The latest data from the Bermuda Monetary Authority (BMA) shows that Bermuda’s commercial long-term insurance industry will continue to grow in 2024, with gross premiums (GWP) increasing by 17.8% year-on-year to US$200.1 billion, and total assets increasing by 19.1%.
The Bermuda Long-Term Insurance Market Analysis and Stress Test Report attributes this growth to increased demand from direct insurers and institutions seeking reinsurance for risk management, capital efficiency and to mitigate balance sheet volatility.
This global demand is driven by a complex combination of challenging economic conditions and an aging population.
The report details how the industry is deploying growing capital and shows that the industry’s largest asset allocation is corporate bonds, accounting for 51% of total investment at the end of 2024.
The data shows that investment-grade fixed income securities account for 74.7% of asset allocations and account for more than 75% of total investments in the four years to 2024. Data show that securities rated below investment grade account for less than 3.0% of total investment, and unrated securities account for less than 1.0% of total investment.
Stocks, equity-like assets, preferred stocks and mortgage investments accounted for 21.4% of investment allocations, with stocks and mortgage allocations driving this increase.
The report highlights that Bermuda’s role as a global reinsurance center is reflected in its reserve allocations. The United States accounts for more than 70% of Bermuda’s long-term insurance company reserves, followed by Asia. European companies, including the UK, still account for less than 5% of allocated reserves.
In terms of the types of business covered, two-thirds of the long-term segment reserves are allocated to longevity and financial businesses, with the remaining reserves related to death and critical illness insurance.
In addition, the BMA also conducted a Global Financial Crisis (GFC) stress test on Bermuda’s long-term commercial insurance companies, demonstrating the strong ability of Bermuda’s long-term reinsurance industry to withstand severe economic challenges.
The industry’s solvency position is strong, with a median solvency ratio of 286% at the end of 2024, the report said. From an individual perspective, firms are well-positioned in terms of capital to absorb the impact of prescribed adverse financial market stress scenarios.
Overall, the Authority noted that “the industry continues to demonstrate resilience to stress tests.”
The test draws on related work from the International Association of Insurance Supervisors (IAIS). These specifications are calibrated using the IAIS Aggregation Method (AM) data collection, which features scenario analysis that simulates severe economic conditions (such as the 2008 financial crisis).
Stress tests show that even under severe stress conditions, most insurers maintain capital levels well above regulatory requirements.
Bermuda’s long-term insurance companies maintain strong liquidity, with 56% of assets in highly liquid instruments (cash and bonds). Under stress, the median liquidity coverage ratio (LCR) reached a high of 471%, significantly exceeding the regulatory minimum of 105%.
Liability positions are improving, default risk has decreased and surrender penalties have increased, mitigating liquidity risk.
The BMA noted that insurers are subject to mandatory stress testing and reviews continue to target companies with vulnerabilities. Changes in LCR from 2023 to 2024 are attributed to improvements in reporting, asset allocation and data quality.