A twofold approach
What are the key things from a regulatory perspective that have been done over the years to help Bermuda secure its key position in the reinsurance industry?
The BMA’s approach is twofold. First, the authority has ensured that its supervisory and regulatory frameworks are aligned with international standards, and recognised by other regulators. Achieving Qualified Jurisdiction Status from the US National Association of Insurance Commissioners (NAIC) is a recent example of success in this respect.
It’s also good for business: the knowledge that they would have a credible home regulator provides confidence for global reinsurers considering Bermuda as their domicile.
Second, the authority ensures that it has highly skilled staff, able to implement proactive and forward-looking supervision. Considerable resources are invested in staff training and development to ensure BMA employees understand the business and are equipped to apply appropriate supervision to a wide range of reinsurer types. This results in Bermuda having a wide range of reinsurers on its register.
What recent changes have been made and why? How will they affect the Bermudian reinsurance industry?
In common with other jurisdictions as well as the IAIS, the BMA is developing its own Economic Balance Sheet (EBS) framework.
The EBS framework values assets and liabilities on a consistent economic basis, which enables it to function as an early warning indicator tool. The approach we have adopted reduces accounting mismatches to provide a more reflective picture of a re/insurer’s or group’s solvency position, thereby enhancing policyholder protection.
EBS provisions will apply to Bermuda’s commercial re/insurers, ie, Bermuda insurance groups, classes 3A, 3B and 4 general business insurers, and long-term (life insurance) classes C, D and E.
In advance of the framework development, consultation with life and non-life industry associations in Bermuda by means of EBS working groups enabled the collection of important input. This process will continue with additional EBS trial runs, stakeholder meetings and Quantitative Impact Assessments scheduled for the remainder of 2015.
What are the main regulatory challenges faced by the Bermudian reinsurance industry?
While there continues to be a move towards convergence, with a number of jurisdictions—including Bermuda—implementing Own Risk and Solvency Assessment (ORSA) and risk-based frameworks in accordance with international regulatory standards, there remain differences between regulatory frameworks globally.
For the most part, the Bermudian reinsurance industry operates globally, and must be able to negotiate all of these differences. This could be a challenge to industry in terms of time and cost (complying with varied reporting, etc), and it’s a common challenge for reinsurers domiciled in any international centre. However, as more jurisdictions adopt recognition frameworks and implement supervisory colleges like Bermuda’s, the situation should improve.
How do you think the regulatory environment will need to develop and change in the future to preserve Bermuda’s leading edge?
International regulatory standards have continued to evolve with market developments, and this is not expected to change. To preserve credibility, the BMA has been an early adopter of initiatives such as group supervision, supervisory colleges and ORSA. A robust consultative environment has also ensured that Bermuda’s approach has been pragmatic and appropriate for the characteristics of the Bermuda market. There must be more of the same for Bermuda to remain a vibrant reinsurance marketplace.
