The Bermuda Monetary Authority is asking local insurers to show how they would hold up in a scenario similar to the 2008 global financial crisis.

The new stress test applies to all commercial long-term reinsurers in Classes C, D and E, the BMA said in a bulletin.

Companies must calculate how their finances would be affected if markets dropped sharply – such as falling stock prices, rising credit risk and property value losses – all happening at once.

In its official bulletin, the BMA said: “The aim is to assess the market resilience in the face of a severe market event.”

The BMA also made clear that the stress testing exercise is not used to set regulatory capital requirements, meaning it won’t affect how much capital insurers are required to hold under law.

Insurers must complete the test using their financial position as of the end of 2024 and submit results to the BMA by June 16. If they need more time, they can ask for an extension to June 30 if they send in a draft and notify the BMA in advance.

Legal experts are encouraging firms to take the process seriously. Brad Adderley and Max Tetlow, partners at Appleby’s Bermuda office, reassured companies in a bulletin: “We must highlight that the BMA has stated that this exercise is not used to set regulatory capital requirements.”

The BMA wants insurers to think through how they would respond in a downturn, including any steps they could take to soften the blow, such as shifting assets or adjusting policies. Even companies with no active reinsurance deals are expected to submit basic reports showing how their financial strength would be affected.

Each company’s report must be signed by the chief risk officer and another senior executive, and companies are encouraged to share the results with their boards or key decision-makers.

The BMA says this data will help strengthen oversight of the insurance sector and ensure the island’s financial system can handle global shocks.