Economic Balance Sheet Framework for General Business Insurers (Consultation Paper, August 2012)

Summary

This is a Bermuda Monetary Authority consultation paper setting out a proposed Economic Balance Sheet (EBS) framework for general business insurers, intended to move regulatory reporting toward a consistent economic valuation basis for assets and technical provisions. It follows an earlier 2010 discussion paper and is issued separately from the parallel EBS consultation for long-term insurers.

• Scope: Applies to Bermuda general business insurers in Class 3A, 3B and 4, and to any insurance group or Bermuda group for which the Authority is group supervisor.
• Valuation principles: Sets out overarching principles that assets and liabilities be valued on a consistent economic basis, with proportionality and materiality considerations, supported by detailed guidance on data quality, asset valuation, and valuation of technical provisions (best estimate cash flows plus risk margin).
• Governance: Calls for a sound system of governance and review by suitably qualified persons to oversee EBS determinations, and for documentation sufficient to demonstrate data quality standards for supervisory review.
• Transitional measures: Describes proposed transitional arrangements (developed with ABIR's EBS Working Group) allowing insurers to leverage existing GAAP/IFRS figures and simplified approaches for outstanding claims provisions, premium provisions and the risk margin during migration to full EBS reporting.
• Reporting timetable: Outlines a phased migration from current statutory reporting to EBS statutory reporting, including test run, trial run, soft launch and ongoing statutory reporting stages, alongside a proposed revision to the Insurance Accounts Regulations 1980.

As a consultation paper, the document itself does not impose binding requirements but invites industry comment on the proposed framework and timetable; use of transitional simplifications does not exempt insurers from the stated governance and documentation requirements.

Key obligations

• Insurers and interested parties wishing to comment must submit views to policy@bma.bm no later than Friday, 5 October 2012
• Insurers adopting the EBS framework must maintain documentation sufficient to demonstrate data quality standards and maintain a directory of all data used in technical provision calculations
• Insurers using amortised cost valuation for assets must evaluate adequacy at least annually for impairment
• Insurers must continue to meet governance and documentation requirements even when using transitional simplified approaches for technical provisions

Applies to

general business insurers (Class 3A), general business insurers (Class 3B), general business insurers (Class 4), insurance groups, Bermuda groups

Deadlines

• Friday, 5th October 2012: Deadline for industry and interested parties to submit comments on the consultation paper to policy@bma.bm