Bermuda’s decades-long efforts to welcome Latin American risks to the island’s re/insurance market have borne fruit in the form of the many LatAm captive insurers that have become domiciled here.

The island’s relationship-building efforts have been aided by Bermuda’s sophisticated anti-money laundering and antiterrorist financing laws and regulations, an attractive feature.

The Bermuda Monetary Authority, the island’s insurance and financial services regulator, has a world-leading pedigree, with Solvency II compliance in facing the European markets and the US National Association of Insurance Commissioners equivalency facing North American markets — two very highly-regarded distinctions.

In addition, Bermuda shares information with many LatAm nations pursuant to the Organisation for Economic Co-operation and Development’s Common Reporting Standard, including Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and Uruguay.

This initiative ensures the automatic exchange of financial information between governments annually to combat tax evasion and promote compliance.

The Bermuda effort notwithstanding, there are significant challenges within the LatAm region with respect to risk origination and risk transfer.

A problem that the re/insurance industry is perpetually seeking to solve is how to reduce the size of what is called the “protection gap”.

There are many different ways in which this term can be defined, but a simple example for the purposes of this discussion can be found when looking at the impact of Hurricane Melissa, which hit Jamaica in 2025.

The total insured losses from this storm were in the region of $3 billion to $5 billion, but the uninsured losses were estimated to be far in excess of that at circa $15 billion. The uninsured losses in this example represent the potential protection gap — the unfulfilled need or want for insurance protection.

Protection gaps that exist in Latin America are no different from those in the rest of the world.

In some instances, the protection gap exists because of a lack of affordability, ie, folks and or businesses cannot afford to purchase the insurance coverage that is on offer despite the benefit that it would provide.

In other cases, it may be that providing the coverage is unattractive/not economically viable for the insurer and as such it is not available/offered. It could be that the risks are new and very difficult to properly analyse and underwrite.

There could also be geopolitical or commercially protective barriers to cross-border risk transfer such that policyholders have few options for coverage. Cuba and Venezuela are good examples of this, where sanctions and other economic barriers are in place, and risk does not freely flow to global markets.

Reports published by Mapfre, a Spanish multinational insurance company, point to the LatAm region as having the second largest protection gap globally (after Asia), with only 19 per cent of total losses insured. This equates to circa $300 billion in uninsured losses per year.

The LatAm protection gap offers a substantial opportunity for re/insurers willing to provide coverage to lesser-known markets, and there are many ways that this coverage can flow to those that need it.

For example, storm-ravaged Jamaica benefited from a parametric cat bond, issued by the World Bank, that paid out $150 million following the damage caused by Hurricane Melissa. The trigger for payment was the hurricane’s central pressure coupled with the storm having entered a predefined geographic area.

Mexico has a similar parametric-triggered insurance policy targeting the Mesoamerican Reef in the Yucatan Peninsula where the payout is based on wind speed thresholds in a given geographic area.

More traditional modes of closing the protection gap come in the form of captive insurers. These are insurance companies (and or segregated account structures) that cater to related risks, meaning risks originating from the same group that owns the captive. In simple terms, a captive is a self-insurance vehicle.

Bermuda captives are highly useful in the context of LatAm risks. LatAm corporate groups, quangos or other bodies can set up a captive here and benefit from the island’s extensive service provider experience and world-leading regulatory environment to underwrite their own risks.

In years where there is an underwriting profit, the captive retains that profit, and the captive can take on additional risk and or pay a dividend back to the group via the shareholder.

Bermuda captives can obtain ratings, and also frequently avail themselves of reinsurance, for which the island is renowned. The island’s highly rated and robustly capitalised reinsurers make for a very attractive backstop to risks flowing into and through the captives, a common occurrence.

Bermuda captives have been successfully used for decades and continue to be one of the ways in which Bermuda can help to close the LatAm protection gap.

• Matthew Carr is a partner in Appleby’s corporate practice in Bermuda. A copy of this column can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer