enabled global policyholder obligations to be met while contributing to the reduction of the protection gap by both stabilising rates through the provision of reinsurance capacity and also by supporting the development of new insurance products INTERNAL
INTERNAL Role of the BMA 2. Sound regulation and supervision of the ILS sector Insurance Linked Securities (ILS) started in the mid-90 s after major loss events created a need for additional reinsurance capital. Initially the ILS market was primarily catastrophe bonds (cat bonds) Cat bonds have been growing steadily in the last years, these are fully collateralised, solvency remote vehicles that have allowed significant increase in capacity and available coverage to natural catastrophe (Nat Cat) risks Bermuda has been a significant jurisdiction for registering these cat bond structured vehicles by having developed and implemented a fit-for-purpose sound ILS. ILS structures in Bermuda are denominated Special Purpose Insurers (SPI) Bermuda s ILS structures have proven to be nimble and adaptable to the needs of sponsors and investors. The growing diversity of solutions available within the ILS landscape in Bermuda reflects the jurisdiction s response to an innovative and ever evolving ILS industry There has been a growing demand for ILS sidecars, often the result of key investors looking to have a more direct involvement in the structuring and long-term strategy of the vehicles INTERNAL
INTERNAL Role of the BMA 3. Bermuda captive sector Bermuda's captive market is a mature market that has remained resilient in the face of unprecedented events, market cycles and the evolution of risk, while maintaining Bermuda's position as a leading captive domicile The BMA expects further captive developments with the mitigation of climate risk in the future. Additionally, the BMA supports continued innovation in this space and is interested in emerging strategies for captives in the Bermuda market As an example, One Bermuda captive insurer is focused on Africa and works with the African Union to provide an index-based, weather-based insurance pool that provides parametric coverage to vulnerable communities, helping them better prepare and respond to extreme weather events INTERNAL
INTERNAL Role of the BMA 4. Innovative insurer regime Currently, companies within BMA s sandbox and innovation hub have in their agenda to close protection gaps in various lines of business We see this as a potential growth opportunity for the industry as a whole and the BMA s innovative tracks can become part of the solutions available Recent use cases seen by the BMA in the participants of its insurance regulatory sandbox regime feature the use of parametric insurance as the underlying business model to solve old problems of the insurance sector On the distribution side, the full range should be used, and new channels opened up. The introduction of new distribution concepts, supported by technology, is one way to help increase the availability and affordability of insurance Such concepts can range from relatively simple embedded insurance distributed via digital platforms to more complex arrangements such as online marketplaces INTERNAL
INTERNAL BMA s role in international work Our work with the International Association of Insurance Supervisors (IAIS): Founding member of the IAIS Actively participates in the organisation s work Representation at nearly all committees and sub-committees Several leadership positions BMA defended adding protection gap to the IAIS 2023-2024 Roadmap Joined the Protection Gap Taskforce Contributed to the IAIS report A call to action: the role of insurance supervisors in addressing natural catastrophe protection gaps. Outlines practical steps insurance supervisors can take to incentivise risk prevention and reduction of insured losses Contributed and will continue to do so at other international fora, such as the G7, and it is the start of a protection gap roadmap INTERNAL
INTERNAL BMA s role in international work Our work with the IAIS (continued): IAIS will publish a GIMAR special topic edition next year on the potential financial stability implications of NatCat protection gaps. Addressing protection gaps will continue to be a priority topic for the IAIS Solvency II Equivalent Jurisdiction: Solvency II review proposals of the European Commission outline, among other things, measures that contribute to the reduction of protection gap As an equivalent jurisdiction the BMA s framework will remain aligned to these objectives INTERNAL
INTERNAL Recommendations for narrowing the Nat-Cat protection gap Stakeholder mix: Protection gaps can be addressed by an optimal configuration of a multi stakeholder mix (depending on the maturity of the market) between governments, insurers and reinsurers Public private partnership: Public-private partnerships, when done right, can harness the unique strengths of both the government and insurance industry New thinking and new products and distribution: The insurance industry, capital providers, policymakers and regulators need to innovate in these areas to create win-win arrangements (Nat Cat) Education: Support efforts to educate and inform the general public, businesses, communities and policyholders about the nature of risk and benefits of Nat Cat insurance INTERNAL
INTERNAL Conclusion Global problem: The protection gap is a global problem and one which will be increasingly prominent over the coming years Supervisory mandates of preserving financial stability and enhancing policyholder protection; already provide a robust basis for acting on protection gaps Benefits of reinsurance: Reinsurance is a business-to-business transaction, carried out by sophisticated commercial reinsurance industry participants operating in a global market Reinsurance s ability to help reducing protection gaps greatly depends on the ability to diversify risks across jurisdictions. Regulatory regimes should enable prudent access to global reinsurance capacity The above is important because, in the end, insurance and reinsurance is a global industry and European citizens need to be sure that the same level of protection applies regardless where the products come from INTERNAL
INTERNAL Conclusion Bridging the gap: Despite the global challenges to closing the Nat Cat protection gap, we have seen how Bermuda is helping to bridge the gap in a number of ways Bermuda s sound risk-based regulatory regime, which has full Solvency II Equivalence and NAIC Reciprocal and Qualified Jurisdiction Status, ensures that reinsurers remain resilient to continue to play this important role in the reduction of protection gap Thank you lbonacorsi@bma.bm INTERNAL
INTERNAL Annexes : Additional Bermuda insurers claims INTERNAL
INTERNAL Bermuda insurers claims paid by selected European countries Bermuda Insurers Claims Paid by European Country 3,000 Millions 2,500 2,000 1,500 1,000 500 0 2019 2020 2021 2022 2023 Ireland Germany France Spain Italy Belgium Netherlands Austria Portugal Greece Poland Slovenia Other EU Countries INTERNAL
INTERNAL Bermuda insurers claims paid by selected European countries P&C and Long Term split Bermuda Insurers Claims Paid by European Country 2,500 Millions 2,000 1,500 1,000 500 0 P&C Long-Term P&C Long-Term P&C Long-Term P&C Long-Term P&C Long-Term 2019 2020 2021 2022 2023 Ireland Germany France Spain Italy Belgium Netherlands Austria Portugal Greece Poland Slovenia Other EU Countries INTERNAL
