Bermuda insurers still rely heavily on catastrophe models to manage risk, but uncertainty around climate impacts and claims inflation means that they cannot be fully trusted, according to the Bermuda Monetary Authority’s latest Catastrophe Risk Modelling Report.

The report, covering 2024 filings from Class 3B and Class 4 insurers and insurance groups, shows how firms are supplementing their modelling results with human judgment.

These “loading factors” act as safety margins, increasing the models’ estimates to account for uncertainty about what they may have missed.

“The persistent upward trend in loading factors underscores ongoing pricing challenges driven by claims inflation and the increasing severity and frequency of catastrophe events, including secondary perils that may not yet be fully captured within existing models,” the authority said.

In 2024, insurers added an average buffer of 11.9 per cent at the legal-entity level and 9.22 per cent at the group level. This indicates that insurers are still cautious despite gradual improvements in modelling tools.

The BMA noted that Bermuda insurers continue to depend strongly on external catastrophe modelling platforms, with the market dominated by two main vendors. While dual licensing is common, the use of three models in tandem remains rare.

The authority cautioned against over-reliance on external tools. “If vendor models underestimate potential losses from events, the industry as a whole may have its capital levels affected,” the report said.

To address these risks, the BMA said it closely monitors how insurers use catastrophe models. “The monitoring of modelling practices in Bermuda is a key aspect of the authority’s supervisory framework,” it said.

The report also found that a majority of insurers favour near-term climate assumptions when modelling Atlantic hurricane risk, meaning they are relying on losses from recent hurricanes instead of long-term averages.