The Bermuda Monetary Authority (BMA) has released guidelines outlining its expectations for legacy re/insurers engaged in assuming corporate liabilities, particularly those involving non-insurance corporations with risk characteristics resembling traditional insurance obligations.
The regulatory framework addresses entities specialising in managing long-tailed liabilities, including those associated with historical asbestos and environmental exposures.
The BMA’s focus on the pre-approval process for Legacy Group Transactions underscores its commitment to ensuring transparency and risk mitigation within the legacy business sector.
The Legacy Group primarily provides solvency solutions for discontinued operations and business lines, often through acquisitions or reinsurance arrangements to effectively manage the runoff of liabilities.
BMA has introduced stringent conditions for pre-approval applications of Legacy Group Transactions, specifically focusing on entities assuming corporate liabilities.
Legacy Groups are now required to demonstrate that exposures from the assumed liabilities are limited to 15% of their existing total net insurance reserves as of the most recent year-end, ensuring a prudent approach to risk management.
Additionally, applicants must provide an independent or third-party solvency and financial opinion on the proposed Legacy Limited Liability Company (LLC), introducing an extra layer of scrutiny to enhance regulatory assessments.
The submission process mandates a comprehensive run-off plan, detailing management’s strategy for winding down ultimate liabilities, including stress scenarios, baseline and alternative, and projections of expenses and cost allocations validated by the risk management function.
