Recovery Planning: Expectations and Guidelines (2024-11-22)

Summary

This is a guidance letter from the Bermuda Monetary Authority (BMA) explaining its expectations for recovery planning under the Insurance (Prudential Standards) (Recovery Plan) Rules 2024, which take effect on 1 May 2025. It follows an industry workshop and summarises what the BMA expects a recovery plan to contain, how it should be developed, and common pitfalls observed. A further detailed guidance note is promised for consultation and publication in 2025.

The Rules apply only to (re)insurers that the BMA assesses as economically important, systemically significant, or posing a threat to Bermuda's financial stability if they failed; such firms will have received formal notification from the Authority. The BMA may also require lesser recovery planning steps from other insurers without a formal standalone plan.

• Scope and notification: Formal recovery plans are required only from (re)insurers notified by the BMA as economically important, systemically significant, or a financial stability risk.
• Group plans: A Bermuda (re)insurer covered by a group-wide recovery plan may apply in writing to the BMA to adopt that plan instead of preparing a separate one.
• Ownership and accountability: The board and senior management remain accountable for the recovery plan even where its development is outsourced; accountability cannot be outsourced.
• Required plan content: An executive summary, description of the insurer, trigger framework, recovery options, scenario analysis and operational testing, and governance and communications arrangements.
• Review cycle: The recovery plan is a living document that must be reviewed and updated at least once every three years or sooner upon material change in financial position, strategy, business or risk profile; the BMA may require more frequent updates.
• Common pitfalls flagged: Disproportionate focus on scenarios, inadequate option analysis, theoretical governance structures, overly optimistic assumptions about impediments, and poorly calibrated triggers.

The letter is intended to help (re)insurers prepare their first recovery plans during 2025 ahead of the Rules taking effect, and signals that a more detailed guidance note will follow later in 2025.

Key obligations

• In-scope (re)insurers (those notified by the BMA as economically important, systemically significant, or a financial stability risk) must compile a formal recovery plan in line with the Insurance (Prudential Standards) (Recovery Plan) Rules 2024, effective 1 May 2025.
• The board and senior management of an in-scope (re)insurer must own, develop, approve and remain accountable for the recovery plan, including where its preparation is outsourced.
• A recovery plan must include, at minimum, an executive summary, description of the insurer, trigger framework, recovery options, scenario analysis and operational testing, and governance and communications sections.
• A (re)insurer wishing to rely on a group-wide recovery plan instead of a separate entity-level plan must make a written application to the BMA, accompanied by a copy of the group plan filed with the relevant supervisor.
• The recovery plan must be reviewed and updated at least once every three years, or sooner if there is a material change in the insurer's financial position, strategy, business or risk profile, and more frequently if the BMA requires.
• (Re)insurers should conduct periodic operational testing or simulation exercises of the recovery plan and revise the plan following such exercises.

Applies to

(re)insurers assessed by the BMA as economically important, (re)insurers assessed as systemically significant, (re)insurers assessed as posing a threat to Bermuda's financial stability

Deadlines

• 1 May 2025: Effective date of the Insurance (Prudential Standards) (Recovery Plan) Rules 2024, under which in-scope (re)insurers must have recovery plans created and approved through internal governance.
• at least once every three years: Minimum required frequency for reviewing and updating the recovery plan, absent an earlier material change or BMA requirement for more frequent updates.
• 2025 (unspecified date): BMA plans to consult on and publish a more detailed guidance note on recovery planning expectations.