News | October 29, 2018

KBRA Releases Research Report On The Innovation Of The Bermuda (Re)Insurance Market


Kroll Bond Rating Agency (KBRA) releases a research report entitled Innovation to Foster Growth of Bermuda (Re)insurance Market Despite Headwinds.

The Bermuda market shows a long and diverse history of (re)invention to address a multitude of challenging (re)insurance industry issues. Today, Bermuda’s role as both a seasoned reinsurance provider and a solution incubator for the global (re)insurance industry continues, and KBRA believes Bermuda’s role is perhaps even more relevant now than ever before.

At the end of 2016, the Bermuda Monetary Authority reported that the capital and surplus of commercial property-casualty (re)insurers (defined as Class 3A, 3B and 4) was $110 billion, or more than 20% of global traditional reinsurer capital. While official numbers for 2017 are not yet available, KBRA expects Bermuda to achieve growth that outpaces the rest of the world for traditional capital and will be in line with the non-Bermudan market for alternative capital. KBRA anticipates capital trends to continue in the near to medium term, despite the natural catastrophes of 2017 and 1H 2018 that have impacted earnings but have not eroded capital.

Despite the growth, Bermuda (re)insurers are facing pricing pressures from abundant capital – both traditional and alternative – just like their counterparts in other countries. Their response has been to embrace all capital and actively seek to match risk to the most efficient capital. This has taken different forms for different (re)insurers. There has been some consolidation amongst market participants to gain efficiencies of scale. Others have incorporated alternative capital market entities into their organizations to gain more direct access to the capital markets as well as to earn fees.

In addition to the continuing competitive pricing environment, other key challenges facing the (re)insurance industry are cyber, Brexit, InsurTech, and climate change. Nonetheless, KBRA believes the United States Tax Cuts and Jobs Act (TCJA) may have more immediate implications for Bermuda companies. There are three TCJA provisions that are highlighted in the report – Passive Foreign Investment Company, Controlled Foreign Corporation, and the Base Erosion and Anti-Abuse Tax.

The business environment in Bermuda has fostered substantial innovation and has always demonstrated a willingness to try new things. As the Bermudan market has grown into a global force, prudent regulation has naturally followed. However, because of the unique partnership between the government and business it has always been with an eye toward not stifling the creativity of market participants.

In summary, with perseverance, determination and creativity, KBRA believes participants in the Bermuda market are poised to overcome the obstacles foisted upon them – maybe not with the first solution(s), but eventually. Then, they can go about what they do best: finding innovative solutions to the tough issues facing the global (re)insurance industry.

To view the report, please click here.


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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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