Bermuda insurers increase cat resilience

Bermuda insurers have lowered their net catastrophe exposure in 2017 compared to the previous year by about 2.0 percent, according to a Nov. 30 Catastrophe Risk in Bermuda report by the Bermuda Monetary Authority (BMA).

The decrease in net total exposure is 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.

At the same time, the insurers have increased their statutory capital & surplus by 12.0 percent, the BMA said. Consequently, the overall industry’s resilience to potential catastrophe events has further strengthened compared to last year, the BMA noted.

In addition, 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.

At the individual entity level, the results showed that Bermuda’s insurance entities are resilient to the worst-case annual aggregate underwriting loss scenario.

Looking at the aggregate loss impact, the results showed that the level of reliance on reinsurance has increased compared to last year and varies across each peril, the BMA said. Typically, perils that have potential for the largest losses, such as Gulf Windstorm, Miami-Dade Hurricane and San Francisco Earthquake are heavily reinsured.

On average, Bermuda insurers ceded close to 50.0 percent of gross losses in 2017, which is an increase of about 5.0 percent compared to the previous year.

The results also showed that Bermuda insurers use 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.

At the same time, 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.

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