Bermuda re/insurers required to take stress tests by BMA

The Bermuda Monetary Authority (BMA) has announced that it is requiring Class 4 and Class 3B insurers and reinsurers on the island, as well as Bermuda insurance groups, to conduct prescribed stress/scenario testing and analysis.

The results are to be submitted to the BMA as part of the 2017 year-end capital and solvency return.

According to the BMA, the objective of stress testing within the 2017 year-end capital and solvency return is to assess the capital adequacy of the insurers and groups under adverse financial market and underwriting conditions and provides a comprehensive understanding of the sector’s general vulnerability to shocks.

The BMA said that the purpose of the tests is specifically to assess the impact of the losses, as determined using proprietary/vendor models, on the insurer’s/group’s statutory balance sheet (i.e., statutory admitted assets, admitted liabilities, and capital and surplus).

As a result these tests help determine the financial capacity of insurers/groups to absorb the manifestation of key financial risks, such as shocks to investment performance and projected losses arising from specific underwriting risks.