Life reinsurers pass stress tests with flying colours
The majority of companies in the Bermuda long-term reinsurance sector maintain capital levels well above regulatory requirements, examinations by the Bermuda Monetary Authority have determined.
The BMA concluded the 2025 Global Financial Crisis Stress Test confirmed that the long-term reinsurance sector was well positioned to withstand severe financial stress.
The final assessment said: “The combination of strong initial capitalisation, effective risk management practices and credible management actions provides confidence in the sector's ability to fulfil its obligations to cedants and policyholders even under extreme conditions.
“This demonstrates that the current level of exposures and capitalisation does not present a threat to the financial stability of the Bermuda long-term market or the global life insurance market.
“While the stress test identifies certain vulnerabilities and areas for improvement, these are manageable within the context of the sector’s overall strength.”
The BMA said it would continue to work with industry participants to address such areas while maintaining a regulatory framework that balances financial stability with market development.
The results, a report concluded, reinforce Bermuda’s position as a resilient and responsible jurisdiction for long-term reinsurance business that is capable of absorbing significant financial shocks while continuing to provide critical risk-transfer capacity to global insurance markets.”
Going forward, there are matters the BMA intends to keep an eye on. The relatively high concentration of BBB-rated assets in some portfolios could create vulnerabilities in scenarios involving significant credit deterioration.
Also, the effectiveness of management actions may be reduced in scenarios affecting multiple entities simultaneously, potentially limiting access to capital markets or creating competition for parental support.
Areas for continued supervisory attention include:
• Monitoring of entities with ratios of enhanced capital requirement coverage that fall below 100 per cent under stress
• Verification of management action feasibility, particularly for actions without contractual certainty
• Assessment of recapture risk concentrations, especially for entities with significant exposure to unaffiliated cedants
• Review of recovery plans in conjunction with stress-test results to ensure comprehensive contingency planning
• Evaluation of volatility dampening elements of the regulatory framework to ensure an appropriate balance between stability and conservatism
The GFC stress test for long-term commercial insurers in Bermuda is part of the BMA’s commitment to financial stability.
The latest initiative leveraged work already undertaken at the International Association of Insurance Supervisors. The specifications in this exercise were calibrated based on a method of aggregation data collection.
• For more on the 2025 Global Financial Crisis Stress Test – Long-Term Reinsurers, see Related Media
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