Responsible solutions, ILS, climate, protection gap in Bermuda BMA’s focus in 2023

The Bermuda Monetary Authority (BMA) is to continue a focus on responsible solutions in insurance, reinsurance and investment funds in 2023, with products that address climate change and protection gaps a particular priority.

In addition, continued engagement with the insurance-linked securities (ILS) market is cited as a priority for 2023, as the Bermuda Monetary Authority notes the need for its ILS regulatory framework to stay up-to-date and meet the ILS market’s needs.

The BMA published its 2023 business plan recently and there are some intriguing bits that point to the future of risk transfer innovation on the island, as well as areas the BMA knows are globally a high-priority.

Some of these initiatives will have a particular relevance to Bermuda’s reinsurance and ILS community, as well as the rest of the global marketplace.

Craig Swan, Chief Executive Officer of the BMA, explained that, “Regarding the BMA’s framework in 2023, innovation
will take the form of further implementing supervisory approaches and regulatory frameworks that are fit for purpose, maintain financial stability and afford adequate protection for customers while also facilitating a more diversified financial services sector and enabling solutions for global challenges.”

The very biggest global challenges can also present opportunities for Bermuda’s insurance, reinsurance and ILS community to demonstrate the value they can bring, in terms of risk capital and transfer.

Swan highlighted that, “One such challenge is addressing the climate change protection gap. The Bermuda insurance industry is no stranger to this.

“While catastrophe insurance capacity is shrinking and new and additional cover and higher policy limits are needed, Bermuda’s (re)insurers are stepping in.

“The Association of Bermuda Insurers and Reinsurers (ABIR) reported that its members experienced a 21% year-on-year increase in net premiums written in 2021. These are the types of positive contributions the BMA wants to further foster in 2023.”

The BMA has been adept at adjusting its regulatory frameworks, both in response to industry feedback as well as global needs.

In this case, the BMA has already laid groundwork on issues related to climate risk transfer, while this topic has long been discussed in reinsurance and ILS circles on the island.

Swan said the BMA will look to leverage and where necessary update its insurance and investment funds regulatory frameworks, in responding to climate change.

The goal being to, “Facilitate responsible solutions and products that address the impact of climate change and lower the protection gap.”

The ILS market dovetails neatly here, between the insurance and investment funds regulatory frameworks and with a growing focus on climate risk transfer and investments in ILS, as well as the wave of interest in ESG asset classes, the BMA likely sees opportunity here to drive more innovation in the climate risk financing space.

Environmental, social and governance (ESG) is another focus for 2023, with Swan explaining that the BMA will, “ntegrate ESG requirements and standards across all sectors, as well as to continue to establish appropriate regulatory and supervisory frameworks and related guidance for ESG in investment funds and insurance (i.e., state-of-the-art and tailored frameworks that reflect climate change in risk management, stress testing, governance and public disclosures).”

Adding that the regulators work in this space “crosses sectoral lines,” as we noted above, with respect to ILS spanning the insurance and investment funds frameworks.

An additional priority of relevance, is the work in ILS that the BMA undertakes.

Priorities and initiatives for 2023 will include, “Providing oversight of the insurance-linked securities market through company-specific supervision, review of annual and ad hoc data requirements, and various market engagements to ensure the framework remains appropriate to address existing and emerging risks,” the BMA said.

Of course, the BMA has a far broader remit, so there are many other priorities less closely-linked to ILS and reinsurance.

But these few from its 2023 business plan, show that Bermuda’s BMA remains focused on the climate risk finance and risk transfer opportunity, as well as how the confluence of insurance and investing (ILS included) can play a role in the island’s development of new and innovative regulations to support and grow this business.