A new study by the Bermuda Monetary Authority (BMA) on catastrophe risk modelling practices on the island has found a notable decrease in the proportion of insurers purchasing external catastrophe reinsurance.
The BMA asked insurers how their cat risk modelling reflects their reinsurance and retrocession purchases and found that the number of insurers purchasing little or no external catastrophe reinsurance has decreased to 0.0% in 2023, in comparison to 4.2% in 2022.
It concluded that the vast majority of insurers model cat risk by considering external reinsurance explicitly, either for some treaties or separately.
In 2023, 95.7% of respondents explicitly calculated some or all external reinsurance treaties in their cat modelling.
Overall, BMA noted that modelling practices in Bermuda remain steady, with 88.0% of the rat risk exposure underwritten determined to be modellable using vendor cat models, and 99.15% of these risks having actually been modelled.
Elsewhere, in 2023, Bermuda legal entities’ average loading factor in the accumulation process increased for the fifth consecutive time to 12.30%, compared to 10.57% in 2022.
BMA cited this towards increasing claims costs and the uncertainty of the impact of climate change on the frequency and severity of natural catastrophes that might not yet be fully reflected in the models.
For groups, the average loading factor stood at 10.68% in 2023, compared to 9.10% in 2022.
In addition, AIR Worldwide (AIR) and Risk Management Solutions (RMS) were both found to be the most frequently used modelling software tools, with AIR standing as the leading model for legal entities and groups.
As well as this, in-house modelling was utilised by 41.7% of legal entities and 31.6% of groups in 2023, while 12.8% of legal entities and 5.9% of groups reported using more than one model in their accumulations.
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