Consultation Paper on Proposed Amendments to Prudential Rules (March 2021)

Summary

This is a Bermuda Monetary Authority consultation paper proposing changes to the asset reporting schedules used within the Bermuda Solvency and Capital Requirement (BSCR) Model and to the related Prudential Rules. It seeks industry feedback before finalising amendments intended to give the Authority more granular visibility into insurers' and insurance groups' asset holdings, particularly non-traditional and alternative asset classes.

• Who it affects: Commercial insurers (Classes 3A, 3B, 4, C, D and E) and insurance groups.
• Schedule VI replacement: Proposes replacing the existing Schedule VI - Schedule of fixed income securities with a new Schedule VI - Schedule of assets, requiring a full look-through of all assets reported under Forms 1SFS, 1EBS and 4EBS.
• New Schedule VIA: Introduces a new Schedule VIA - Schedule of funds held by ceding reinsurers, requiring granular reporting on assets held by ceding reinsurers.
• New reporting fields: Insurers would newly report a breakdown of asset classes, the jurisdiction where each asset is held, and effective convexity of the asset portfolio, in addition to existing fields (BSCR rating, average yield to maturity, effective duration, face and fair value).
• New asset categories: Adds detailed sub-classes covering cash and equivalents, bonds and debentures, asset-backed securities, listed equities and preference shares, alternative investments (including hedge funds, private equity, catastrophe bonds), loans, real estate, derivatives and other assets.
• No capital impact: The Authority states the changes affect reporting and disclosure only and do not alter capital charges or the current solvency regime.

The Authority is inviting comments from the insurance industry and other interested persons on the proposals and draft rule amendments, and intends the amended Prudential Rules to take effect from 1 January 2022 if adopted.

Key obligations

• Commercial insurers and insurance groups will be required, once the Rules are amended, to report a breakdown of asset classes and the jurisdiction where assets are held under Forms 1SFS, 1EBS and 4EBS.
• Commercial insurers and insurance groups will be required to report effective convexity of the asset portfolio where applicable.
• Insurers will be required to provide granular reporting on funds held by ceding reinsurers under the new Schedule VIA.
• Interested persons wishing to comment on the consultation must submit comments to riskanalytics@bma.bm no later than 30 April 2021.

Applies to

commercial insurers (Classes 3A, 3B, 4, C, D and E), insurance groups

Deadlines

• 30 April 2021: Deadline for submitting comments on the consultation paper to riskanalytics@bma.bm
• 1 January 2022: Intended effective date for the amended Prudential Rules