Recovery Plan Rules for Commercial (Re)insurers Adopted by the BMA

Further to its ongoing prudential regulation of the commercial (re)insurance sector, the Bermuda Monetary Authority (the “BMA”) published the Insurance (Prudential Standards) (Recovery Plan) Rules 2024 (the “Recovery Plan Rules”) in April 2024, which will come into operation on 1 May 2025.

The Recovery Plan Rules aim to ensure that certain commercial (re)insurers and insurance groups prepare for a range of possible adverse situations ahead of any severe stress condition. Specifically, the purpose of a recovery plan is to assist (re) insurers in taking effective and thoughtful measures in a timely manner in a crisis without unnecessary pressure.

Although all classes of insurers should be aware of the Recovery Plan Rules, they apply only to commercial insurers, being Bermuda Class 3A, Class 3B, Class 4, Class C, Class D, or Class E insurers or insurance groups (each a “Commercial Insurer”, collectively “Commercial Insurers”), and will not apply to non-commercial insurers (i.e. captives (Class 1, 2, 3, A and B) or limited purpose insurers). Further, the Recovery Plan Rules do not automatically apply to all Commercial Insurers, and the BMA will need to make a determination on whether a Commercial Insurer is required to prepare and submit a recovery plan to the BMA.

Application of the Recovery Planning Rules

In determining whether a recovery plan is required, the BMA will consider if the Commercial Insurer:

carries on domestic business;
has a three-year rolling average total assets of at least US$10 billion;
has a three-year rolling average total gross written premiums of at least US$5 billion; and
is subject to enhanced supervisory monitoring by the BMA or any other relevant supervisory authority.

Scope and Requirement of a Recovery Plan

Consistent with its approach to prudential regulation generally, the Recovery Plan Rules are to be applied by the BMA on a proportional basis. Once the BMA has determined a Commercial Insurer is subject to the Recovery Plan Rules, in determining the scope and requirements of the recovery plan to be prepared by a Commercial Insurer, the BMA shall consider the Commercial Insurer’s registration class, size or market share, external and internal inter-connectedness, complexity, business model and risk profile, substitutability and any cross-border activities.

A recovery plan is required to contain the following:

an executive summary on how the Commercial Insurer will recover from severe stress scenarios;
a description of the Commercial Insurer including its legal structure, business, key financial arrangements and business operations;
a description of the criterion proposed to be utilised by the Commercial Insurer that will require the implementation of any aspect of the recovery plan;
a description of the Commercial Insurer’s governance policies and processes for recovery planning and implementation of the recovery plan or any updated recovery plan;
confirmation of the various methods proposed to be utilised by the Commercial Insurer to enable it to recover from severe stress scenarios;
the stress scenarios to be used by the Commercial Insurer in assessing the credibility and feasibility of its recovery plan and the timing such is to be performed; and
the communication strategy to be utilised by the Commercial Insurer, to enable it to communicate with all relevant stakeholders before, during and after the recovery plan comes into effect.

Where the BMA requires a recovery plan, the Commercial Insurer will be required to review and update its recovery plan at least once every three years, or on a material change in the Commercial Insurer’s financial position, strategy, business or risk profile, and to file such plan with the BMA within 30 days of the update.

The BMA may also require Commercial Insurers subject to the recovery plan requirements to implement all or part of a recovery plan, or to address any deficiencies identified by the BMA in such recovery plan.

Please contact ASW should you have any further questions in relation to the Recovery Planning Rules.

ASW Law Limited

Neil Horner

Director, Head of Corporate

neil.horner@aswlaw.com

Kim Willey,

Partner*

kim.willey@aswlaw.com

Hanno Tolhurst

Partner*

hanno.tolhurst@aswlaw.com

Important Disclaimer

This information is not intended to be a substitute for legal advice. Please contact ASW Law Limited if you require specific advice on any matters raised herein.

*ASW Law Limited is a company limited by shares incorporated in Bermuda. The title of “Partner” is used to refer to an employee or consultant of ASW Law Limited with equivalent standing and qualifications.