Draft Insurance (Prudential Standards) (Class IIGB Solvency Requirement) Rules 2019

Summary

This is a draft Bermuda Monetary Authority (BMA) rule instrument, issued for consultation, that would set out the solvency and capital requirements for Class IIGB insurers, a Bermuda insurer class involved with digital asset business. It defines how the Enhanced Capital Requirement (ECR) is calculated, sets out the Bermuda Solvency Capital Requirement model (BSCR-IIGB model) including a specific digital asset risk charge, and prescribes the capital and solvency return, reporting schedules and internal model approval process that would apply once finalised.

• ECR calculation: Each insurer must calculate its ECR at the end of its financial year using either the BSCR-IIGB model or an Authority-approved internal capital model, and the ECR must never be less than the statutory minimum margin of solvency.
• Capital adequacy: Every insurer must maintain available statutory capital and surplus equal to or exceeding its ECR at all times.
• Digital asset risk charge: The BSCR-IIGB model includes a dedicated digital asset risk charge (Cda) and a phased transitional factor of 33 percent for financial years beginning on or after 1 January 2019, 66 percent for 2020, and 100 percent for 2021.
• Internal model approval: Insurers may apply to use an approved internal capital model instead of the BSCR-IIGB model; the Authority may approve, impose conditions, refuse, or later revoke approval, with the insurer able to make written representations within 28 days of a refusal or revocation notice.
• Capital and solvency return: Insurers must file a capital and solvency return (comprising the BSCR-IIGB model output and numerous prescribed schedules, including new sanctions compliance and digital assets schedules) on or before their filing date, together with a loss reserve specialist opinion, and retain a copy for five years.
• Declaration requirement: Each capital and solvency return must be accompanied by a declaration signed by two directors and the insurer's principal representative confirming it fairly represents the insurer's financial condition.

As a draft consultation document, these Rules are not yet in force; they propose a commencement date of 1 January 2020 but remain subject to change before finalisation. The obligations described reflect the proposed text and should be treated as indicative pending the final rules.

Key obligations

• An insurer must calculate its ECR at the end of each financial year using the BSCR-IIGB model or an approved internal capital model, and the ECR must be at least equal to the statutory minimum margin of solvency.
• An insurer must maintain available statutory capital and surplus equal to or exceeding the value of its ECR at all times.
• An insurer using or seeking to use an internal capital model must apply to the Authority for approval and comply with any conditions attached to that approval.
• An insurer whose internal capital model approval is refused or proposed for revocation may make written representations to the Authority within 28 days of the notice.
• Every insurer must furnish the Authority with its capital and solvency return, including the BSCR-IIGB model and prescribed schedules, on or before its filing date.
• An insurer must file, together with its capital and solvency return, an opinion of its loss reserve specialist covering its total business insurance reserves.
• An insurer must keep a copy of its capital and solvency return at its principal office for five years from its filing date and produce it to the Authority if directed.
• Every capital and solvency return must be accompanied by a declaration signed by two directors and the insurer's principal representative attesting to its fair representation of the insurer's financial condition.

Applies to

Class IIGB insurers

Deadlines

• 1 January 2020: Proposed commencement date of the Rules
• 28 days from the date of notice: Period for an insurer to make written representations after being notified of refusal or proposed revocation of internal capital model approval
• on or before its filing date: Insurer must furnish the Authority with its capital and solvency return
• five years from filing date: Insurer must retain a copy of its capital and solvency return at its principal office
• financial year beginning on or after 1 January 2019 / 2020 / 2021: Transitional factors of 33%, 66% and 100% apply respectively to the digital asset risk charge component of the BSCR-IIGB model