Discussion Paper on a Capital and Solvency Framework for Long-Term Insurance (December 2009)

Summary

This is a December 2009 discussion paper in which the Bermuda Monetary Authority sets out its early thinking on a new capital and solvency framework for the long-term (life) insurance sector. It is explicitly a discussion document intended to prompt debate, not a set of binding rules; the Authority states it intends to follow up with a formal consultation paper and draft legislation in the third quarter of 2010.

• Scope: Applies to Bermuda licensed long-term (life) insurers and reinsurers, including general insurers holding dual/composite licences that also write long-term business.
• Capital approach: Proposes that insurers obtain actuarial certification that assets are sufficient to meet policyholder obligations to a specified confidence level, with capital determined via either an internal economic capital model or a factor-based approach (modelled on Canada's MCCSR), supplemented by scenario testing.
• Dual/composite licences: The Authority intends to stop issuing new dual and composite licences (allowing both general and long-term business) going forward, while grandfathering existing licensees.
• Proportionality: Companies with no long-term insurance risk or with less than $25 million in long-term insurance liabilities would be subject to a simplified capital standard.
• Current minimum capital: Notes the existing statutory minimum capital requirement for life insurers of $250,000, which the new framework is expected to build upon rather than replace immediately.
• Governance link: Capital and solvency principles would be paired with governance expectations already set out in the Authority's ORSA (Own Risk and Solvency Assessment) paper.
• International alignment: The framework is designed to be broadly consistent with the Bermuda Solvency Capital Requirement (BSCR) for general insurers and to work toward equivalence with regimes such as the EU's Solvency II and Canada's OSFI/MCCSR standards.

As a discussion paper, the document does not itself impose new binding requirements on insurers; it invites industry comment on the proposed direction ahead of a future formal consultation with draft legislation.

Key obligations

• Interested parties wishing to comment on the proposals should submit comments to the Authority (via email to Richard May at rmay@bma.bm or by phone) no later than February 28, 2010.

Applies to

long-term insurers, life insurers, reinsurers, dual and composite licensed insurance companies

Deadlines

• February 28th, 2010: Deadline for submitting comments on the discussion paper to the Authority.
• third quarter of 2010: Authority's intended timing for releasing a formal consultation paper with accompanying draft legislation on the capital and solvency framework.