How the BMA supervises Bermuda’s growing long-term life sector
The Bermuda Monetary Authority (BMA) aims to protect and enhance Bermuda’s reputation and position as a leading international financial centre, acting in the public interest to promote financial stability and provide effective and efficient supervision and regulation.
“For life re/insurers, the authority regularly consults with industry through Bermuda International Long Term Insurers and Reinsurers.”
The authority is committed to providing open, transparent regulatory frameworks and requirements consistent with international best practice and applying and enforcing these requirements sensibly and consistently in a firm but fair manner. Bermuda is recognised as both a Reciprocal Jurisdiction by the National Association of Insurance Commissioners
(NAIC) in the US and a full Solvency II equivalent jurisdiction in the EU. The BMA actively participates in International Association of Insurance Supervisors (IAIS) workstreams and cooperates with international regulators. For life re/insurers, the authority regularly consults with industry through Bermuda International Long Term Insurers and Reinsurers (the formal association representing life insurers and reinsurers in Bermuda).
In the past decade, Bermuda’s long-term (life) sector has experienced significant growth. The total unconsolidated balance sheet of commercial long-term re/insurers (BMA licence classes C, D and E) has grown from $150 billion in 2014 to $653 billion in 2019. Currently, there are 143 long-term commercial insurers in Bermuda. Long-term insurance risk is well diversified in Bermuda, with a wide range of jurisdictions being covered. The majority of the long-term business originates from Bermuda’s key traditional trading jurisdictions: North America, followed by Asia and Europe.
The Bermuda market offers an extensive range of life products, including traditional life, deferred annuities, fixed indexed annuities, variable annuities, pensions, disability income, critical illness and health (with various riders).
Modified coinsurance, quota share and stop-loss reinsurance are also standard in this sector. The long-term sector is generally well capitalised and has stayed resilient throughout the COVID-19 pandemic.
In terms of how the regime has developed over time, in 2011, a full risk-based solvency regime was implemented for long-term re/insurers. This regime leveraged on the already existing regime for property and casualty re/insurers, implemented in 2008, with specific long-term insurance risks built into the Bermuda Solvency Capital Requirement.
Also implemented in 2008 was the Own Risk and Solvency Assessment framework. This framework requires companies to assess their risk management’s adequacy and their current and prospective solvency positions under both normal and severe stress scenarios. The BMA also established a group supervision regime in 2011 and is the group supervisor for a number of groups.
Following the rules
In 2015 enhanced governance requirements were implemented, and the Bermuda commercial regime achieved US NAIC Qualified Jurisdiction status. The public disclosure rules were introduced, and groups under the BMA’s supervision were required to publish Financial Condition Reports.
In 2016, economic valuation requirements and enhanced public disclosure requirements were implemented, and the Bermuda commercial regime achieved full Solvency II equivalence status with the EU.
On the other side of the Atlantic, Bermuda’s commercial regime built upon its Qualified Jurisdiction status by achieving the NAIC’s Reciprocal Jurisdiction status in 2019.
The authority has an overall plan for its supervision of the insurance sector. This plan is robust in that it allows for specific life sector risks, including changing or emerging risks, and the appropriate allocation of resources.
Specific life sector risks such as long-term asset liabilities matching and emerging risks business strategy changes, cyber risk, anti-money laundering, and environmental, social and corporate governance (ESG) risks are considered. As the market has grown, the authority has increased its internal resources with more professionals dedicated to the life sector. The long-term sector has an increasing number of Bermuda registered re/insurers operating within a group structure. The authority is refining its group supervision framework in relation to the transposition of the IAIS Common Framework for the Supervision (ComFrame) of Internationally Active Insurance Groups (IAIGs).
As noted above, there have been significant enhancements to the BMA’s regulatory regime in the last 10 years and there are currently no significant changes planned for the framework. However, the authority is actively working on some topical items, including:
Digitisation and cyber risk have been an area of focus in the last few years. In particular, the emphasis is placed on operational risk and cyber incident reporting. The BMA is working to extend the cyber incident reporting to groups for which the authority is the group supervisor. The ethical use of big data and artificial intelligence, especially as it relates to policyholder exclusions, is also an area that the Authority is actively reviewing.
Financial reporting standards
Regarding financial reporting standards, the BMA is actively engaging with industry on changes to our reporting framework that might result from adopting International Financial Reporting Standards (IFRS) 17 and the US Generally Accepted Accounting Principles (GAAP) Long Duration Targeted Improvements (LDTIs).
The authority is actively looking at sustainability considerations from an ESG perspective with a view eventually to incorporate ESG into our regulatory reporting and supervisory frameworks. In this regard, work completed to date includes an industry survey conducted in 2020 to identify best practices with an initial focus on climate risk.
On the international level, the BMA actively participates in the development of international standards in insurance, especially through the IAIS. The authority is closely following changes in international standards in the areas of the Insurance Core Principles, ComFrame and Recovery and Resolution.
It will make enhancements to our supervisory frameworks to align with these developments where appropriate, always taking into account proportionality and the nature of the Bermuda insurance market.