Discussion Paper on the Own Risk and Solvency Assessment Process (2009-09)

Summary

This is a 2009 discussion paper in which the Bermuda Monetary Authority introduces the Own Risk and Solvency Assessment (ORSA) concept to the Bermuda insurance market and explains how it intends to integrate ORSA into its existing Supervisory Review Process (SRP). It is explicitly a discussion paper meant to invite industry comment and does not itself impose binding rules; the Authority states its intention to issue a follow up consultation paper with detailed guidelines in 2010.

• Purpose: Sets out the Authority's initial thinking on how insurers should demonstrate the link between risk, capital adequacy and strategic decision making through an ORSA process.
• Scope by class: Anticipates that Class 4 and Class 3B insurers already have management information systems that largely meet ORSA expectations, while Class 3A insurers would use forthcoming Authority guidelines to build an appropriate ORSA.
• Capital add-ons: Describes a proposed framework under which the Authority may impose a capital add-on where the ECR (calculated via BSCR or an internal model) does not adequately reflect an insurer's risk profile or where governance/control deficiencies are not remedied within a proposed maximum six month period.
• Notice and representation process: Outlines a proposed process where, after notice of a capital add-on, insurers would have 28 days to make written representations, with a final decision following and any add-on taking effect 90 days later.
• Appeal process: Describes a proposed appeal route to the Authority's Risk Committee and, ultimately, to a tribunal under Part VIIIA of the Insurance Act 1978, with any resulting adjustment taking effect 90 days from the final decision.
• Stress testing and streamlining: Discusses stress and scenario testing expectations and the Authority's intent to use ORSA to consolidate and streamline existing regulatory reporting requirements via an electronic reporting platform.

Because this is a discussion paper rather than a rule or code, the specific timelines, thresholds and procedures described (six month remediation period, 28 day representation window, 90 day effective dates) are proposed concepts for consultation, not yet enforceable requirements. Readers should watch for the anticipated 2010 follow up consultation paper for the finalized ORSA framework.

Applies to

insurers, reinsurers, Class 4 insurers, Class 3B insurers, Class 3A insurers, insurance groups

Deadlines

• December 31st 2009: Deadline for industry comments on the discussion paper, to be sent to the Authority via email or phone.
• on or before January 31st 2010: The Authority intended to publish a final version of this document on its website by this date.
• third quarter of 2010: The Authority's stated target for releasing a follow up consultation paper on the ORSA process.