Commercial Insurer Risk Assessment (CIRA) Procedures - Class 4 Insurers Operational Risk Consultation Paper (2008-06-18)

Summary

This is a Bermuda Monetary Authority consultation paper proposing procedures for the Commercial Insurer Risk Assessment (CIRA) that Class 4 insurers will need to complete alongside their Bermuda Solvency Capital Requirement (BSCR) model filing. It sets out a self-assessment framework for operational risk, how the resulting Operational Risk Charge feeds into the Enhanced Capital Requirement, and a proposed appeals process for disputes over the Authority's rating. As a draft consultation, it does not yet impose binding obligations but signals the Authority's intended approach.

• Scope: Applies to Class 4 insurers as defined under Section 4 (read with Section 1) of the Insurance Act 1978.
• CIRA content: Self-assessment covers seven operational risk areas: business interruption and systems failure, business process, clients/products/business practices, compliance, damage to physical assets, employee practices and workplace safety, and fraud.
• Risk management assessment: Insurers self-assess risk identification, measurement, control, mitigation, monitoring and reporting using a maturity model that awards credit for higher developmental stages.
• Capital impact: The aggregated CIRA score maps to an Operational Risk Charge of between 1% and 10% of the BSCR (After Covariance Adjustment), which contributes to the Enhanced Capital Requirement for the year end filing.
• Governance: The CIRA must be signed by the insurer's Board of Directors and credit is given for strong corporate governance and risk management structures.
• Appeals process: Where the Authority disagrees with an insurer's self-assessed score following an onsite review, it will notify the insurer with reasons; the insurer must use the Authority's score for subsequent filings unless it obtains written permission to change it, and may appeal internally and then to a Tribunal under proposed Section 44A.

Comments on the proposals were invited by the Authority; this paper reflects a proposed, not yet finalised, procedure that was subject to public/industry consultation.

Key obligations

• Every Class 4 insurer must complete a CIRA self-assessment and submit it to the Authority together with the BSCR model.
• The CIRA must be signed by the insurer's Board of Directors.
• Where the Authority notifies an insurer of a difference of opinion on a score, the insurer must use the Authority's score for all subsequent CIRA filings until it obtains written permission from the Authority to change it.
• An insurer wishing to contest the Authority's score must appeal to the in house panel within 28 days of notification, and any further appeal must be brought before the Tribunal under Section 44A of the Act.
• Industry comments on the consultation proposals were to be sent to policy@bma.bm no later than July 20, 2008.

Applies to

Class 4 insurers

Deadlines

• July 20, 2008: Deadline for interested persons and the insurance industry to submit comments on the consultation paper to policy@bma.bm.
• 28 days: Period within which an insurer may appeal the Authority's difference of opinion decision to the in house panel after notification.
• at least 90 days from the date of notification: Minimum period before an adjustment or charge resulting from a difference of opinion comes into effect, absent appeal or as extended by the Authority.