Bermuda Monetary Authority
Insurance-linked securities (ILS)
Bermuda solidified its status as the premier jurisdiction for ILS in 2013. By the end of Q1 2014, Bermuda increased its market share as the leading jurisdiction in the ILS industry, accounting for nearly half of the outstanding volume in the global ILS market ($9.8 billion of $20.0 billion).
NAIC qualified jurisdiction process
Effective January 1, 2014, Bermuda was granted conditional qualified jurisdiction status by the National Association of Insurance Commissioners (NAIC). This was important because it allowed commercial reinsurers which are licensed and domiciled in Bermuda to be eligible to be considered for reduced reinsurance collateral requirements when writing business in the US.
Regulatory initiatives
Despite its small size, Bermuda is widely regarded as a giant in the world of financial services, supporting a wide range of industries from banking, investment and trusts, to global re/insurance. As the regulator of Bermuda’s bustling financial services industry, the BMA rolled out several important regulatory initiatives during the last 12 months.
In the banking sector, the BMA continued its focus on the supervisory implications of implementing Basel III standards. We conducted a series of quantitative impact studies (QIS) in 2013. The QIS process comprised a detailed assessment of a more stringent definition of capital and risk-weighted assets in addition to a more rigorous short-term liquidity requirement.
The QIS results show that the Bermuda banks’ risk-based approach to capitalisation is broadly compliant with Basel III standards. We believe that sufficient time must be allowed to assess the proposal’s potential effect on the Island’s banking systems. Therefore, the BMA has proposed that Bermuda follow a timeline two years later than Basel Committee members in order to allow for sufficient implementation time.
On the investments side, the Investment Funds Act was amended in October 2013 to introduce two new funds classes to improve speed to market: Class A and Class B exempted funds. In relation to the EU’s Alternative Investment Fund Managers Directive (AIFMD), the BMA signed 27 memoranda of understanding (MoUs) with our fellow supervisors in Europe. These agreements will facilitate a greater flow of information between supervisors of alternative investment fund managers that operate between Bermuda and Europe.
The scale of Bermuda’s global re/insurance market is such that it remains one of the world’s largest centres of its kind. Bermuda’s insurers wrote gross premiums worth $120.5 billion according to the latest available figures. Of that total, the split between Bermuda’s commercial and captives sectors was $74.4 billion and $46.1 billion, respectively. The market’s aggregate
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The BMA met with several regulators in other countries to discuss potential operational efficiencies in the ICM approval processes.
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total assets increased from $452.2 billion to $505.5 billion year on year. Total capital and surplus was also up, reaching $193 billion compared to $168.7 billion, which was recorded the previous year.
As part of a continuing equivalence programme, the BMA has been implementing group supervision for our largest insurance groups on a phased basis over the last three years. Group capital requirements will be phased in over a six-year period starting at 50 percent for the financial year ending 2013. Changes to group capital requirements were made following an in-depth consultation process.
A range of supervisory activity in relation to insurance groups also took place during the year, including 18 supervisory colleges covering groups for which we are group supervisor and a further seven colleges in which we were a participating supervisor. In addition, the BMA conducted on- site reviews of nearly one-third of our insurance groups.
In 2013, the BMA continued its work to enable Bermuda’s insurers to utilise their own Internal Capital Models (ICM) to set regulatory capital requirements. During the first half of 2013, the BMA finalised its internal processes for reviewing ICM applications, including appointing an external expert panel to supplement internal resources.
In addition, the BMA met with several regulators in other countries to discuss potential operational efficiencies in the ICM approval processes. The BMA began accepting applications for ICM approval from Q3-2013 and will continue to invite ICM applications throughout this year.
In conclusion, the BMA remains committed to fostering a practical regulatory environment, with proportionate regulations
that remain
workable for Bermuda’s vital financial services sector. The BMA’s continued challenge is to meet international standards, but to apply change appropriately and pragmatically for the firms which operate here.
Craig Swan is managing director, supervision at the BMA. For further information visit:
www.bma.bm
9 Bermuda Finance | 2014
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