Bermuda’s long-term reinsurance sector maintained an average Enhanced Capital Requirement (ECR) coverage of 348% following a severe Global Financial Crisis stress test, well above the 100% minimum, according to the Bermuda Monetary Authority’s (BMA) newly released results.
The exercise assessed 106 commercial long-term reinsurers holding US$1.17 trillion in total assets. Stress factors applied included interest rate declines, widening credit spreads, equity market shocks, real estate devaluation, and credit defaults.
The aggregate reduction in available capital reached US$39.3 billion, equal to 26% of the total, with an average decline of US$397 million per entity. Before the test, average ECR coverage stood at 424%. The median ratio moved from 270% to 215%. Eleven entities, or about 10% of participants, fell below the 100% threshold, though most had recovery measures identified.
The BMA noted that 75 reinsurers, equal to 71% of the group, retained coverage above 150% after the scenario. Of the 106 companies, 103 either stayed above 100% or had credible management plans to restore their positions.
Treaty exposures were also assessed. Of 657 treaties examined across 86 participants, total reserves reached US$601.3 billion. The US accounted for 71% of reserves, followed by Japan at 19% and the UK at 6%. The largest single treaty carried US$24.7 billion in reserves. About 42% of treaties used funds withheld arrangements, while 30% involved modified coinsurance structures.
The test identified 12 companies with reinsurance contract provisions that could allow cedents to exercise recapture rights. Eight of these firms had contractual arrangements to restore capital, while two had orderly recapture plans. The BMA noted that overall exposure to widespread recapture remained limited.
On the asset side, fixed income securities – making up more than half of portfolios – recorded the largest absolute decline, down US$61.2 billion. Structured assets fell US$30.9 billion, while alternative investments saw the sharpest relative impact, dropping 34%, or US$20.2 billion. Real estate and infrastructure decreased by 20%, equivalent to US$1.5 billion, though sector-wide exposure to that category was comparatively small.
The regulator stated that findings from the test will inform supervisory priorities, including oversight of firms with lower capital coverage, review of recovery planning, and monitoring of credit risk concentrations.
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