Guidance Notes for Commercial Insurers and Insurance Groups' Statutory Reporting Regime (2023-09-08)

Summary

This is BMA guidance explaining the statutory and prudential reporting regime applicable to commercial insurers and insurance groups, covering both the Statutory Financial Statements (SFS) framework under the Insurance Act 1978 and the Economic Balance Sheet (EBS) valuation principles used to calculate the Enhanced Capital Requirement (ECR). It consolidates the 2015 reporting reforms and describes proposed 2023 refinements (Scenario-Based Approach revisions, group risk margin changes, and a new standalone EBS Rules schedule) that the Authority intends to embed in legislation with implementation targeted for 2024.

• GAAP financial statements: Commercial insurers must prepare financial statements under Section 17A using IFRS, GAAP recognised in Bermuda, Canada, the UK or US, or other GAAP approved by the Authority, audited by an approved auditor.
• Consolidated and unconsolidated SFS: Insurers must produce both consolidated SFS (feeding into the EBS/ECR calculation, subject to prudential filters) and unconsolidated SFS (statutory balance sheet, income statement, and statement of capital and surplus) used for MSM, liquidity ratio and class of registration determinations.
• Condensed consolidated GAAP option: Class 3A, Class C and Class D insurers may elect to produce condensed consolidated GAAP financial statements with abbreviated notes per Schedules VIII and IX of the Insurance Account Rules, still subject to audit by an approved auditor.
• Loss and loss expense provisions: Class 3A, 3B and 4 insurers must set aside adequate loss and loss expense provisions for general business, covering reported and incurred-but-not-reported losses and loss adjustment expenses.
• EBS valuation and technical provisions: Detailed guidance is given on valuing EBS balance sheet lines (investments, receivables, payables, letters of credit, etc.) and on technical provisions, including best estimate calculation, risk margin methodologies, discounting, and treatment of guarantees and contractual options.
• Long-term business transition: A sixteen-year transitional arrangement applies to long-term business technical provisions, requiring parallel reserve calculations each year, with adjustments incorporated into specified EBS balance sheet lines.

The Accounts Regulations remain applicable only to limited-purpose insurers, since the Insurance Accounts Rules introduced in 2015 replaced them for commercial insurers. The guidance is technical and cross-references specific EBS Rules paragraphs; readers should consult the full text for line-by-line valuation and risk margin methodology detail relevant to their class of registration.

Key obligations

• Commercial insurers must prepare financial statements under Section 17A of the Insurance Act 1978 using IFRS, recognised GAAP (Bermuda, Canada, UK, US) or other Authority-approved GAAP, audited by an approved auditor.
• Commercial insurers must file both consolidated (or condensed consolidated, where elected) and unconsolidated Statutory Financial Statements (balance sheet, income statement, statement of capital and surplus) in the format prescribed by the Insurance Account Rules.
• Class 3A, Class C and Class D insurers electing to use condensed consolidated GAAP financial statements must follow the format in Schedules VIII and IX of the Insurance Account Rules and have them audited by an approved auditor.
• Class 3A, 3B and 4 insurers must establish adequate loss and loss expense provisions for general business covering reported and incurred-but-not-reported losses and expected loss adjustment expenses.
• Insurers and insurance groups must calculate technical provisions (best estimate and risk margin) in accordance with the EBS Rules, including proportionality/simplification requirements and documentation of methodology choices.
• Insurers using simplified risk margin approximation methods must justify and document the rationale for percentages or assumptions used by line of business.
• For long-term business subject to the sixteen-year transitional arrangement, insurers must perform both current reserve and EBS reserve calculations each year and incorporate transition adjustments into the specified EBS balance sheet lines.

Applies to

commercial insurers, reinsurers, insurance groups (Bermuda Groups), Class 3A insurers, Class 3B insurers, Class 4 insurers, Class C insurers, Class D insurers, Class E insurers, limited-purpose insurers, approved auditors

Deadlines

• 2024: The Authority intends to implement the 2023 proposed refinements to the EBS framework (Scenario-Based Approach revisions, group risk margin changes, EBS Rules schedule) via amendment rules expected to take effect in 2024.