In its quarterly Regulatory Update, released October 21, 2010, the Bermuda Monetary Authority (“BMA”) summarizes its latest initiatives and proposals for the island’s insurance industry. A consultation paper titled, “A Solvency Framework for Long-Term Insurance,” proposes assigning Long-Term insurers to captive and commercial classes in order to enhance reporting and solvency standards. The paper includes a draft risk-based capital model which will be initially applied only to higher, commercial class insurers. In order to account for the range of modeling capabilities within the Bermuda market, the paper proposes a model-based approach for determining regulatory capital for Long-Term insurers. In addition, a standard approach, based on the Bermuda Solvency Capital Requirement model for general insurers, is also discussed as an option.

The BMA also published a “Discussion Paper on Economic Balance Sheet and Proposed Changes to Regulatory Reporting.” The paper considers the introduction of an economic balance sheet framework for the Bermuda insurance market. The framework, which would apply to Bermuda-based commercial insurers, will establish an economic valuation of assets and liabilities in an attempt to reduce or eliminate accounting disparities in cases in which there are no underlying economic disparities. The goal of the initiative is to more accurately depict the solvency position of an insurer. Under the proposal, the current statutory financial statements will be replaced with general purpose financial statements that will be subject to certain prudential filters and fair value adjustments. The BMA is also considering applying the paper’s concepts to Long-Term commercial classes.

In addition to these two papers, the Regulatory Update summarizes other recent developments and initiatives. The update discusses the BMA’s progress on establishing group-wide regulatory and supervisory frameworks. It also summarizes the Companies (Special Fees) Act 2010 which was enacted in August 2010. (See previous blog post here). With regard to the Insurance Code of Conduct introduced in July 2010, the BMA announced that the deadline for compliance will be extended to March 31, 2011 for captive insurers, while the deadline for commercial insurers remains fixed at December 31, 2010.

The Regulatory Update can be accessed in full by clicking here.