BSCR Update Proposal November 2017

Summary

This is a Bermuda Monetary Authority consultation paper proposing a further round of updates to the Bermuda Solvency Capital Requirement (BSCR) standard formula, building on earlier November 2016 and March 2017 consultations. It sets out proposed methodology and calibration changes across multiple risk modules and invites industry feedback and participation in further field testing before the rules are finalised.

• Scope of changes: Proposals cover equity risk, premium risk, credit risk, dependencies/correlations, operational risk, other BSCR adjustments, run-off insurer charges, currency risk, interest rate and liquidity risk, risk mitigation, management actions, look-through, treatment of derivatives, and grade-in/grandfathering provisions.
• Key revisions from March 2017 version: Revised correlation assumptions, operational risk charges, multi-year P&C premium risk charges and sundry asset/liability charges; a new alternative approach for interest rate and liquidity risk; new criteria for risk mitigation, management actions, look-through and derivatives treatment; extension of the grade-in period from three to ten years for Long-Term insurers; grandfathering of equity risk charges on equities backing existing liabilities as of 31/12/2018 for Long-Term insurers; and a one-year delay to the implementation date.
• Who is affected: The new rules will apply, as applicable, to all classes of insurers in the commercial regime: Class 3A, Class 3B, Class 4, Class C, Class D, Class E and Groups.
• Process timeline: Consultation paper, draft rules and BSCR models published 30 November 2017; trial-run using 31/12/2016 data and industry feedback due 16 February 2018; stakeholder letter with revised draft rules and models in March 2018; further trial-run as part of annual filing using 31/12/2017 data due 30 April 2018 (Legal Entities) / 31 May 2018 (Groups); new rules to be published 31 July 2018; new rules to enter into force 1 January 2019.

This paper is consultative rather than binding; it describes proposed BSCR model changes and seeks comments and trial-run data from industry ahead of finalised rules, which the Authority intended to bring into force on 1 January 2019 subject to grade-in arrangements.

Key obligations

• Commercial insurers within scope are expected to participate in the trial-run of the proposed BSCR changes using financial data as of 31 December 2016 and provide industry feedback by 16 February 2018
• Legal entities are expected to participate in a further trial-run as part of their annual filing using 31 December 2017 financial data, due by 30 April 2018, with Groups due by 31 May 2018
• Insurers should direct any questions on the proposals to riskanalytics@bma.bm

Applies to

Class 3A insurers, Class 3B insurers, Class 4 insurers, Class C insurers, Class D insurers, Class E insurers, insurance Groups, Long-Term insurers

Deadlines

• 30th November 2017: Publication of the consultation paper, draft rules and associated BSCR models
• 16th February 2018: Deadline for trial-run of proposals using financial data as of 31/12/2016 and industry feedback
• March 2018: Stakeholder letter on feedback from the consultation process, with revised draft rules and BSCR models
• 30th April 2018 (Legal Entities) / 31st May 2018 (Groups): Trial-run of proposals as part of the annual filing using financial data as of 31/12/2017
• 31st July 2018: Publication of new rules
• 1st January 2019: New rules enter into force, notwithstanding grade-in provisions
• 31/12/2018: Reference date for grandfathering of equity risk capital charges for equities backing existing insurance liabilities for Long-Term insurers