Consultation Paper - Proposed Enhancements to the Regulatory Regime for Commercial Insurers (2023-07-28)

Summary

This is a BMA consultation paper (CP2) proposing further enhancements to the regulatory and supervisory regime for commercial insurers and insurance groups, following an earlier consultation (CP1) on long-term insurers. It sets out revised proposals on technical provisions, the Bermuda Solvency Capital Requirement (BSCR) computation, and Section 6D adjustments, and invites industry comment and field testing before proposals are finalised.

• Technical provisions: Changes proposed to the standard discount curve for Euro-denominated liabilities, calculation of the risk margin for Insurance Groups on an unconsolidated basis, and enhancements to the Scenario-Based Approach (SBA), including approval triggers for material model changes, a new Lapse Cost (LapC) methodology, default and downgrade cost criteria, ring-fencing of SBA assets, and chief internal auditor review expectations.
• BSCR computation: Revisions to the other long-term insurance risk capital charge to increase sensitivity to lapse and expense risk, including a proposed ten year transitional period for new lapse and expense risk charges, refined mass lapse risk and liquidity requirements, and revised property and casualty catastrophe risk charges (man-made risk scenarios) for closer alignment with Solvency II and IAIS ICS approaches.
• Section 6D enhancements: Proposed revisions to the framework for insurer applications to modify BSCR parameters where the standard framework does not reflect an insurer's risk profile, introducing a clearer three-Route regime, limits on use of internal credit ratings (capped at 20 percent of total investments), conditions for Loss-Absorbing Capacity of Deferred Taxes modifications, an application process for new adjustments, annual regulatory review of approved adjustments, and transitional arrangements (five year transition, or a transition equal to liability duration capped at ten years, for existing adjustments falling outside the revised regime).
• Fees: The Authority confirms it received broad support on long-term entity fee proposals from CP1 and is not re-consulting on fees in this paper.
• Next steps: An associated draft bill, revised draft prudential rules and guidance notes are expected to be published for consultation at the end of August 2023, moving technical provisions requirements from guidance notes into the insurance prudential rules; new requirements are intended to enter into force on 31 March 2024.

This document is a consultation paper only and does not itself impose binding obligations; it invites feedback and field testing from commercial insurers and other interested persons, with comments due to riskanalytics@bma.bm no later than 15 September 2023.

Key obligations

• Commercial insurers are encouraged to field test the proposals using the accompanying field testing template, populating it on three different bases and submitting three separate copies
• Interested persons should submit comments on the consultation proposals to riskanalytics@bma.bm no later than 15 September 2023

Applies to

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

Deadlines

• 15 September 2023: Deadline for comments on the consultation paper (CP2) to be submitted to riskanalytics@bma.bm
• end of August 2023: Expected publication of associated draft bill, revised draft rules and guidance notes for consultation
• 31 March 2024: Intended date on which the new requirements are to enter into force