BMA push tips the balance in favour of Solvency II equivalence
The Bermuda Monetary Authority’s (BMA) final push to gain Solvency II equivalence has led to the adoption of a group Economic Balance Sheet (EBS) in 2016.
The assessment of required and available capital against an economic view of company net assets underpins many of the regulatory changes that have taken place globally in recent years.
A BMA spokesman said: “EBS will supplement the authority’s existing group risk-based capital requirement, own risk and solvency assessment (ORSA) and other risk management and governance components which comprise the group prudential return.
“The authority will also augment its existing public filing requirements for groups in 2016 by introducing a financial condition report. This report will contain information on a group’s business and performance, governance structure, risk profile, significant events, solvency valuation and capital management.”
In its EBS framework, the BMA has not deviated significantly from most of the principles contained within the Solvency II guidelines. Indeed, companies are given the option of using Solvency II principles (subject to pre-approval by the BMA) if this is a more efficient approach, for example, for those who are already part of a European supervised group.
The underlying premise of an EBS is that assets and liabilities are both valued using market or fair values. While for most insurance companies this won’t represent too much of a change on the asset side of the balance sheet, very few liabilities are currently fair-valued under prevailing accounting principles.
The BMA was an early adopter of insurance group supervision and published its Group Supervision Rules for consultation in 2011.
Over the last four years, the authority has conducted a range of supervisory activities in relation to Bermuda’s insurance groups including conducting on-site reviews and participating in supervisory colleges.
“In any market, trust is a key ingredient in the successful implementation of group supervision and effective supervisory colleges. As such, the BMA continues to establish official information exchange channels via the signing of memoranda of understanding (MoUs) with relevant jurisdictions.
“The authority is also signatory to the International Association of Insurance Supervisors (IAIS) multilateral memorandum of understanding (MMoU),” the spokesman added.
Implementation of the EBS next year coincides with the BMA’s introduction of public disclosure requirements. These include a number of specific disclosures on EBS valuation bases and amounts.
