To best monitor the more than 1,400 re/insurers registered in Bermuda, the Bermuda Monetary Authority should extend its regulatory framework, urge the industry to improve transparency, boost staffing and periodically review its relationship with the industry "to preserve regulatory independence", the International Monetary Fund (IMF) has said.

In a report released last week on Bermuda's Financial Sector Supervision and Regulations, the IMF said Bermuda's regulatory framework for insurers had improved dramatically from the time of the last assessment the international organisation conduced in 2003.

That report found a "largely self-supervised system". In its new report, however, the IMF said: "The current Bermudian insurance regulatory system is, in contrast, based on hands-on risk-sensitive supervision. Insurers are ranked by risk likelihood and impact, with riskier categorisations attracting increased supervisory attention."

With Bermuda's insurance sector writing $115.8 billion in gross premiums in 2006, effective supervision of the industry is a must and the IMF has encouraged local authorities to continue to extend oversight by fully rolling out its risk-based framework to all four classes of insurers.

"Given the global systemic nature of the companies headquartered in Bermuda, the insurance department should formulate a pragmatic approach, and start closer cooperation with other authorities in order to implement group supervision," the IMF added in its key recommendations of the report. Insurers directly employ almost seven percent of the Island's workforce, the report noted, and indirectly that employment reach extends much further. Ownership of the sector is heavily dominated by US companies, which own 60 percent of the 589 commercial insurers responsible for 90 percent of the gross written premiums.

The report also praised Bermuda for a "high level of observance of IAIS (International Association of Insurance Supervisors) core principles" and its handling of the sub-prime crisis, based on the IMF's assessment visits which took place in the summer of 2007.

The report noted: "The sub-prime related exposures are affecting or could affect Bermudian companies mainly through four principal channels: investment in structured products, financial guaranty portfolios, liquidity positions and potential claims on professional and executive liability insurance. The conservative investments of many Bermuda-based insurers have limited their direct exposure. Nevertheless, asset valuation uncertainty is affecting insurers...."

The IMF makes 15 recommendations on how Bermuda can continue to improve observance of insurance core principles however, including that Bermuda:

• Consider a) public disclosure of information about problem or failed insurers, including supervisory actions taken without compromising confidentiality considerations; and b) strengthening measures to ensure that, where supervisory functions are outsourced, potential conflicts of interest is minimised.

• Provide formal guidance to insurers on its expectations with regard to the remuneration policy for directors and senior management.

• Establish disclosure requirement for derivatives or similar commitments.

• To facilitate market discipline, the BMA should formulate a plan to implement the IAIS supervisory standards on public disclosures.

In its response to the recommendations, the BMA said progress has been made on many of the IMF's recommendations since the time of the assessment visits including further roll out of its risk-based supervision.

"We will shortly publish a statement of policy on our approach to consultation with industry to set out a transparent framework for engaging with shareholders on legislative and regulatory change," the Authority added.

And the BMA said it has introduced a requirement for Class 4 insurers to publish their GAAP (generally accepted accounting principles) accounts and will consult on extending this to Class 3 insurers.

"The authority is in the process of reviewing and considering the appropriateness of other risk disclosures to enhance transparency," the BMA added in the report.