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Bermuda Market

Captive Insurance

Captives in Bermuda

Nomi Chi is a prolific tattooer and illustrator out of Vancouver, Canada. She currently tattoos out of Gastown Tattoo Parlour. We had the excellent opportunity to ask her some questions:

Tattoo You - What was the first tattoo you received?

Nomi Chi - When I was 14, I got a treble clef on my ankle.Gold Tattoos Stickers My tattooer was a scruffy biker fellow who went by the name “Spider”. My mother paid for it, voluntarily at that. Since then it’s been covered up three times.

TY - Do you have a favorite tattoo?

NC - No – I consider all of my tattoos to be part of a singular ongoing project rather than individual pieces. I’m often infatuated with whatever newest tattoo I have, before I get used to seeing it. Right now my newest piece is a janky stick-n-poke I got from a friend – it says “ugly boy”.


About the Industry

The Captive industry in Bermuda

The captive insurance business played a founding role in the creation and development of the Bermuda market and remains one of its
best-known core activities.


The bulk of Bermuda’s captives are US-owned entities, often used to insure and reinsure retentions on general liability, auto liability, workers compensation, property and marine programs and to access the reinsurance markets.

Many are single-parent captives, insuring only the risks of their parent and affiliates. Other types are group-owned or association captives formed by members of a common industry and agency captives, so called because they are owned by insurance agents and often used in quota-share arrangements to reinsure business written by the agents.

Since the early 1990’s, one of the fastest-growing categories has been that of health-care or medical malpractice captives. The US-based ownership of these captives is diverse, ranging from groups to single-parent, from tax exempt hospitals to for-profit health maintenance organizations and physician-controlled entities. Some US health-care providers see the captive vehicle as a means of offering competitive professional liability coverages, while others use their captives to fund for the capitated risks they assume and for access to provider excess and HMO stop-loss reinsurance.

The United States is the biggest, single source of captive business for Bermuda, accounting for over 60 percent of the Island’s insurance formations. But the picture is changing. New source markets are beginning to emerge in Africa, Australia, the Far East, the Pacific Rim and Latin America as risk managers abandon traditional insurance buying practices and increase their self-insured retentions.

User applications are changing too. Increasingly, captives are being used by larger corporations to enhance core products. They are also playing major roles in long-range, strategic planning as more and more companies seek optimum retentions and exert greater, in-house control over their financial exposures.

Rent-a-Captives and Segregated Account Companies

Rent-a-Captive facilities (RAC's) are captives whose owners form them for profit to write the business of third party insureds. These facilities are normally formed by insurance companies, brokers and captive managers who "rent" the license of the facility to their clients generally for a fee.

The difference between RAC's and regular insurance companies is that the RAC exposures are normally fully funded within each cell or contract.

RAC's were developed in the Bermuda market to provide similar benefits of a captive in situations where full ownership is not desired or where an insurance program is considered too small to justify the incorporation of a separate captive insurance company.

Many RAC's are now registered as Segregated Accounts Companies (SAC's).

Previously RAC's provided primarily contractual segregation of exposures between different insureds in the facility, SAC's provide the statutory legal division of business to protect the assets of one account from the liabilities of another. The separate accounts are often referred to as cells and can act and contract as separate "captives" within the overall SAC structure.

Each cell generally maintains its own income statement and balance sheet and can assist in corporate retentions and risk identification, much like a regular captive. Quite often, cell owners once they become comfortable with the captive concept, will form their own captive and transfer the cell's risk into the new company.

In addition to their application to captive insurance business, Segregated Accounts Companies are used for "ring fencing" exposures in mutual fund companies, life insurers and shipping companies.

The Commercial Market in Bermuda

The presence of commercial insurance and reinsurance companies in Bermuda allows captive owners and operators to access open-market underwriting capacity not found in any other captive domicile.

Unique among the captive insurance centers, these well-capitalized commercial markets are now used by about a third of the owners of captive insurance companies incorporated in Bermuda.

The non-captive sector of the industry grew out of the US liability insurance capacity crisis of the mid-1980’s and was started by pioneering excess liability companies, ACE Limited and XL Capital Ltd.

The reinsurance market started in 1992 when, on the heels of Hurricane Andrew, Bermuda attracted its first property catastrophe reinsurer, Mid Ocean Re. A further seven "cats" followed in 1993 and with them came a $4.5-billion influx of new capital. The market then evolved with companies becoming multi-line reinsurers and market capabilities were enhanced by the formation of specialist life companies.

After the devastatiing attack on the World Trade Center in 2001, some $8 billion was raised for the Bermuda market, bolstering the positions of existing carriers and bringing in seven new, highly capitalized carriers.

Another wave of new capital arrived in 2005, after significant hurricane activity created substantial damage along US gulf coast and east coast states. The Class of 2005, together with existing companies brought a further $18 billion in new capital to the Bermuda Insurance Market.

Bermuda is one of three leading reinsurance centers in the world, with over 100 companies having financial strength ratings, many of which are publicly traded insurance companies. Buyers of commercial insurance and reinsurance coverages are increasingly placing large parts of their programs in the Bermuda market. All lines of traditional insurance and reinsurance are written with large amounts of capacity available. Bermuda has also become a leading center for insurance securitization transactions and some captives are being used as transformers to access this capacity.

Bermuda's top specialty carriers are also able to provide large blocks of capacity in custom built programs for big corporations seeking balance sheet protection. These carriers are mainly net line underwriters and highly conservative in their operations on a premium to capital and surplus ratio basis.

The Legislation

Insurance legislation in Bermuda consists of the Insurance Act of 1978 and the Act's various amendments and regulations.

Some of the Act's key requirements for non-life insurers are:

  • A company must be registered under the Act before it can carry on business in Bermuda.
  • Every insurer must appoint and maintain a Principal Representative in Bermuda. The Principal Representative is a corporation or individual who is resident in Bermuda and who can represent the company.
  • Every insurer must appoint an auditor to report on the company's annual financial statements and Statutory Financial Return.
  • Companies must meet minimum capital and solvency requirements as required under the terms of their licences (see multi licence system and solvency table).
  • Insurers must maintain "relevant" or liquid assets equal to at least 75 percent of their liabilities.
  • A Statutory Financial Return must be prepared annually. This return is filed with the Bermuda Monetary Authority (BMA) but is not available for public review (see also Statutory Financial Statements).
  • A company whose gross premiums for professional liability insurance constitute more than 30 percent of gross premiums written is required to appoint a Loss Reserve Specialist who must, annually certify the adequacy of loss reserves.
  • Companies which discount their loss reserves must provide details of the methodology and rationale for discounting and an annual actuarial opinion on the discounted reserves if the captive has not met its general business solvency margin on an undiscounted basis.