The Bermuda Monetary Authority (BMA – www.bma.bm) has announced what it describes “significant enhancements to Bermuda’s solvency and disclosure regulations for insurance.”
Specifically the BMA said the changes “will help ensure that Bermuda “achieves recognition as having equivalent regulatory standards to those in Europe’s Solvency II Directive.” The Authority also announced new measures to facilitate special purpose vehicles (SPVs), such as securitizations and sidecars.
The BMA’s CEO Matthew Elderfield expressed his satisfaction with the new regulations, indicating that they “mean we’re well on track to achieving our objective of achieving equivalence, or mutual recognition status, in Europe and elsewhere. Bermuda is now one of the countries at the front of the pack in terms of preparing for Solvency II.”
With the recent passage of the Insurance Amendment Act 2008, the Authority will now introduce, among other new and expanded regulatory initiatives, the Bermuda Solvency Capital Requirement (BSCR), an enhanced solvency regime that it will apply to Bermuda’s Class 4 (re)insurers [the highest category, which includes the Island’s major public companies].
“The BSCR will assist us to build on Bermuda’s existing solvency regime by establishing risk-based capital adequacy standards for high impact insurers,” Elderfield explained. “This will allow for a more risk-sensitive approach to setting solvency requirements for Bermuda’s insurers, in line with international developments regarding capital adequacy such as Solvency II.
“Implementing the BSCR will also help with the Authority’s transition to recognizing companies’ internal economic capital models,” he added. “Permitting the use of internal models for our (re)insurance companies to determine appropriate capital levels for their business, subject to review and approval of each model by the Authority, is again consistent with developments in international insurance regulation.”
Other initiatives facilitated by the new provisions in the amended legislation include the publication of financial statements submitted to the Authority by Class 4 companies, under new reporting requirements for these high impact insurers, using Generally Accepted Accounting Principles or GAAP.
“These new provisions enable us to publish GAAP financial statements, which will result in enhanced standards for disclosure for Bermuda’s Class 4 insurers, in line with international standards relating to transparency in the industry,” Elderfield continued. “The legislation also facilitates the re-classification of Bermuda’s Class 3 insurance sector, which includes a large number of firms, with a wide range of characteristics, from captives writing a limited amount of third-party business to large purely commercial (re)insurers.
“This means we’re establishing further sub-categories within the Class 3 group, based on their respective risk profiles. We will be able to refine our application of risk-based supervision to these firms further, to ensure they receive the level of oversight that is appropriate to the nature of their business.”
He added that the reclassification also introduces a new category of ‘Special Purpose Insurer’, focused on these fully collateralized special purpose vehicles (SPVs) that are established to conduct certain specific insurance transactions (most typically asset-backed securitization transactions). The new classification will make it less costly for SPVs to be established in Bermuda.
“The changes agreed for SPVs will help maintain Bermuda’s position as a leading insurance market,” Elderfield concluded.
Source: Bermuda Monetary Authority
Topics Carriers Legislation
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