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Who is in Scope?
Life insurance companies registered in Bermuda are required to disclose and obtain written regulatory approval for using assets with counterparty credit risk exposure to an affiliate, related party or connected party to back their insurance liabilities.
This applies to both existing and future investments.
Definition
In principle, the definition aims to assess the scope for influence and the scope for conflict of interest.
- Affiliate - means a company that is affiliated with another company where one of them is a subsidiary of another, or both are subsidiaries of the same company; or controlled by the same person.
- Related Party - means related party as defined under the respective insurer’s accounting standards, namely: International Financial Reporting Standards (IFRS); Generally Accepted Accounting Principles (GAAP) that apply in Bermuda, Canada, the United Kingdom or the United States of America; or such other GAAP as the Authority may recognise.
- Connected Party - means a party other than a related or affiliated party associated with the insurer and whereby such association, however defined, may result in a conflict of interest in relation to an investment between the connected party and the insurer.
Disclosure Process
The rules came into force on January 1st, 2024. Currently, there is no formalised process for reporting affiliated investment holdings to the BMA. At the moment, reporting is done on an ad hoc basis.
Why now?
The requirement came as part of the BMA rule changes issued 23rd of December 2023.
By collecting the counterparty credit risk exposure, the systemic dependency risk within the Bermuda market could be assessed.
Prior written approval from the Authority is required to be obtained by every life insurer for all assets with counterparty credit exposure to an affiliate, related party or connected party of the insurer.
In practice, companies need to look-through to identify the counterparty credit exposure.
Investments, real estate, reinsurance balances, but also ancillary support services, services provided by insurance and non-insurance entities, could be sources of counterparty credit exposure.
A high bar is set for insurers to demonstrate that investments with economic counterparty exposure to affiliated, related, or connected parties are appropriate for covering policyholder liabilities.
The change in regulation came with increased disclosure requirements.
Unchanged.
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Andrew Howie Andrew is Head of Advisory for Grant Thornton in Bermuda having moved to the island in 2022. He is leading a team of specialists who are providing a broad range of advisory services to clients in the region.View Profile -
Ramona Scutelnicu Ramona is a director in the Advisory services, leading the risk practice. Ramona is a qualified actuary, with Solvency II and Bermuda framework experience. She moved to Bermuda in 2017.View Profile