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
