Consultation Paper on a Solvency Framework for Long-Term Insurance (August 2010)

Summary

This is a 2010 consultation paper in which the Bermuda Monetary Authority sets out proposals to overhaul the solvency framework for long-term (life) insurers, aligning it more closely with the framework already used for general business insurers. It invites stakeholder comments and is not yet a binding rule; it signals the direction of future rule-making.

• Classification system: Proposes a graduated licence classification for long-term insurers: Class A and B (single-parent and multi-owner captives) and Class C, D, E (commercial insurers, tiered by total long-term business fund assets below $250m, $250m-$500m, and above $500m).
• Capital adequacy: Introduces quantitative capital requirements built around a Minimum Margin of Solvency (MSM), an Enhanced Capital Requirement (ECR) calculated via a standard formula or an internal model, and a Target Capital Level (TCL) set at 120% of the ECR, with escalating supervisory intervention as capital falls through these levels.
• Governance and risk management: Proposes qualitative requirements including a Commercial Insurer's Solvency Self-Assessment (CISSA) and group-wide supervision arrangements, including appointment of a Group-wide Supervisor for insurer groups.
• Transparency: Proposes enhanced public disclosure and regulatory notification requirements, reliance-on-other-regulators provisions, board and senior management reporting roles, and a framework for waivers and modifications.
• Implementation timetable: Envisages phased implementation, beginning ECR requirements with Class E insurers before cascading to Classes C and D, with the new licence classification system targeted for completion in Q3 2011 and class determination based on total assets at end of 2010 as reported in 2011, effective December 31, 2011.

The paper asks stakeholders to submit comments to the Authority by a stated deadline; it does not itself impose binding obligations on insurers, but signals requirements the Authority intended to phase in through subsequent rules.

Key obligations

• Respondents wishing to comment must submit responses via email to the Authority (policy@bma.bm) no later than close of business on October 29, 2010
• Long-term insurers will be required to complete and submit a licence classification application form to the Authority by the end of September 2011
• All long-term insurers, including captives, will be required to determine a Minimum Margin of Solvency (MSM) according to their licence class
• Class E long-term insurers (and subsequently Classes C and D) will be required to determine an Enhanced Capital Requirement (ECR) using either the standard formula-based approach or a modelled approach

Applies to

long-term insurers, captive insurers (Class A and B), commercial long-term insurers (Class C, D, E), dual or composite licensed insurers, insurance groups

Deadlines

• October 29, 2010: Deadline for stakeholders to submit comments on the consultation paper to the Authority
• end of September, 2011: Deadline for long-term insurers to complete and submit the licence classification application form
• third quarter of 2011: Planned completion of implementation of the new licence classification system
• December 31, 2011: Effective date for licence class determination based on total assets held at end of 2010 as reported in 2011