Consultation Paper on Minimum Margin of Solvency (2012-09-20)

Summary

This is a consultation paper in which the Bermuda Monetary Authority proposes to introduce a floor on the minimum margin of solvency (MSM) for commercial insurers, set at 25 percent of the enhanced capital requirement (ECR). The proposal follows an earlier January 2012 consultation and responds to industry concerns, particularly around audit treatment of the MSM calculation. The Authority is seeking industry comment on the proposal, especially on the proposed implementation timing.

• Scope of MSM floor: Applies to Class 4, 3B and 3A general business insurers and Class E, D and C Long-Term insurers, at the legal entity level.
• MSM floor calculation: The floor would be set at 25 percent of the ECR, added as a simple calculation to Schedule I (general business) or Schedule III (Long-Term) of the Insurance Returns and Solvency Regulations 1980; the existing MSM calculation itself remains unchanged.
• Audit scope change: The Authority proposes to remove the MSM and MSM floor calculation from the scope of items subject to audit at the legal entity level, to address industry audit concerns.
• Proposed effective dates: 1 January 2014 for general business insurers (Classes 4, 3B, 3A); 1 January 2017 for Long-Term insurers (Classes E, D, C).
• Supervisory follow up: Where an insurer fails to meet the MSM floor, the Authority will advise the company in writing and work with it to establish a timetable for capital enhancement.
• Comment request: Industry and interested parties are invited to comment on the proposal, particularly on the timing of implementation, by 31 October 2012.

As a consultation paper, this document does not itself impose binding obligations; it sets out the Authority's proposed approach and invites feedback before final rules or regulatory amendments are adopted.

Key obligations

• Insurers and interested parties wishing to comment must submit views to policy@bma.bm no later than 31 October 2012, particularly addressing the proposed implementation timing.

Applies to

Class 4 general business insurers, Class 3B general business insurers, Class 3A general business insurers, Class E Long-Term insurers, Class D Long-Term insurers, Class C Long-Term insurers

Deadlines

• 31st October 2012: Deadline for submitting comments on the consultation paper to policy@bma.bm
• 1st January 2014: Proposed effective date for implementation of the MSM floor for general business insurers (Classes 4, 3B, 3A)
• 1st January 2017: Proposed effective date for implementation of the MSM floor for Long-Term insurers (Classes E, D, C)