The Bermudian re/insurance market continues to prove resilient to potential major catastrophe losses, according to the Bermuda Monetary Authority (BMA), partly due to its increasing use of reinsurance and retrocession.
The BMA found that, on average, insurers ceded around 50.0% of their gross losses to reinsurers over 2017, which was an increase of about 5.0% when compared to the previous year.
Companies also employed a variety of reinsurance methods to cede their cat exposure, including traditional property cat contracts, quota share contracts, insurance-linked securities (ILS) protection and industry loss warranty contracts, among others.
Based on a series of catastrophe stress test scenarios, the BMA determined that Bermudian insurers will retain, on average, 76.0% on a gross basis (before reinsurance) of their statutory capital & surplus after the largest single cat underwriting loss event.
On a net basis (after reinsurance), the BMA said insurers would retain approximately 92.0% of their statutory capital & surplus, representing an increase of three percentage points compared with the prior year.
Out of the 18 standardised underwriting loss scenarios used by the BMA, Gulf Windstorm had the largest potential adverse effect on the market, with an estimated gross loss impact to statutory capital & surplus of 24.0%, followed by Northeast Hurricane at 22.0%.
While levels of reinsurance were found to vary between companies and perils, the BMA found that perils with the potential for the largest losses, such as Gulf Windstorm, Miami-Dade Hurricane and San Francisco Earthquake, were typically heavily reinsured.
The BMA also noted that the Bermuda re/insurance market proved resilient to its terrorism and cyber risk stress test scenarios.
Overall, the global share of gross estimated potential loss assumed by Bermuda insurers on the major catastrophe perils increased by about 2.0%, which is largely attributable to the inclusion of more insurance entities in the BMA’s survey.
An analysis of the exceedance probability curves demonstrated that Bermuda insurers are more exposed to Atlantic Hurricane than any other peril, with gross average modelled losses over all companies stretching from $773.5 million for the ‘1-in-50’ year events up to $1.5 billion for the ‘1-in-1,000’ year events.
The use of reinsurance is particularly widespread for this peril, with average modelled losses ranging from $295.2 million for the ‘1-in-50’ year events up to $770.4 million for the ‘1-in-1,000’ year events.
The BMA said that the use of reinsurance is generally more pronounced for lower frequency return periods for Atlantic Hurricane and North American Earthquake, while other named perils exhibit the opposite pattern such as Japanese Earthquake and Japanese Typhoon.
