Bermuda To Align Insurance Regulation With International Standards

by Amanda Banks, Tax-News.com, London

15 July 2009

On July 9, the Bermuda Monetary Authority announced developments in its ongoing project to enhance the regulatory framework for Bermuda’s largest insurers.

Its statement notes the formal establishment of agreed standards on minimum capital requirements, among other criteria, and an application process to allow the use of insurers’ internal capital models. The Authority has also developed new proposals for applying greater disclosure requirements to Class 4 and 3B insurers. These enhanced transparency requirements would apply to both audited general-purpose financial statements as well as statutory filings. Both developments advance the Authority’s preparations for assessments to determine broad equivalence of its insurance framework under regimes of other major international jurisdictions, such as Europe’s Solvency II Directive.

Matthew Elderfield, CEO of the Authority said: “The Authority has worked for some time on enhancing our insurance framework with the view to obtaining equivalence status with other leading regulators in the world. These latest developments are a significant milestone for the Authority, and show that we are making steady progress towards this important goal for Bermuda.”

To support these developments, the Authority has published two market communications; “Standards and Application Framework for the Use of Internal Capital Models for Regulatory Capital Purposes” and “Consultation Paper on Disclosure and Transparency”.

Standards and Application Framework for the Use of Internal Capital Models for Regulatory Capital Purposes

The internal capital models (ICM) Guidance Notes outlines the various components of the Authority’s ICM framework, including: provisions relating to pre-application conditions; application review procedures; and post-approval monitoring and control activities. The paper also provides guidance on the insurers’ self-assessment process, which requires an insurer to confirm that its ICM meets a number of general criteria prior to the Authority starting an ICM review. The implementation of the Authority’s internal capital model framework is part of its enhanced solvency regime, which includes the Bermuda Solvency Capital Requirement (BSCR), the Authority’s standardized capital adequacy model that was introduced in 2008, and an Own Risk and Solvency Assessment (ORSA) regime, which is currently in development.

Consultation Paper on Disclosure and Transparency

In its Consultation Paper, the Authority proposes a measured approach to enhancing its disclosure regime, with three distinct phases of implementation. Taking this approach affords the Authority the opportunity to ensure that its proposals keep step with international developments while allowing sufficient time for consultation with industry participants. The Authority has also published the draft Insurance (Prudential Standards) (Class 4 Solvency Requirement) Amendment Order 2009 and the draft Insurance Accounts Amendment Regulations 2009 supporting the Authority’s 2009 proposed enhancements. These documents should be read in conjunction with the Consultation Paper.

Both the draft legislation and Consultation Paper are available for download on the Authority’s website.

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