Feb 2025
In July 2024, the Bermuda Monetary Authority (BMA) released its long-awaited guidance note entitled “General Business Insurers with Segregated Accounts and Separate Accounts” (the “SAC Guidance Note”) which provides the industry with clarity on the regulatory regime and requirements for Bermuda insurers using segregated accounts and separate accounts (“SAC Insurers”). Effective 1 January 2025 the SAC Guidance Note applies only to general business insurers including Commercial Insurers (Classes 3A, 3B and 4), Limited Purpose Insurers (Classes 1, 2 and 3), Special Purpose Insurers, Collateralised Insurers and IIGB (innovative insurers).
Driven by the increasing complexity in this space, the SAC Guidance Note first and foremost is intended to provide clarity on the governance of SAC Insurers in light of the unique segregated account structure. This includes requiring that an SAC Insurer’s governance and risk management framework clearly addresses the organisational structure of the segregated accounts with respect to the outsourcing of management and operational tasks, the segregation of duties, and the management of conflicts of interest. Notably, the SAC Guidance Note requires that the Board of Directors of the SAC Insurer must ensure that appropriate client due diligence is conducted on the key parties to the structure, including account owners, sponsors and capital/collateral providers.
The SAC Guidance Note also finally clarifies the statutory financials reporting regime for segregated accounts. The BMA has introduced a schedule of Segregated Accounts and Separate Accounts that now forms a part of the statutory filings and must be included in the audit of such financial statements. The BMA also expects the auditors to perform sufficient audit procedures to confirm the existence and valuation of all assets and liabilities in the segregated accounts, including the instruments that are presented as the collateral that backs the insurance exposures in the segregated accounts.
The BMA also sets forth in the SAC Guidance Note changes that it views as material and which must be notified to the BMA. This includes, but is not limited to, (a) providing insurance for any additional risks not initially contemplated, (b) making material changes to the insurance contract or collateral or ancillary contracts, and (c) raising additional capital from investors not initially identified.
While expansive in its scope, the SAC Guidance Note provides industry with a clearer sense of the BMA’s expectations for these structures. As the requirements are implemented, it is appreciated that the BMA will continue to consult with the industry to continue to ensure effective and efficient structures.
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