Key Takeaways
- • The Bermuda Monetary Authority (BMA) published its December 2023 paper "Supervision and Regulation of PE Insurers in Bermuda," clarifying its oversight of (re)insurers owned or supported by private equity and alternative asset managers.
- • The BMA requires prior approval of all long-term block reinsurance transactions, assessing 12 factors including rationale, economics, governance, liquidity and total asset requirements under both BMA and cedant regulatory bases.
- • The BMA sets a 150% Enhanced Capital Requirement (ECR) with a 120% Target Capital Ratio, and assigns illiquid assets a nil value for stress-testing purposes.
- • Bermuda Internationally Active Insurance Groups (IAIGs) must comply with the IAIS International Capital Standard (ICS) from 1 January 2025.
- • The BMA has indicated that measures in the December Paper apply to all firms under its remit, not exclusively to PE Insurers.
Summary
The Bermuda Monetary Authority (BMA) published a widely discussed paper in December 2023, "Supervision and Regulation of PE Insurers in Bermuda" (the December Paper), setting out its position on (re)insurers licensed in Bermuda that are owned or supported by private equity and alternative asset managers. The paper followed the July 2023 consultation paper CP2, "Proposed Enhancements to the Regulatory Regime for Commercial Insurers," which led to legislation and is expected to have significant effects on PE insurers writing life insurance liabilities, according to the Skadden analysis.
The growth of Bermuda reinsurers associated with alternative asset managers, particularly those with private equity heritage, has drawn international regulatory debate. These insurers often pursue a more diverse strategic asset allocation with greater exposure to alternatives such as private credit. The December Paper identifies risks it views as more prevalent in PE insurer transactions: complex structures, conflicts of interest, higher holdings of illiquid assets, and perceived misalignment between shareholder investment horizons and the duration of insurance liabilities.
The BMA requires prior approval of all long-term block reinsurance transactions and may respond to concerns with higher capital requirements, capital add-ons, reserve changes, dividend restrictions or capital maintenance agreements, or decline a transaction. The BMA's Enhanced Capital Requirement is set at 150% of the Bermuda Solvency Capital Requirement, with a 120% Target Capital Ratio expected. PE insurers must demonstrate liquidity sources to meet stressed liability cash flows, with illiquid assets valued at nil for stress testing. The BMA has reportedly assumed higher default and downgrade costs than those applied by the UK Prudential Regulation Authority.
Licensing reviews scrutinise shareholder structures, conflicts between shareholders, influence of related-party investment managers, and asset portfolios, and approvals commonly carry conditions such as investment limits and dividend restrictions. Under the BMA's intensified supervision, PE insurers face oversight of Bermuda groups and participation in supervisory colleges. The authority has also indicated its measures extend to all firms it regulates. Skadden characterises CP2 and the December Paper as milestones rather than a final policy position, and notes that the International Capital Standard becomes mandatory for Bermuda IAIGs from 1 January 2025.
The growth of Bermuda reinsurers associated with alternative asset managers, particularly those with private equity heritage, has drawn international regulatory debate. These insurers often pursue a more diverse strategic asset allocation with greater exposure to alternatives such as private credit. The December Paper identifies risks it views as more prevalent in PE insurer transactions: complex structures, conflicts of interest, higher holdings of illiquid assets, and perceived misalignment between shareholder investment horizons and the duration of insurance liabilities.
The BMA requires prior approval of all long-term block reinsurance transactions and may respond to concerns with higher capital requirements, capital add-ons, reserve changes, dividend restrictions or capital maintenance agreements, or decline a transaction. The BMA's Enhanced Capital Requirement is set at 150% of the Bermuda Solvency Capital Requirement, with a 120% Target Capital Ratio expected. PE insurers must demonstrate liquidity sources to meet stressed liability cash flows, with illiquid assets valued at nil for stress testing. The BMA has reportedly assumed higher default and downgrade costs than those applied by the UK Prudential Regulation Authority.
Licensing reviews scrutinise shareholder structures, conflicts between shareholders, influence of related-party investment managers, and asset portfolios, and approvals commonly carry conditions such as investment limits and dividend restrictions. Under the BMA's intensified supervision, PE insurers face oversight of Bermuda groups and participation in supervisory colleges. The authority has also indicated its measures extend to all firms it regulates. Skadden characterises CP2 and the December Paper as milestones rather than a final policy position, and notes that the International Capital Standard becomes mandatory for Bermuda IAIGs from 1 January 2025.
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