Consultation Paper - Proposed Enhancements to the Regulatory Regime and Fees for Commercial Insurers (2023-02-24)

Summary

This is a Bermuda Monetary Authority consultation paper proposing targeted enhancements to the prudential regime for commercial insurers, together with revised fees, primarily affecting long-term (life) insurers, insurance groups and internationally active insurance groups. It sets out draft changes to technical provisions, capital computation, and Section 6D applications, and invites industry comment and field testing before a second consultation and rule changes later in 2023.

• Technical provisions: Changes to the standard discount curve for Euro-denominated liabilities, calculation of risk margin for Insurance Groups on an unconsolidated basis, and significant enhancements to the Scenario-Based Approach (SBA) covering approval requirements, liquidity risk management, governance, model risk management, documentation, data and reporting.
• BSCR computation: Revisions to the 'other long-term insurance risk capital charge' to increase risk sensitivity for lapse and expense risk, and changes to Property & Casualty catastrophe risk charges to better capture man-made risks.
• Section 6D enhancements: Revised, more standardised and transparent framework for applications to modify BSCR parameters where the standard framework does not adequately reflect an insurer's risk profile, plus revised annual renewal fees by route.
• Fee changes: Proposed increases to annual business fees and registration fees for long-term commercial insurers to align with fees charged to P&C commercial insurers, new fees for long-term Internationally Active Insurance Groups (IAIGs), and new fees for SBA-related approvals (e.g., use of 258E/258F assets, insurer-specific default cost assumptions).
• Transition and grandfathering: Existing SBA business is proposed to be grandfathered until run-off for most changes, but a list of enumerated enhancements (approval requirement, liquidity risk management, governance, reporting, documentation, model risk management, etc.) will apply to both existing and new business from the first filing date after implementation.

The Authority intends new requirements to take effect on 1 January 2024, following a second consultation paper (with draft bill, revised rules and guidance notes) expected in Q3 2023. This paper is a draft consultation and none of its proposals are yet binding; industry input and field testing are being sought before finalisation.

Key obligations

• Interested persons and commercial insurers are invited to submit written comments on the proposals to riskanalytics@bma.bm no later than 30 April 2023.
• Commercial insurers are encouraged to field test the proposals using the template released on 27 February 2023, populating and submitting three separate copies of the template on three different bases as specified in the guidance sheet.
• Insurers using or proposing to use the SBA will, once implemented, need to obtain prior BMA approval before using the SBA for new liability types, new policies, or newly licensed entities.
• Insurers must not split insurance contracts purely to achieve SBA eligibility once approval requirements are implemented.
• Insurers' boards will be required to establish and annually review an effective liquidity risk management framework, including a board-approved liquidity risk appetite, once the SBA enhancements take effect.

Applies to

commercial insurers (Classes 3A, 3B, 4, C, D and E), long-term (life) insurers, insurance groups, Internationally Active Insurance Groups (IAIGs)

Deadlines

• 27 February 2023: Field-testing template to be released by the BMA for insurers to use in assessing proposal impacts.
• 30 April 2023: Deadline for industry and other interested persons to submit comments on the consultation paper to riskanalytics@bma.bm.
• third quarter of 2023: BMA intends to issue a second version of the consultation paper with an associated draft bill, revised draft rules and guidance notes, and a second round of field testing.
• 1 January 2024: Intended entry into force of the new regulatory requirements; SBA changes will apply immediately to new business written after this date, with no transition period for new business beyond 2023.