Key Takeaways
- The Bermuda Monetary Authority ("BMA") has issued clarifying guidance (the "Notice") on its approach to the prior approval scope and process for new long-term block reinsurance transactions.
- The Notice, dated 2 April 2025, clarifies the scope of transactions to be included under the prior approval process.
- The Notice also provides an update regarding the reconciliation of differences between the ceding company's Total Asset Requirement ("TAR") and the Bermuda Economic Balance Sheet ("EBS") TAR.
The BMA encourages insurers to notify their BMA supervisory contacts of any envisaged block transactions that the insurer plans to engage in as early as possible.
Scope
A long-term block reinsurance transaction is one involving the ceding of a defined group of in-force policies that results in the effective divesting of the liabilities and associated assets from the insurer and the transfer of their risks (or most of their risks) to a reinsurance company. This includes:
- transactions covering future premiums and in-force business;
- asset-intensive transactions, such as pension risk transfer and the ceding of fixed annuities, fixed index annuities, variable annuities and whole life or universal life policies.
Transaction considered out of scope include traditional mortality/morbidity solutions such as yearly renewable term reinsurance, longevity swaps and stop-loss coverage for biometric risks.
Approval requirement
The requirement for pre-approval has been in place since January 2023 and applied to all long-term (life) commercial (re)insurers (ie those licensed as a Classes C, D and E insurer).
The BMA's prior approval is required for new block transactions and for modifications to existing block transactions.
Approach of the BMA
The scope and depth of the BMA's review of block transaction approval application varies on a case-by-case basis, determined by size, complexity and risk profile of the transaction.
The review process includes:
- document and information review;
- transaction-specific regulator-to-regulator discussions, with relevant global regulators;
- targeted discussions with the insurer's management team and, where necessary, legal and external advisors.
The BMA views the process as complimentary to existing requirements to maintain appropriate oversight and effective risk management and internal control frameworks. As such, the BMA expects to receive the same information as that used internally in the underwriting, risk assessment and governance review of the relevant transaction.
Information that should be submitted includes:
- strategic rationale of the transaction
- economics and key features of the transaction
- information on strategy (underwriting and investment), expertise and risk and capital management
- agreements for reinsurance, collateral and investment management
- impact on solvency and stress testing
- total asset requirements (technical provisions plus capital requirements) under both Bermuda and the cedant's regulatory basis
- governance and risk management, including asset liability management
Information submitted to the BMA concerning the total asset requirements should include, but not be limited to:
- capital requirements and the associated breakdown of the key drivers (e.g., market risk, credit risk, insurance risk, operational risk, diversification benefit, etc.)
- target solvency ratios, which should be tied to the insurer's capital management policy
- excess capital and surplus (i.e., capital buffer(s) above the capital requirements)
- best estimate liabilities and risk margin; and
- explanation and reconciliation of the material differences between the total asset requirements of the cedant and the Bermuda insurer's total asset requirement at a granular level
A more detailed list is provided in the appendix to the Notice. This includes the Total Asset Requirement (TAR) for the transaction. The Bermuda long-term reinsurer should provide a detailed breakdown of the TAR based on the solvency regime of the cedant, such as the US Statutory and RBC framework if the ceding company is in the US, as well as the EBS framework. Information should include an explanation and reconciliation of the material differences between the TAR of the cedant and the Bermuda EBS TAR at a granular level.
Timeframe
The BMA encourages insurers to notify their BMA supervisory contacts of any envisaged block transactions that the insurer plans to engage in as early as possible.
This can be achieved either at the time of applying for a new licence, by including a 'deal pipeline' discussion as part of regular supervisory engagements and/or through ad-hoc engagement initiated by the insurer to notify the BMA of upcoming transactions.
The exact timeframe for the BMA's review of proposed block transactions is expected to vary. However, where requests are supported by effective and proactive engagement alongside complete documentation, the Authority expects to reach a decision within two to four weeks. Requests that do not meet these criteria may require additional time and/or information to be provided for the BMA to complete the review.
How Walkers can help
Contact us for early support in obtaining BMA approval for block transactions.We can support with ensuring complete applications are submitted, identify and address likely pain points and assist with BMA liaison to ensure timely approval.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
