Consultation Paper on Implementation of Bermuda Reporting Regime for Commercial Insurers and Insurance Groups (September 2015)

Summary

This is a 2015 BMA consultation paper proposing an overhaul of the statutory reporting framework for commercial insurers and insurance groups, aiming to align Statutory Financial Statements (SFS) more closely with GAAP financial statements (subject to prudential filters) that also feed the Economic Balance Sheet (EBS). It sets out proposed changes to financial statement preparation, the Statutory Financial Return, approved auditor requirements, and the Capital and Solvency Return, and invites industry comment before finalisation.

• GAAP as SFS basis: Proposes using Section 17A GAAP financial statements (prepared on a consolidated basis) as the starting point for both the SFS and the EBS, subject to prudential filters (e.g. valuing goodwill and prepaids at nil, specific treatment of DAC, contingent liabilities and taxes).
• Smaller insurer option: Class 3A, Class C and Class D insurers would be given the option to produce condensed consolidated GAAP financial statements with abbreviated notes instead of full consolidated statements.
• Unconsolidated SFS retained: Insurers with subsidiaries would still need to provide unconsolidated statutory financial statements, to support MSM, class of registration and liquidity assessments for Bermuda policyholders.
• Revised Statutory Financial Return: The format and content of the SFR would be updated to reflect the new consolidated and unconsolidated SFS structure.
• Approved auditors: The paper proposes requiring that the approved auditor for commercial insurers be based in Bermuda.
• Capital and Solvency Return additions: Proposes adding disclosures on outsourcing of chief executive and senior executive roles and on head office presence (director and executive residence) to Schedule V(a) of the CSR, to monitor compliance with recent Section 30JA and Section 8C amendments.
• Segregated Account Companies: Proposes amending SAC statutory financial statements to reflect whether a segregated account has recourse to the General Account, affecting the MSM calculation.

The proposals apply to commercial insurers generally (Class 3A, 3B, 4, C, D and E), with one proposal (on outsourcing disclosure) also extending to insurance groups. If adopted, the changes are intended to take effect on 1 January 2016 and apply to financial years commencing on or after that date. As a consultation paper, it does not itself impose binding legal requirements; it seeks industry feedback before implementing legislative and rule changes.

Key obligations

• Interested parties must submit comments on the proposals to the Authority (riskanalytics@bma.bm) no later than 23 October 2015
• Under the proposals, commercial insurers would be required to prepare consolidated GAAP financial statements (or, for Class 3A, C and D insurers, condensed consolidated GAAP financial statements) as the basis for their SFS, subject to prudential filters
• Under the proposals, commercial insurers would be required to use an approved auditor based in Bermuda
• Under the proposals, commercial insurers with subsidiaries would be required to also file unconsolidated statutory financial statements
• Under the proposals, commercial insurers and insurance groups would be required to disclose additional information in the Capital and Solvency Return regarding outsourcing of senior executive roles and head office presence (e.g. director and executive residence)
• Under the proposals, Segregated Account Companies' statutory financial statements would need to disclose recourse arrangements to the General Account

Applies to

commercial insurers (Class 3A, Class 3B, Class 4, Class C, Class D, Class E), insurance groups, approved auditors, segregated accounts companies

Deadlines

• 23rd October 2015: Deadline for industry and other interested persons to submit comments on the consultation proposals to riskanalytics@bma.bm
• 1st January 2016: Proposed date the reporting regime changes would come into operation, applying to financial years commencing on or after this date