Consultation Paper on Audited GAAP Financial Statements (2007-10-19)

Summary

This is a 2007 consultation paper in which the Bermuda Monetary Authority proposes to require Class 4 (re)insurers to file audited GAAP financial statements, to be publicly published alongside the annual statutory financial return. The stated aim is to move closer to IAIS Insurance Core Principle 26 on disclosure and transparency. The Authority invited industry comment on the proposals before finalising them.

• Scope: Initially applies only to Class 4 (re)insurers, starting with the 2007 year end; Class 3 commercial (re)insurers would only be brought in after separate consultation.
• Filing requirement: Audited GAAP financial statements, audited by the (re)insurer's Approved Auditor under Section 16(1) of the Insurance Act 1978, would be filed with the annual statutory financial return.
• Permissible standards: Statements must be prepared under IFRS, GAAP applicable in Bermuda, Canada, the UK or the US, or such other GAAP as the Authority may recognise.
• Level of reporting: Filing is proposed at the legal entity level, with a process to apply for group level filing (with unaudited statements in that case) where a legal entity audit would be unduly punitive.
• Competitive disadvantage relief: A (re)insurer may apply to have public disclosure modified if it believes disclosure would cause competitive disadvantage; if granted, it must still file audited or unaudited GAAP statements with the Authority and demonstrate adequate disclosure to policyholders.
• What stays confidential: Only the audited GAAP financial statements and related notes would be published; the statutory financial return and statutory financial statements remain undisclosed, and Section 51B and other Act disclosure provisions continue to apply.
• Auditor liability: The Authority proposes a provision barring third party legal action against the Approved Auditor in respect of the published audited GAAP statements, which the (re)insurer must disclose alongside the published statements.

As a consultation paper, none of these proposals were yet binding rules at the time of publication; comments from the insurance industry and other interested persons were requested by a stated deadline.

Key obligations

• Under the proposal, Class 4 (re)insurers would be required to file audited GAAP financial statements, audited by their Approved Auditor, together with the annual statutory financial return, starting with the 2007 year end.
• Audited GAAP financial statements would need to be prepared under IFRS, Bermuda/Canada/UK/US GAAP, or other GAAP recognised by the Authority.
• Filing would be required at the legal entity level unless the Authority approves an application to file at the group level, in which case unaudited GAAP financial statements must instead be filed.
• A (re)insurer granted competitive disadvantage relief from public disclosure must still file audited or unaudited GAAP financial statements with the Authority and demonstrate sufficient disclosure to policyholders.
• A (re)insurer relying on the auditor liability protection must disclose that matter alongside its published audited GAAP financial statements.
• Interested persons were required to submit comments on the proposals to named BMA contacts by November 12, 2007.

Applies to

Class 4 (re)insurers, Class 3 commercial (re)insurers, Approved Auditors

Deadlines

• November 12, 2007: Deadline for industry and other interested persons to submit comments on the consultation proposals to the Authority.
• 2007 year end: Proposed commencement point from which Class 4 (re)insurers would begin filing audited GAAP financial statements.