Response to Group-Supervision Discussion Paper Comments (2009-07-27)

Summary

This is a 2009 letter from the Bermuda Monetary Authority to Class 4 and Class 3B (re)insurers responding to industry comments on its earlier Discussion Paper on Implementing Group-wide Supervision. It clarifies the Authority's thinking on how a future group-supervision regime would work but does not itself impose binding rules; it signals policy direction ahead of a forthcoming consultation paper and Code of Conduct.

• Group-wide Supervisor: No fixed criteria yet exist for determining which regulator acts as Group-wide Supervisor; the Authority will look at where the group's mind and management, board decisions, main business activities and risk underwriting occur.
• Supervisory colleges: The Authority intends to convene supervisory colleges on a need-to-basis using existing information-gathering powers under sections 29A and 29B of the Insurance Act 1978, without prescribing fixed format or frequency.
• Equivalence assessments: The Authority will use a principles-based approach to assess other jurisdictions' supervisory equivalence, drawing on IMF/EU work where available.
• Local incorporation and branch treatment: Where a Group-wide Supervisor is not deemed equivalent, the Authority may require a locally incorporated parent, conversion of a branch to a Bermuda subsidiary, or local asset ring-fencing (up to 50% of policyholder liabilities) depending on where the group's main business activities occur.
• Group solvency calculation: A hybrid approach (aggregation or consolidation method plus legal-entity adjustments) will be used to calculate group solvency, with possible capital add-ons for risks from unregulated entities or intra-group transactions.
• Material intra-group transactions: The Authority proposes materiality thresholds (a single transaction reducing capital and surplus by 5% or more, or linked transactions reducing it by 10% or more cumulatively) and will issue an information request for insurers to disclose an inventory of such transactions.
• Internal models: The Authority may accept a 99.5% VaR calibration as an alternative to its 99.0% TVaR standard if demonstrated to be at least as effective, and may rely on third-party or other regulators' model reviews where practicable.
• Unregulated entities/holding companies: The Authority currently maintains only limited supervisory oversight over unregulated entities such as holding companies but is monitoring international developments (e.g. Solvency II, CEIOPS, IAIS) that may lead to expanded oversight.

The letter states that a Code of Conduct consultation paper (Q3 2009) and a further consultation paper on group-wide supervision will follow, where these proposals will be developed into firmer requirements. As a response/discussion document, it reflects policy intent rather than enacted rules.

Applies to

Class 4 (re)insurers, Class 3B (re)insurers, insurance groups, holding companies, branch operations of insurers

Deadlines

• Q3 2009: The Authority stated it would issue a consultation paper on its Code of Conduct for insurers in the third quarter of 2009.