Global insurance market report [gimar]

Figure 3.2e:
Samples of risk-free curves (%)
Source: BMA

---

29
Figure 3.2f:
Projected risk-free curves (%)
75
Source: BMA
Figure 3.2g:
Projected sovereign bond portfolio returns (%)
Source: BMA
and the 95th percentile of the projected 10,000 
rates for each maturity. Figure 3.2f gives an 
overview of these curves.
Based on the scenarios of risk-free curves in 
Figure 3.2f, the asset portfolios of Bermuda’s 
(re)insurers are stressed. These scenarios are 
applied to large commercial property and casualty 
(re)insurers (class 3B/4 insurers). In addition to 
the stress of changing yields, a stress scenario of 
equity portfolios and credit migrations, including 
defaults and rating upgrades and downgrades, is 
also considered. For the purposes of this section, 
only stress scenarios from risk-free interest rate 
changes are covered. In Figure 3.2g, the results 
of the stresses on the portfolio of sovereign 
assets held by Bermudan (re)insurers are shown.
Figure 3.2g demonstrates that the average 
and median curve have very little effect on the 
valuation of the sovereign portfolio of assets held 
by all (re)insurers. This is due to the fact that the 
average projected yield curve does not change 
significantly from the base yield curve used at the 
beginning of the simulation.
74
For the 10th and 
the 95th percentile curves, significant valuation 
changes are observed. The 10th percentile curve 
is below the base yield curve, so bonds would 
be valued higher as a result. The 95th percentile 
curve is higher than the base curve; therefore, 
bonds decrease in value after revaluation. For 
the 95th percentile curve, we can observe that, 
except for a few outliers, most portfolio decreases
stand at about 5%. As shown in Figure 3.2f, 
these portfolio changes correspond to a

---