Bermuda’s long-term insurance sector maintains stability amid systemic risk concerns: BILTIR

A recent independent report commissioned by Bermuda International Long Term Insurers and Reinsurers (BILTIR)—an association representing Bermuda-based long-term re/insurance companies—and conducted by Oliver Wyman, a global management consulting firm, has affirmed that Bermuda’s long-term re/insurance industry acts as a source of stability rather than risk within the global financial system.

The analysis, entitled Analysis of Systemic Risk in the Bermuda Long-Term Insurance Sector, draws from extensive data and expert evaluation to conclude that Bermuda’s insurance sector does not present a significant systemic threat on a worldwide level.

BILTIR initiated the study amid increasing global scrutiny regarding the risks associated with Bermuda’s growing insurance market, which now supports more than $1 trillion in life insurance reserves.

Suzanne Williams-Charles, CEO of BILTIR, highlighted that Bermuda’s regulatory framework is purposefully constructed to effectively manage risks and protect policyholders.

Oliver Wyman’s report validates this position by demonstrating that Bermuda’s insurance system benefits from strong risk management measures and regulatory safeguards that reduce vulnerability to systemic shocks.

The consultancy designed the report around three hypothetical but challenging scenarios that international regulators often identify as potential triggers of systemic instability.

These scenarios serve as rigorous tests rather than predictions and help to evaluate how stress might propagate through Bermuda’s insurance market and impact the wider economy.

The first scenario models a global credit market downturn, with particular strain on private credit and middle-market borrowers, potentially undermining Bermuda reinsurers’ solvency and leading to mass reinsurance recaptures by cedent insurers. Such recaptures, involving cedents reclaiming assets and liabilities, could strain their financial positions and cause forced asset sales that ripple through markets.

The second scenario considers the effect of a sudden loss of confidence in the Bermudian insurance sector, possibly sparked by the failure of a reinsurer followed by negative media coverage.

This confidence shock could result in widespread policy surrenders despite penalties, forcing insurers to liquidate assets to meet unexpected cash demands, which in turn might destabilise financial markets.

The third scenario examines the consequences of an abrupt withdrawal of demand for private credit by Bermuda insurers, potentially restricting lending to borrowers and disrupting broader credit markets. This scenario addresses concerns among regulators about the significant role insurers play in private credit financing.

Oliver Wyman analysed transmission channels such as insurer interconnectedness, asset liquidation pressures, contagion effects, and the ability of insurers to substitute funding in private credit markets.

These issues align directly with regulatory concerns from global bodies including the International Association of Insurance Supervisors (IAIS), European authorities, and the U.S. Financial Stability Oversight Council (FSOC).

The study found that Bermuda’s exposure to alternative assets, including private corporate bonds, is comparable to or lower than that of other major markets such as the United States, with similar credit quality across portfolios.

Oliver Wyman highlighted that Bermuda’s insurers hold capital reserves well above regulatory minimums—often more than double the required solvency margins—which strengthens their ability to absorb shocks and contain contagion risks. The report also emphasises the value of Bermuda’s internationally recognised regulatory regime, which mandates capital requirements designed to withstand severe stress events approximating a 1-in-200-year risk.

Moreover, the structure of Bermuda’s reinsurance contracts, which incorporate protections like collateral requirements and asset ownership provisions, further limits the potential for risk transmission within the sector.

The long-term nature of insurance liabilities also plays an important role, as it naturally curbs the sudden liquidity demands commonly associated with banking crises.

According to Oliver Wyman, Bermudian reinsurers hold sufficient liquid assets to cover even extreme liquidity pressures without resorting to forced fire sales that could exacerbate financial market disruptions. Additionally, contract terms discourage mass policy surrenders, which helps maintain stable cash flows during periods of market uncertainty.

In conclusion, the report presents Bermuda’s insurance sector as a well-regulated and resilient part of the financial system.

As regulators around the world increase their focus on systemic risks in insurance markets, this assessment provides evidence that Bermuda’s regulatory framework aims to balance growth with risk management.

With capital requirements, regulatory oversight, and contractual provisions in place, Bermuda’s insurance industry plays a role in maintaining stability both locally and internationally.

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