As part of its continued review and update of the regulatory system in Bermuda, the Bermuda Monetary Authority (BMA) has published three papers: a discussion paper on the implementation of a group-wide supervisory framework and a guidance note on Special Purpose Insurers, both published on 31 March 2009, and the road map to mutual recognition published 13 February 2009.
As a significant number of Bermuda's licensed insurers operate within a group structure, the BMA feels it is important for it to be able to form a comprehensive view of the overall risk exposure of the group as a whole through group-wide supervision. The BMA proposes to introduce group-wide supervision for insurance groups and subgroups that form part of a financial group or mixed conglomerate and to apply its group-wide supervision regime to Class 4 and Class 3B insurers because of their higher risk profile. The BMA is planning to implement group-wide supervision by the fourth quarter of 2011.
The adoption of group-wide supervision has emerged in light of the credit crisis to help ensure that groups are effectively regulated and conduct their operations in a prudent and financially sound manner. The BMA believes that group-wide supervision will enable it to mitigate any potentially adverse influence on the Bermuda financial market and will lead to improved regulation and efficiencies that eliminate duplicate supervisory efforts. Group-wide supervision will be in addition to the solo supervision of the insurance entity itself.
The discussion paper outlines the BMA’s approach and key issues surrounding the proposed group-wide supervisory regime and also contains a proposed timetable for its introduction. The BMA has asked for comments from the industry by 29 May 2009.
To see a full copy of the discussion paper, please click here.
Roadmap to Mutual Recognition
In this paper, the BMA reiterates its goal of achieving mutual recognition of the regulatory regime in Bermuda with those regimes in the US and Europe. In working towards this, the BMA is concentrating its efforts on achieving equivalence with Solvency II in Europe. However, the BMA is also monitoring other regimes and, in particular, aims to ensure equivalence under the US Reinsurance Modernisation Initiative. The BMA is active within the International Association of Insurance Supervisors and is continuing its dialogue with overseas regulators such as the UK Financial Services Authority, the US National Association of Insurance Commissioners and the Swiss Financial Market Supervisory Authority.
The BMA has identified that the regime which it is seeking to create has three core components:
- Capital adequacy – A regime whereby capital requirements will take into account all aspects of risk (including group risk) and the quality of the capital supporting the business;
- Governance and Risk Management – A strong system of governance and risk management is required which reflects the integration of risk and capital management; and
- Disclosure – the BMA believes that transparency and disclosure from both the regulator, the firms themselves and the groups the BMA supervises are crucial to an effective and functioning regulatory regime.
In this paper, the BMA sets out the work that has been done to date to achieve mutual recognition and the key milestones that lie ahead. It is determined to ensure that implementation of its program should be achieved in a manner that demonstrates flexibility, adapts the emerging international regulatory framework to the characteristics of the Bermuda market and adopts a risk based and proportionate approach to the different classes of insurer operating in the Bermuda market.
To see the BMA's paper in full, please click here.
Special Purpose Insurers (SPIs)
The Insurance Amendment Act 2008, which was passed on 30 July 2008, introduced three new insurance licensing classes, one of which was the class of SPIs. The purpose of the SPI amendment was to enhance the BMA’s regulatory framework to ensure the prudent development of sound business forms associated with insurance securitizations and other insurance-linked special purpose transactions in Bermuda.
The BMA recently issued a consultation paper which sets out guidance in relation to the BMA's licensing and ongoing supervisory activities associated with SPIs. The paper explains the regulatory issues associated with SPIs and aims to help facilitate a prudent application and approval process of these vehicles.
To assist with regulating the conduct of SPI business, the BMA is in the process of setting up a SPI Advisory Group consisting of a broad cross-section of practitioners involved in both the design and the execution of SPIs. The purpose of the Advisory Group will be to finalise the guidance note in the context of current market developments, to review the SPI legislation and provide guidance on any future amendments.
The BMA has welcomed comments on all aspects of the consultation paper, including suggestions for future revisions to the legislation and the paper which supports it by 31 May 2009. To see a copy of the consultation paper, please click here.