BMA 2025 stress test: what it reveals about risk

The BMA’s 2025 Stress Testing Mandate

The Bermuda Monetary Authority (BMA) has issued its 2025 stress testing guidance for Class C, D, and E insurers. The scenario is rooted in a re-run of the 2008 Global Financial Crisis — a deliberate attempt to test the resilience of insurers in the face of simultaneous and severe financial market dislocations. Results are not intended to look rosy.

For large and complex insurance firms, this exercise is unlikely to come as a surprise. What is notable, however, is the way the BMA continues to sharpen its focus on qualitative aspects of the  treaty recapture processes and management actions — not just on the quantitative  model outputs.

A test of capital — and capability

Severe assumptions, broader expectations

The assumptions underpinning the scenario are intentionally severe: a global recession, large-scale equity losses, credit defaults, interest rate shocks, and disruptions in reinsurance counterparties.

These are designed to probe the outer edges of firms’ financial and operational resilience. It is a complex two -sided balance sheet test, in which no asset classes are sheltered.

More than just numbers

What is required is not only a set of quantitative results, but also a qualitative assessment: how management would respond, what assumptions underpin their decisions, and whether lessons from past crises have been embedded into current practice.

In short, the BMA is testing both solvency and stewardship.

Why this matters

Strategic implications for risk management

Stress testing exercises can often be treated as internal compliance exercises — necessary, but separate from day-to-day decision-making. That would be a missed opportunity.

Used properly, this kind of scenario should raise questions that have real implications for strategy:

• Are liquidity management practices keeping pace with potential demands?
• How would the balance sheet hold up under prolonged pressure?
• What exposures — to markets, geographies, or counterparties — are more significant than assumed?
• And crucially, how well does management understand the interaction between risks when volatility is no longer isolated?

For boards and senior executives, these are not technical questions. They are strategic ones.

What should be done

Steps for Bermuda insurers to respond effectively 

The task now for Bermuda-based insurers is twofold: to complete the exercise rigorously and to extract insights that are actually useful.

That means:

• Reviewing asset-liability matching frameworks under high-interest rate shifts and under shocks.
• Testing reinsurance recoverability assumptions with a sharper lens.
• Re-examining governance processes around risk escalation and decision-making under stress.
• Ensuring senior management and boards are meaningfully engaged — and not simply presented with ad-hoc results.

The deadline may be regulatory, but the value lies in what firms choose to do with the findings.

A quiet signal

The BMA is not predicting another crisis. But its scenario design — and the tone of its guidance — suggest a regulator that expects firms to take systemic risk more seriously, and to embed forward-looking resilience into their capital frameworks.

Insurers who approach this as an administrative task will likely meet the requirements. Those who approach it as a chance to ask hard questions of their business will be better positioned if — or when — market conditions turn.