Notice - Targeted Enhancements to the Regulatory and Supervisory Regime (2022-12-08)

Summary

This is an informational notice from the Bermuda Monetary Authority announcing upcoming targeted enhancements to its regulatory and supervisory regime for commercial insurers, with a particular focus on Long-term (Life) insurers. The BMA states it will issue a consultation paper in early 2023 covering these changes; no rules are being made effective by this notice itself, aside from investment reporting enhancements already effective at 2022 year-end.

• Technical provisions: Proposed changes to the standard discount curve for Euro-denominated liabilities, risk margin calculation for insurance groups (moving to an unconsolidated basis), and the scenario-based approach (with enhanced modelling, governance, validation, stress testing and reporting).
• BSCR changes: Adjustments to the other Long-term insurance risk capital charge to improve sensitivity to lapse and expense risks, and to catastrophe risk charges to better capture man-made risks.
• BSCR parameter applications: Revision of the framework for applications to modify specific BSCR parameters under Section 6D of the Insurance Act 1978, to make it clearer, more standardised and transparent.
• Recovery and resolution planning: A consultation paper on Insurance Rules governing recovery plans is planned for 2023, building on 2022 Insurance Act amendments giving BMA powers to require recovery plans; resolution planning frameworks will also be developed.
• Investment and asset disclosure: Insurers must disclose the nature and characteristics of all assets (including funds held by ceding insurers), covering private debt and loans, structured assets, alternative assets and derivatives; related-party-originated investments and associated conflicts of interest must also be identified and disclosed.
• Liquidity and stress testing: The Authority will strengthen existing requirements on liquidity, stress testing, contingency funding plans and risk management reporting.
• ORSA expectations: Insurers' ORSAs are expected to demonstrate proper identification, measurement and management of risks from illiquid and non-traditional assets, and include detailed description of asset liability management, risk infrastructure, governance and due diligence.
• Governance and expertise: Insurers must demonstrate that management, boards and all lines of defence (risk management, internal audit, actuarial, board) have requisite skills to manage risks of selected asset classes.
• Intensified supervision: Insurers with high allocations to illiquid or non-traditional assets can expect intensive supervisory engagement, deep dives on investment strategy, liquidity, asset liability management, risk management, intra-group transactions, governance and solvency, and potential additional measures (extra reporting, bespoke stress testing, capital/reserve add-ons, investment or dividend restrictions, additional capital requirements).

The notice also provides background context on Bermuda's existing three-pillar solvency regime, its international standing (Solvency II equivalence, NAIC Qualified and Reciprocal Jurisdiction status), and data on Bermuda insurers' contribution to global policyholder protection, including Hurricane Ian loss payments. No specific compliance deadlines are set by this notice; the substantive proposals will follow via a forthcoming consultation paper.

Key obligations

• Insurers must disclose to the Authority the nature and characteristics of all assets, including funds held by ceding insurers, covering direct and indirect private debt and loans, structured assets, alternative assets, and derivatives
• Insurers must identify all related-party-originated investments and other activities and disclose how associated conflicts of interest are managed
• Insurers' ORSAs are expected to demonstrate proper identification, measurement, monitoring, management, control and reporting of risks associated with illiquid assets and to include detailed description of asset liability management, risk management infrastructure and governance
• Insurers must demonstrate that management, boards and all lines of defence have the requisite skills, expertise and control frameworks to manage risks of their selected asset classes
• Data used to support investment decisions and ongoing risk management must be high-quality (complete, accurate and appropriate)

Applies to

Commercial Insurers, Direct Insurers, Reinsurers, Insurance Groups, Long-term (Life) insurers

Deadlines

• first quarter of 2023: BMA will issue a consultation paper on targeted enhancements to the regulatory framework for Long-term (Life) insurers
• 2023: BMA will issue a consultation paper on Insurance Rules governing recovery plans
• 2022 year-end: Enhanced investment reporting requirements became effective