Insurance capital
Bermuda and offshore insurance capital
status: draft
Bermuda and offshore insurance capital
Bermuda-domiciled insurers and reinsurers represent a distinct and growing pool of ABF capital with different regulatory constraints and investment approaches. If your deal has characteristics that make NAIC designation challenging, Bermuda capital may be an attractive alternative.
BMA vs. NAIC regulatory frameworks
The Bermuda Monetary Authority (BMA) regulates Bermuda-domiciled insurers under a different regime than NAIC-regulated US carriers:
| Factor | BMA (Bermuda) | NAIC (US) |
|---|---|---|
| Capital framework | Economic balance sheet, Bermuda Solvency Capital Requirement (BSCR) | Risk-Based Capital (RBC) with statutory accounting |
| Structured credit treatment | Stress-based capital charges, more granular risk assessment | Designation-based (NAIC 1-6), cliff effects at boundaries |
| Investment flexibility | Generally more permissive, less prescriptive limits | Detailed schedule-based reporting, concentration limits |
| Filing requirements | Annual BSCR filing, less granular asset reporting | Quarterly Schedule D filings, SVO designation required |
Why this matters for ABF
Bermuda insurers often have more appetite for:
Higher-yielding tranches: BBB and below-rated positions where US capital charges become punitive. The NAIC-2 to NAIC-3 cliff (BBB- to BB+) doesn’t exist in the BMA framework.
Private credit and bespoke structures: Deals that may not fit neatly into NAIC schedules or require extensive SVO review.
Longer-duration assets: Structures that US insurers might avoid due to capital volatility under statutory accounting.
Novel asset classes: First-time asset classes where there’s no established NAIC treatment or comparable universe.
Bermuda-domiciled insurers as ABF investors
Several large Bermuda platforms actively invest in ABF:
Reinsurance companies
SiriusPoint: Bermuda-based reinsurer with significant investment portfolio. Willing to consider non-standard structures and private placements.
Aspen Insurance Holdings: Active in structured credit and alternative investments through Bermuda vehicles.
Arch Capital Group: Large Bermuda-based platform with diversified insurance and reinsurance operations.
RenaissanceRe: Known for flexibility in investment approach and willingness to look at non-standard structures.
Affiliated Bermuda entities
Athene (Bermuda entity): While Athene has US insurance subsidiaries, its Bermuda reinsurance affiliate often takes different risk than the US entities. The Bermuda vehicle can hold assets that would be capital-intensive in the US.
Other US insurer affiliates: Many US insurance groups have Bermuda reinsurance affiliates that can hold assets with different risk profiles than the domestic entities.
Corporate captives
Many large corporates use Bermuda captives for insurance programs. These captives have investment portfolios that may include ABF. Bermuda has no income tax, which makes it attractive for captive domicile.
Key differences in Bermuda regulatory treatment
Capital charges
BMA uses a stress-based approach rather than rating-based designations:
| BMA Approach | NAIC Approach |
|---|---|
| Models expected loss under stress scenarios | Assigns capital charge by rating bucket |
| Continuous function (no cliff effects) | Cliff effects at rating boundaries |
| Asset-specific analysis possible | Designation drives capital uniformly |
| Allows credit for diversification | Limited diversification benefit |
Concentration limits
BMA concentration limits are generally less restrictive than NAIC:
- Single issuer limits tend to be higher
- Asset class concentration limits are more flexible
- Greater tolerance for alternative investments
Valuation
BMA requires economic (fair value) balance sheet, while US statutory accounting uses book value for many assets. This affects how market movements impact surplus.
Practical differences when marketing to Bermuda
What’s easier
No NAIC designation required: You don’t need SVO pre-clearance, which can shorten timelines by 4-6 weeks.
Different documentation: BMA doesn’t require Schedule D reporting format. Less rigid documentation requirements.
More negotiation flexibility: Without rigid designation boundaries, pricing discussions can be more nuanced.
Larger tickets possible: Bermuda reinsurers often deploy larger amounts per position due to higher concentration limits.
Alternative structures: More willingness to consider structures that don’t fit US regulatory templates.
What’s harder
Smaller universe: Fewer Bermuda insurers than US insurers. The addressable market is smaller.
