Bermuda SPI’s and collateralized insurers reminded on Russia-Ukraine

The Bermuda Monetary Authority (BMA) has issued a call for insurance-linked securities (ILS) vehicles domiciled on the island to adhere to international sanctions related to the ongoing conflict between Russia and Ukraine and to disclose any relevant information or impact related to it as it continues.

With international sanctions being layered on Russia after it began an invasion of and war in Ukraine, it’s vital insurance, reinsurance and ILS market interests adhere to these and also identify any potential linkage to sanctioned entities, or exposure to the continuing conflict.

For the ILS market, this could mean double-checking all third-party investor capital is remote from any sanctions related exposure, while also identifying where reinsurance contracts may hold a potential exposure to the damage or interruption caused by the war itself.

Last week, as our sister publication reported, the BMA, Bermuda’s financial market regulator, issued a sanctions compliance warning and said it will undertake a data call with Bermuda licensed insurance and reinsurance companies, regarding their duties related to economic sanctions being levied on Russia.

Now, the BMA has also targeted structures specifically utilised in the insurance-linked securities (ILS) market, for collateralized reinsurance, catastrophe bonds and other ILS use-cases such as sidecars, asking them to remember their responsibilities and to report any Russia – Ukraine exposure-related concerns.

The BMA has sent a note out to a number of classes of registrants that includes Limited Purpose Insurers, which special purpose insurers (SPI) sit under, as well as Collateralized Insurers, the newer class of ILS focused underwriting entities.

It also includes the Innovative Insurer General Business, Class IIGB, companies, that are often used for digital asset ventures and can sometimes involve collateralization of risk as well.

The BMA explained to these registrants that, “Bermuda entities are required to conduct business in a prudent manner, and this includes taking the necessary steps to manage the risks and uncertainties arising from the ongoing events between the Russian Federation and Ukraine.”

Being a registered Bermuda licensed insurance, reinsurance or ILS vehicle means signing up to adhere to all relavant laws, which includes international sanctions in-force in Bermuda, the BMA said.

As a result, director’s of any registered structure have to follow these laws and the BMA reminds all registered structures that when it comes to international sanctions, this now includes sanctions levied on Russia and Belarus since the invasion of Ukraine.

The BMA also reminds all SPI’s and collateralized insurers of their duties to “report details related to exposure to international sanctions on the “Schedule of Compliance with Suspicious Activity Reports and Sanctions” enclosed with the annual filing.”

The BMA added that, “For limited purpose insurers,” which includes SPI’s, so vehicles often used as catastrophe bond issuers, or reinsurance sidecars, “the Authority also wishes to draw your attention to the schedule amendment requesting confirmation of the insurer’s adherence specifically in relation to the events involving the Russian Federation and Ukraine.”

The BMA also expects registrants from these classes of insurance vehicle to report “any material impact on the financial statements resulting from the events involving the Russian Federation and Ukraine in the subsequent events note to the financial statements.”

For those that have already filed this year, there is a need to provide additional information where anything needs to be disclosed, on which the BMA said “prepare and file a summary of their assessment of the impact of the events involving the Russian Federation and Ukraine.”

It’s good to see the BMA taking its responsibilities related to international sanctions very seriously and reminding its registrants that they must do so as well.

The majority of ILS market structures will not have any exposure at all.

On the investment capital side, ILS managers and those selling catastrophe bonds, sidecars and the like to third-party investors, already undertake rigorous checks of investors and where capital is sourced from, as well as undertake anti-money laundering checks.

On the risk side, some ILS structures may have some specialty lines exposure to the conflict between Russia and Ukraine, but they should be reasonably easy to identify, by finding contracts that could hold some level of exposure and reporting them where needed.

Also read:

PCS says Ukraine insured losses could rise above $20bn.

Hannover Re’s K-Cessions sidecar could have Ukraine exposure.

Our sister publication Reinsurance News has much more coverage on the re/insurance market implications of Russia’s war in Ukraine.