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Key takeaways
- With the rise of insurer investment in alternative capital structures, we explore the two-step analysis required for efficient Bermuda capital treatment.
- An asset that appears efficient under the Bermuda Solvency Capital Requirement (BSCR) can still create challenges once liability fit and asset liability management (ALM) are tested.
- Labels and ratings do not finish the inquiry as the Bermuda Monetary Authority (BMA) focuses on substance, look-through, collateral quality, liquidity and the strength of the evidence supporting the underlying structure.
Why sophisticated Asset-Backed Securities (ABS), Funding Agreement-Backed Notes (FABNs), Rated Note Feeders and related alternative capital structures require a two-step analysis across the balance sheet of a Bermuda insurer
The capital question is not one question
A structure that looks attractive on the asset side does not automatically produce a durable Bermuda outcome. The real work is often bifurcated between asset-side BSCR treatment and liability-side implications for reserving, discounting and ALM.
What clients should know
Not just a label: A bond wrapper, note format or marketing description does not end the inquiry. Bermuda analysis turns on the substance of the exposure and the build of the asset.
Ratings help, but proof still matters: Ratings can be important, but so are look-through, liquidity, concentration, governance, conflicts and the quality of the supporting evidence package.
Two steps, not one: A structure may appear efficient on the asset side and still create friction when tested against liability methodology, discounting assumptions and the strength of the ALM narrative.
The two-step Bermuda analysis
Step 1. Asset-side review under the BSCR
- How is the exposure classified in substance?
- Is look-through required, expected or commercially prudent?
- How robust is the rating analysis and downside story?
- What do liquidity, concentration and related-party features do to the capital thesis?
- Does the structure invite a higher evidentiary or approval burden?
Step 2. Liability-side review
- How does the asset interact with best estimate liabilities and risk margin?
- Is the case being run under the Standard Approach or with Scenario-Based Approach (SBA) ambitions?
- Do the asset cash flows genuinely support the liability profile?
- How resilient is the matching story under stress, runoff and dislocation?
- Do the documents including the investment guidelines support the capital outcome being claimed?
Where sponsor assumptions often breakdown with structured assets
How we help
- Early-stage regulatory triage before term sheets harden.
- Pressure-testing of ABS, FABNs, RNFs and related structures across both sides of the balance sheet.
- Identification of issues likely to matter to boards, risk functions and supervisors.
- Coordination of transaction, regulatory and Bermuda law workstreams.
- Targeted support for sponsor, insurer and counterparty messaging.
- Practical framing that highlights where bespoke legal advice adds real value.
Further information on Bermuda capital treatment for structured assets
The goal is not a theoretical capital answer. It is a Bermuda outcome that remains defensible to the regulator, the board and the deal team at the same time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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