BMA proposes cross-border liquidity tests for Bermuda's three IAIGs

The Bermuda Monetary Authority wants the companies running the island's largest cross-border insurers to prove, in a crisis, that their money can move. The Royal Gazette reports that the proposed rules for internationally active insurance groups, or IAIGs, would demand evidence that cash and assets held in one country can actually reach another part of the group when markets seize up.

Bermuda is the group-wide regulator for three of the 59 IAIGs identified worldwide as of July, according to the register kept by the International Association of Insurance Supervisors: Aegon Ltd, Arch Capital Group Ltd and Athora Holding Ltd. The proposal is aimed at them, and at the parent company or whichever entity carries responsibility for overseeing the whole group.

The BMA said the new expectations would leave existing group rules in place and layer on top, asking the group-level entity to provide a fuller consolidated view of how the group operates—corporate structure, major shareholders, important business lines, and the connections between companies. The same entity would have to alert the BMA to major changes, from restructuring to a shift in strategy, changes to risk limits, or a major change in business activity; the rules would bring Bermuda further into line with international standards set by the IAIS.

The consultation centers on liquidity, requiring groups to test themselves against severe but plausible strains such as market disruption or a problem at one of their own companies. The aim is to catch the gap between aggregate solvency and actual cash, since legal, regulatory and operational barriers can make funds in one jurisdiction useless to a subsidiary in another during stress; that gap between accounting liquidity and usable liquidity is where insurance groups come undone. A group may report billions in liquid assets, but if those assets sit inside a regulated entity whose own supervisor will not release them, or behind a contract that cannot be unwound quickly, the group cannot deploy them. The BMA's proposed tests are meant to expose that gap before a claims spike does.

Groups would also need plans for a cash shortfall and, if asked, an evidence file covering their liquidity position, stress tests, available resources and emergency funding arrangements. The file matters because it turns a boardroom exercise into a paper trail examiners can open, check and hold the group to.

The consultation also tightens scrutiny of intra-group transactions—loans, reinsurance arrangements, investments and shared services between companies, the links that let a problem at one company spread through the whole web. Groups would be expected to monitor major internal exposures and tell the BMA promptly about significant transactions or risk concentrations. Loans and reinsurance are the most common ways an insurance group moves risk and capital between legal entities, while investments and shared services are where operational dependence hides; monitoring them draws the contagion map. Investment expectations are also part of the consultation, though the reporting includes no detail on that section.

The proposal changes what the supervisor thinks it is pricing. Consolidated group capital is a sum of the parts: add up each entity's capital, test it against group-wide requirements, and call it solvent. That math assumes fungibility; this consultation assumes the opposite, that capital is trapped until proven mobile. A solvent group can still fail if its liquid assets sit in a jurisdiction that will not release them.

The BMA's instinct is right, and the three named groups become the test bed. Cross-border insurers are not domestic companies with foreign branches; they are legal webs held together by intra-group loans, reinsurance and shared services. The consultation asks the group-level parent to accept responsibility for the web's ability to move money and gives the supervisor a paper trail to verify the claim. The intra-group reporting piece is as important as the liquidity piece, because a web that transmits shocks is a web whose center cannot know its own risk.

The evidence file is where this becomes practical, because a stress test run by a group's own risk team is easy to dispute while a file assembled for a supervisor, updated as exposures change, becomes a standing document that can be examined at any time. The BMA's may-ask language leaves room for discretion, but the direction is clear: the regulator wants to open the books on liquidity the way it already opens books on capital.

The regulatory mood extends beyond Bermuda. Insurance supervision is moving from watching to writing, as this publication has argued about alternative managers holding permanent slices of life and annuity balance sheets. The BMA's consultation is a clean example: it imposes no new capital charge, but it forces the group parent to stand behind the liquidity of the entire structure.

For now, the effect is narrow: three groups, one supervisor. Three is a small population but a large amount of balance-sheet complexity; the evidence-file requirement is the provision to watch.