Actuarial Notes

The Bermuda Monetary Authority's Approach to Private Equity-Owned (Re)insurers

By Robert A. Chaplin, Feargal Ryan and Mary S. Bonsu · Skadden, Arps, Slate, Meagher & Flom LLP · 2024 · CP341-114-25

Study guide: Exam CP-341

A May 2024 Skadden publication (in The Standard Formula) on the Bermuda Monetary Authority's December 2023 paper "Supervision and Regulation of PE Insurers in Bermuda". It says the BMA is focused on risks in private equity insurer transactions: complex structures, conflicts of interest, higher ratios of investments in illiquid assets, and how shareholder investment timelines map to the duration of insurance liabilities, and it explains the BMA's regulatory regime for those insurers.

On the syllabus

Market Background

  • Demographic changes and macroeconomic factors have led to growth in insurance markets and a more active market in trading back-books of insurance liabilities, and primary insurers have needed to use asset-intensive reinsurance to a far greater degree.
  • New reinsurers, particularly in Bermuda, are associated with alternative asset managers, particularly those of a private equity heritage.

The BMA's Approach

  • The BMA published its December 2023 paper to clarify its position on oversight of (re)insurers licensed in Bermuda that are owned or supported by private equity and alternative asset managers (PE Insurers).
  • The paper identifies the specific risks the BMA views as more prevalent in PE Insurer transactions: complex structures, conflicts of interest, higher proportions of investments in illiquid assets, and a perceived misalignment of timelines between shareholder investment horizons and the duration of insurance liabilities.

The BMA's Regulatory Regime for PE Insurers

  • Supervisory Enhancements
  • Enhanced Capital Requirements
  • Licencing
  • Supervisory Collaboration
  • Insurance Liabilities Discounts
  • Structure of Cross-Border Transactions
  • Governance
  • Lapse Risk

Conclusion

Related readings

  • CP341-113-25: Supervision and Regulation of PE Insurers in Bermuda — the BMA paper this article discusses

Sources