Longer decision cycles: Smaller teams may mean slower turnaround despite fewer bureaucratic requirements.
Less standardization: Each Bermuda insurer may have different internal requirements. Less predictability in process.
Relationship-driven: Without established market practices, relationships matter more. Cold outreach is harder.
Timeline comparison
| Phase | US Insurance | Bermuda Insurance |
|---|---|---|
| Initial marketing | 2-4 weeks | 2-4 weeks |
| SVO/regulatory review | 4-6 weeks | Not required |
| Credit analysis | 2-4 weeks | 2-4 weeks |
| Committee approval | 2-4 weeks | 1-3 weeks |
| Documentation | 2-4 weeks | 2-3 weeks |
| Total | 12-22 weeks | 7-14 weeks |
When to consider Bermuda capital
Bermuda capital is worth exploring when:
Structure doesn’t fit NAIC
Complex or novel structures: First-time asset classes or unusual structural features that would require lengthy SVO review.
Below-investment-grade tranches: BB or B-rated positions where US capital charges are punitive.
Residual or equity-like features: Structures that would be Schedule BA in the US with limited investor appetite.
Economics favor Bermuda
Higher-yield tranches: Bermuda’s capital framework may allow competitive pricing on riskier tranches.
Large tickets needed: Single investor tickets above $100M where US concentration limits constrain.
Long duration: Very long WAL (12+ years) where US capital volatility concerns limit appetite.
Timeline matters
Tight closing timeline: If you can’t afford 4-6 weeks for SVO review.
Repeat issuance to known investor: Established Bermuda relationships can execute quickly.
Structuring considerations for Bermuda placement
What Bermuda insurers look for
Clear credit story: Without NAIC designation shorthand, you need to explain the credit in detail.
Familiar comparables: Reference to similar assets or structures they’ve seen before.
Transparent cash flow modeling: Bermuda insurers often do their own modeling rather than relying on agency ratings.
Reasonable pricing: Bermuda capital is flexible, not cheap. They expect fair compensation for complexity.
Documentation differences
| US Insurance | Bermuda Insurance |
|---|---|
| Schedule D-ready format | Flexible format acceptable |
| NAIC-compliant schedules | Internal reporting templates |
| SVO filing documentation | Credit memo and term sheet |
| Statutory accounting basis | IFRS or economic basis |
Regulatory arbitrage considerations
The capital efficiency of Bermuda for certain assets creates regulatory arbitrage opportunities:
How it works
US insurer cedes risk to Bermuda affiliate through reinsurance. Bermuda affiliate holds assets that would be capital-intensive in the US. Economic benefit flows back to the US parent.
Regulatory scrutiny
This practice has attracted regulatory attention:
- NAIC has proposed rules to limit credit for Bermuda reinsurance
- BMA has strengthened its regime to maintain equivalence with US and EU
- Tax authorities examine transfer pricing between affiliates
What this means for originators
- Bermuda capital may become less advantageous if regulatory arbitrage closes
- Focus on fundamental fit (credit quality, structure) rather than pure regulatory arbitrage
- Relationships with both US and Bermuda entities of the same group may be valuable
Other offshore jurisdictions
While Bermuda dominates offshore insurance capital, other jurisdictions exist:
Cayman Islands: Common for captives, particularly healthcare and professional liability. Smaller investment portfolios than Bermuda reinsurers.
Dublin / Luxembourg: EU-regulated insurers and reinsurers. Solvency II framework applies. Growing ABF appetite but different regulatory focus.
Singapore: Growing insurance hub with expanding alternative investment appetite. Monetary Authority of Singapore (MAS) regulation.
status: draft
Key takeaways
- Bermuda offers more flexibility than NAIC for complex structures, lower-rated tranches, and novel asset classes
- No SVO designation requirement can shorten timelines by 4-6 weeks
- Smaller investor universe but potentially larger tickets and more structural flexibility
- Capital arbitrage between US and Bermuda is attracting regulatory scrutiny
- Build relationships with Bermuda platforms early; they’re relationship-driven
- Consider Bermuda when your deal doesn’t fit neatly into US regulatory templates
status: draft
Related topics
- Insurance capital overview - full guide to accessing insurance capital
- NAIC designations - US regulatory framework
- Captive insurance - including offshore captive structures