BMA issues new guidance for segregated account companies

The Bermuda Monetary Authority is seeking responses to new guidance for general business insurers with segregated accounts and separate accounts. 

The regulator said the guidance note sought to provide clarity to ensure relevant stakeholders have a sound understanding of the regulatory regime for Segregated Account and Separate Account companies in Bermuda. 

"The GN outlines the Authority’s expectations of companies that use Segregated Accounts and Separate Accounts to conduct regulated insurance business," a BMA notice said. "The Authority seeks to ensure the manner in which insurance business is conducted through Segregated Accounts and Separate Accounts is in a way that gives policyholders an appropriate level of policyholder protection that is consistent with the policyholders of insurers that are not conducting insurance business in Segregated Accounts and Separate Accounts."

Among the provisions in the guidance are detailed requirements on letters of credit. 

The guidance said: "Evergreen and irrevocable Letters of Credit (LOC) are acceptable forms of contingent capital, provided the following criteria are met:

"a) Is a regulated financial institution; and

"b) Either:

"i. Has achieved a financial rating (counterparty, credit or financial strength  as applicable) of at least A- (or equivalent) as of the date of application

and as determined by a recognised rating agency; or

"ii. Is deemed to be of a sound financial quality (in the circumstance of unrated issuers or issuances) by the Authority."

The guidance added that the insurer’s board of directors is responsible for ensuring the validity and continued existence of the letters of credit (LOC) during the period that the insurance contracts written in cells or the general account are at risk and that the LOC needed to be approved by the BMA before it was reported.

The insurer is also required to notify the BMA if the assets supporting the LOC become impaired and the insurer is liable to top up the collateral. 

The deadline for comments on the LOC is September 30 and the guidance is due to come into effect on January 1, 2025.

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