New sustainability requirement as BMA revises insurance code

The Bermuda Monetary Authority has published  a consultation on revisions of the Insurance Code of Conduct.

The code is being amended to reflect international standards set out by the International Association of Insurance Supervisors. It makes several changes: altering the definition of a “limited purpose insurer” to include collateralised insurers and innovative insurer general business (IIGB); requiring a re/insurers’ boards to include an appropriate number of independent non-executive directors; and clarifying requirements to assess the fitness and propriety of the board at least every three years.

Other changes emphasise the board’s role in adopting and promoting a sound risk culture; and clarify that the insurer should demonstrate the economic impact of the risk mitigation techniques originating from the reinsurance contracts.

There are also new requirements around sustainability. “The Authority recognises that climate change continues to be a global threat and, thus, the increasing focus on environmental, social and governance (ESG) risks,” the consultation states.

“The code outlines the requirement for the board to ensure that there are processes to capture the sustainability and ESG risks. Consequently, the code has been amended to add ‘sustainability risk’ as a material risk that should be considered in the development of policies and risk management strategies for all material risks.”

Finally, there are enhanced requirements around outsourcing to ensure that a due diligence and risk evaluation process is undertaken before entering into an outsourcing arrangement.

The regulator emphasises that it will continue to apply the code with proportionality.

“The Authority will evaluate a re/insurer’s compliance with the code proportionally with due regard for the specific nature, scale and complexity of a company’s operations and does not propose to prescribe the exact manner in which re/insurers shall demonstrate compliance with the code,” it states. “When applying the code and developing an appropriate corporate governance and risk management framework, the Authority expects that individual re/insurers will use their best judgment to determine what is proportional to their individual circumstances.”

The consultation will remain open until 31 January 2022, and the code will come into effect immediately when published, with a transition period recommended at the time.