The Bermuda Monetary Authority (the BMA) published a consultation paper on 5 February 2010 entitled “Consultation Paper on The Bermuda Monetary Authority’s Proposed Insurance Groups Regulatory Framework” (the Paper). The Paper outlines the BMA’s proposal for the implementation of a group-wide supervisory regime and outlines the conditions under which the BMA would seek to be considered the Group-Wide Supervisor. The Paper invites the insurance industry and other interested persons to give their views by 5 March 2010 on the proposals set out.
The BMA’s group-wide supervisory regime will apply to insurance groups and insurance subgroups that form part of a financial group or mixed conglomerate. It will initially apply to Class 4 and Class 3B insurers because of their higher risk profile but the BMA will be extending the regime to the rest of the commercial insurance sector. The Paper highlights a number of unique factors influencing the nature of the proposed group-wide supervisory regime including:
- the jurisdictions within which the group operates;
- the complexity of the group structure and the relative significance of the particular insurer within that group;
- the management structure of the group, and the extent to which it operates as a single integrated entity or as a group of separate entities; and
- the relative solvency position of entities within the group.
The proposed group-wide supervisory regime is risk based and it is proposed by the BMA that it will be fit for purpose to reflect the nature, scale and complexity of the risk to which an insurance group is exposed. In applying the regime, every effort will be made to identify all reasonably foreseeable risks and to analyse the impact they might have on the insurance group.
Of particular interest to (re)insurers not based in Bermuda is that the BMA is reviewing its position on branch operations, both existing and future, within Bermuda as the BMA has recognised that branch operations present a number of supervisory challenges to any group-wide supervisory regime.
Since any group-wide supervisory regime hinges on the perception of cooperation and equivalence, the Paper also seeks to explain the BMA’s proposed equivalence framework, the use of supervisory colleges, and other forms of cooperation to facilitate effective and efficient group-wide supervision. The Paper also describes other features of the BMA’s proposed regulatory framework including the assessment of group corporate governance and risk management, eligible capital for the purposes of satisfying available statutory capital and surplus, and group-wide solvency assessment which includes a discussion of the treatment of intra-group transactions and risk concentrations. Additionally, it explores the efficacy of group support as an important factor in determining group-wide solvency, and the treatment of unregulated entities that are part of the group. The Paper concludes with the BMA’s statutory reporting requirements for groups.