Regulators Say Stress Test Results Show Bermuda Reinsurers' Resilience

The results of a recent stress test show Bermuda's long-term reinsurance sector demonstrating a strong ability to withstand severe economic challenges, according to the Bermuda Monetary Authority (BMA).

The BMA said the results of its 2025 Global Financial Stress Test—Long-Term Reinsurers showed that the majority of companies maintain capital levels in excess of regulatory requirements, even under severe stress conditions.

The BMA said the sector maintained an average Enhanced Capital Requirement (ECR) ratio of 347 percent post-stress, compared to a baseline of 424 percent. "This represents a significant capital buffer above the 100 percent regulatory minimum, highlighting the sector's overall resilience," the BMA report said. "The median [ECR] coverage ratio declined from 270 percent to 215 percent, demonstrating that the majority of entities maintain substantial capital resources even after absorbing the impact of the stress scenario."

In the test, the stress scenario resulted in an average reduction of $397 million in available capital across the Bermuda reinsurance sector, and an aggregate reduction of $39.3 billion, 26 percent of available capital, the BMA said.

"While this represents a substantial absolute amount, it reflects the sector's ability to absorb significant financial shocks while maintaining adequate capitalization and represents a capital strain that, otherwise, would be borne significantly by cedants," the BMA report said. "The dispersion in impact reflects the diversity of business models and risk profiles within the Bermuda market."

While the 2025 stress test showed the resilience of Bermuda's long-term reinsurance sector under severe economic conditions, it did identify areas requiring continued attention and monitoring, the BMA said. In particular, the test identified three entities where management actions "were insufficiently credible to prevent either their ECR coverage to fall below 100 percent or to prevent an opportunistic recapture of their reinsurance treaties, highlighting the importance of robust recovery planning and capital management frameworks," the BMA report said.

Those entities have identified management actions to address capital shortfalls, the BMA said, though the feasibility and timing of those actions require careful supervisory assessment.