1 January 1970Life

Parallel lines

The Bermuda Monetary Authority is maintaining momentum with its regulatory change programme for Bermuda’s insurance sector and is on course with the implementation of the various components of its enhanced regime. The Authority’s approach to regulatory change is to develop both a framework that can be deemed equivalent by other major jurisdictions, and one that is effective and practical for the Bermuda market. To that end, the Authority is conducting its work through a prism of pragmatism, ensuring that the changes made are right for Bermuda.

To ensure that it achieves its dual objectives, the Authority is engaging the market through extensive consultation on its proposals, implementing market outreach initiatives and phasing implementation of the new standards in a proportionate manner, in accordance with the risk profiles of various classes of insurers.

Major equivalence milestone met

During the first quarter of this year, the Authority completed the fi rst phase of its equivalence assessment under Solvency II. This involved providing a detailed response to a self-assessment questionnaire focused on its reinsurance and group frameworks to the European Insurance and Occupational Pensions Authority (EIOPA). Preparations are well advanced for the next phase of the assessment, which will involve an on-site visit by the EIOPA assessors in June 2011.

"The Bermuda CISSA will allow the Authority to obtain the re/insurer's view of the capital resources required to achieve its business objectives and to assess the governance, risk management and controls surrounding this process."

It is important to note that while the Authority fully intends to have a regime that is equivalent to Solvency II, its efforts are focused on achieving desired regulatory outcomes, rather than duplicating specifi c line-byline requirements of the Directive. That said, the changes to Bermuda’s regime closely map the principles of Solvency II and the timeframes for implementation correspond to the Directive. The Authority is confi dent that Bermuda will be in the best possible position for the assessment, given the substantive changes it has already made to its framework.

The Authority also recognises the transitional measures that are currently being considered by the European Commission. These transitional measures are a practical development given the major work required for jurisdictions to develop and establish Solvency II regulatory changes. The Authority will monitor the pace of change in the EU and make appropriate adjustments to the timing of its initiatives. This will allow Bermuda market participants time to make necessary adjustments for compliance with the new standards.

Successfully extending solvency regime

The Authority has successfully extended across the market its enhanced risk-based approach to the solvency regime for Bermuda’s commercial re/insurers. Following the implementation of the Bermuda Solvency Capital Requirement (BSCR), its standard capital adequacy model, to Class 4 and Class 3B fi rms, the Authority is currently conducting a trial run of the Bermuda Standard Capital Requirement—Small Medium Enterprises (BSCR-SME) for Class 3A firms.

The Authority will conduct a Commercial Insurers’ Solvency Self-Assessment—Small Medium Enterprises (CISSA-SME) for Class 3A firms, in addition to the BSCR-SME. Like Solvency II’s ORSA, the Bermuda CISSA will allow the Authority to obtain the re/insurer’s view of the capital resources required to achieve its business objectives and to assess the governance, risk management and controls surrounding this process.

Group supervision roll-out

The Authority has commenced implementation of group supervision to Bermuda-based insurance groups. Last month, the Authority communicated to firms its decision on whether or not it considers itself to be their Group Supervisor. The Authority also continues to communicate with its international counterparts on issues surrounding the supervision of such firms.

Internal models regime updated

The Authority continues to make steady progress in its work towards permitting the use of insurers’ internal capital models (ICM) to determine regulatory capital. A Guidance Note on the Authority’s ICM application and review process was published in May, reflecting the results of pilot ICM assessments conducted in 2010 and recent international developments in this area.

Steady progress—Long-Term framework changes

Plans to enhance the regime for Long-Term insurers are also moving forward. The reclassification of the Long-Term sector is currently underway, with the deadline for fi rms to submit their applications to the Authority by September 30, 2011. Guidance Notes have also been issued for Long-Term fi rms as part of the Authority’s development of capital and solvency standards for this sector. The Authority has also begun a BSCR trial run for Class E firms.

Code of Conduct implementation

The Authority has extended the enforcement date for the Insurance Code of Conduct to July 1, 2011 to afford companies the opportunity to make operational adjustments as needed. The Code, which wasissued in February 2010, is based on international standards and builds on requirements previously established for the Bermuda insurance market. It covers such issues as corporate governance and governance mechanisms, risk management, outsourcing, market discipline and disclosure.

Ongoing market consultation

The Authority will conduct further market consultation throughout the year on other key components of the enhanced regime, including eligible capital rules and the introduction of an economic balance sheet.

Growth in resources

The Authority has also achieved a significant measure of success in building its resources. Despite the challenge of attracting skilled regulators, the Authority has successfully added senior-level, highly experienced new members to its supervisory teams, as well as to its risk analytics and policy development areas. This was accomplished through a targeted and aggressive recruitment effort over the past months. The recruitment initiative is continuing into this year, as the Authority seeks to ensure that it has the expertise and level of resources required to support implementation of its expanded supervisory programmes.

The addition of new resources, along with the Authority’s continued focus on training and development of its staff, ensure that the Authority maintains the highest levels of operational effectiveness and supervisory competence.

Industry outreach

As the Authority progresses with implementation of its enhanced regulatory framework, it acknowledges the significant change this represents, both for itself as the regulator and for the market. It has therefore launched a series of awareness sessions and technical workshops covering various components of its enhanced regime to ensure that market participants are not only aware, but fully understand, requirements resulting from the new standards.

These outreach activities are designed to support firms as they seek to remain engaged with the Authority throughout the transition process and adapt their operations. These initiatives should also assist fi rms with being in the best position to ensure they are compliant with the new standards the Authority is implementing.

As indicated earlier, the Authority’s focus is on implementing what works for Bermuda; therefore, it plans to cascade its enhanced regime throughout the market in a proportional and appropriate manner, and with continued market consultation. By working with industry in this way, the Authority is looking to achieve results and maintain its pivotal support for the overall success of the Bermuda market.

Further information on the Authority’s equivalence work plan, including the status of its initiatives, is available on the Authority’s website: www.bma.bm

Mary Frances Monroe is director, policy, research and international relations, at the Bermuda Monetary Authority. She can be contacted at: mmonroe@bma.bm