Discussion Paper on Economic Balance Sheet and Proposed Changes to Regulatory Reporting (August 2010)

Summary

This is a 2010 BMA discussion paper inviting industry comment on a proposed shift to an economic balance sheet framework for solvency purposes in Bermuda, and on related changes to statutory regulatory reporting. It is a consultative document, not a binding rule, and sets out the Authority's thinking alongside a series of specific questions for stakeholders.

• Economic balance sheet concept: Assets and liabilities would be valued on a consistent economic basis (expected discounted cash flows between willing arm's length parties) to reduce accounting mismatches that do not reflect real economic mismatches.
• Replacing statutory financial statements: As an initial step, the Authority proposes replacing current statutory financial statements with general purpose financial statements (prepared under IASB, FASB or other approved GAAP), subject to prudential filters and/or fair value adjustments.
• Initial scope: The proposed framework would initially apply to Bermuda commercial insurers: Class 4, Class 3B and Class 3A insurers, and insurance groups for which the Authority is Group-wide Supervisor; Long-Term commercial classes would also be considered once classified.
• Excluded for now: Captive classes and Special Purpose Insurers (SPIs) are not currently proposed to be in scope, though the Authority seeks views on whether they should be included.
• Consultation questions: The paper poses detailed questions on procyclicality, economic valuation methodology, insurance liability valuation (discount rates, risk margins, replicating portfolios), scope of application, and exemptions/modifications.
• Comment deadline: Comments were requested by 15 October 2010, addressed to policy@bma.bm.

The paper also outlines a proposed implementation timetable and phased transition, and acknowledges that any eventual adoption of an economic balance sheet framework would require changes to existing Bermuda legislation. No obligations are imposed by this paper itself beyond the invitation to comment.

Key obligations

• Interested persons wishing to comment on the proposals must submit comments to policy@bma.bm no later than 15 October 2010.

Applies to

Class 4 insurers, Class 3B insurers, Class 3A insurers, insurance groups for which the Authority is Group-wide Supervisor, Long-Term commercial insurers (prospectively)

Deadlines

• 15 October 2010: Deadline for submitting comments on the discussion paper to policy@bma.bm