BMA Stakeholder Letter - Amendments to the Implementation of Bermuda's Reporting Regime for Commercial Insurers and Insurance Groups (2015-11-13)

Summary

This is a stakeholder letter from the Bermuda Monetary Authority responding to industry feedback on its Consultation Paper on the Implementation of Bermuda's Reporting Regime for Commercial Insurers and Insurance Groups. It clarifies and amends several filing, accounting and audit requirements ahead of the new regime's rollout, addressing points raised on the Economic Balance Sheet (EBS), Statutory Financial Statements (SFS), GAAP financial statements (GAAPS), technical provisions, prudential filters, segregated accounts and approved auditors.

• EBS trial run: The mandatory EBS trial run for year ended 31 December 2015 must be filed by the statutory deadline (30 June 2016); insurers with concerns should contact the Authority about a possible extension.
• Error corrections: Prior-period errors in SFS/EBS figures should be corrected through the current year Capital and Surplus report, with a note disclosure in the SFS on the effect on prior year capital and surplus.
• Comparatives: No prior year comparatives required for 2016 SFS, EBS or condensed GAAPS, but comparatives remain required for full GAAP statements.
• Dual-licensed insurers: Must produce separate unconsolidated balance sheets and income statements for general and long-term business, with a combined consolidated SFS.
• Quarterly reporting: No change to quarterly reporting requirements under the Class 4/3B Solvency Requirement Rules 2008; EBS filings are not required in quarterly submissions.
• Run-off insurers: Insurers not accepting new business face the same filing requirements unless granted a case-by-case exemption.
• GAAPS publication: All insurers must file GAAPS or condensed GAAPS for publication under Section 17A; exemptions from publication (e.g. for competitive disadvantage or contractual confidentiality) are considered case-by-case, except the Capital Management section of the Financial Condition Report, which cannot be exempted.
• Condensed GAAPS eligibility: Classes 3A, C and D may choose to prepare condensed GAAPS if they do not already produce full GAAP statements; Classes 4, 3B and E may use condensed GAAPS only upon Authority approval.
• Technical provisions: The previously flagged 2018 transitional period for Long-Term and dual insurers no longer applies; all insurers must calculate technical provisions for both general and long-term business from the 2016 year-end filings.
• Discount rates: Insurers may use Solvency II discount rates for technical provisions without prior approval, provided the approach is maintained consistently; full use of the Solvency II basis requires prior Authority approval.
• Investment valuation: Quoted and unquoted investments need not be valued at fair value in the SFS if carried otherwise under GAAP, but fair market value must be disclosed in GAAP financial statements and reported in the EBS.
• No-subsidiary insurers: Commercial insurers with no subsidiaries need only prepare unconsolidated SFS, disclosing in the notes that they have no subsidiaries.
• Segregated accounts: Implementation of proposals on segregated account companies is delayed; in the interim insurers should apply consolidated accounting treatment unless approved otherwise by the Authority.
• Auditors: The Authority will not legislate a Bermuda-residency requirement for approved auditors but retains this as internal policy for SFS; audit working papers relied on for the SFS opinion must be maintained in Bermuda; two separate audit opinions are required, one for GAAP/condensed GAAP statements and one for the SFS.
• Outsourcing disclosures: Class 3A, 3B, 4, C, D and E insurers must comply with the proposed Outsourcing Arrangements disclosure requirements.

The letter is a clarificatory communication tied to the broader reporting regime reforms rather than a standalone rule, but it sets binding expectations for the 2015 year-end and 2016 trial-run filings and beyond.

Key obligations

• File the mandatory EBS trial run submission for the year ended 31 December 2015 by the statutory filing deadline (30 June 2016), or contact the Authority in advance if an extension is needed.
• Correct prior-period GAAPS/SFS/EBS errors through the current year Capital and Surplus report and disclose the effect on prior year capital and surplus in a note to the SFS.
• Do not include prior year comparatives in 2016 SFS, EBS or condensed GAAPS filings; include comparatives for full GAAP statements.
• Dual-licensed insurers must prepare separate unconsolidated general business and Long-Term business balance sheets and income statements, with a combined consolidated SFS.
• File GAAPS or condensed GAAPS for publication under Section 17A of the Insurance Act, applying case-by-case for any exemption from publication.
• Calculate technical provisions for both general and Long-Term business beginning with the 2016 year-end filings.
• Disclose the market value of quoted and unquoted investments in GAAP financial statements and report it in the EBS.
• Commercial insurers with no subsidiaries must prepare unconsolidated SFS and disclose in the notes that they have no subsidiaries.
• Maintain audit working papers relied upon for the SFS opinion in Bermuda through a Bermuda-based Approved Auditor, and obtain two separate audit opinions (GAAP/condensed GAAP and SFS).
• Class 3A, 3B, 4, C, D and E insurers must comply with the Outsourcing Arrangements disclosure requirements.

Applies to

commercial insurers, insurance groups, Class 3A insurers, Class 3B insurers, Class 4 insurers, Class C insurers, Class D insurers, Class E insurers, dual-licensed insurers, reinsurers, approved auditors

Deadlines

• 30th June 2016: Deadline for EBS trial run submission and other filings for the year ended 31 December 2015 (statutory filing deadline).
• no later than July 2016: Any legislative amendments arising from the 2016 EBS trial run outcomes must be consulted on by this time to be effective for the 2016 year-end.
• 2016 year-end filings: Insurers must calculate technical provisions for both general and Long-Term business, as the previously anticipated 2018 transitional period no longer applies.