Draft Legislation for Solvency Framework for Long-Term Insurance (August 2010)

Summary

This is a package of four draft legislative instruments published by the Bermuda Monetary Authority to implement a new solvency framework for long-term (life) insurers. The suite comprises amendments to the Insurance Act 1978, the Insurance Accounts Regulations, the Insurance Returns and Solvency Regulations, and a new Prudential Standards Order for Class E insurers. As drafts attached to a consultation, they set out proposed rules that were not yet in force at the time of publication.

• New licence classes: Introduces five classifications for long-term insurers (Class A, B, C, D, E) based on ownership structure, the proportion of related-party business, and total assets, replacing the single 'long-term insurer' category.
• Minimum share capital: Sets minimum issued share capital of $120,000 for Class A, $250,000 for Class B, and $1,000,000 for Class C, D or E insurers.
• Minimum solvency margins: Introduces a Schedule III solvency margin table requiring assets to exceed liabilities by the greater of a fixed dollar amount or 2.5% of assets, scaled by class (from $120,000/2.5% for Class A up to $10,000,000/2.5% for Class E).
• Enhanced requirements for Class E: Requires Class E (largest) long-term insurers to meet an Enhanced Capital Requirement (ECR) and to complete a Commercial Insurer Solvency Self Assessment (CISSA), including detailed risk questionnaires and economic capital calculations across risk categories.
• Balance sheet changes: Revises Form 4 of the statutory balance sheet (equities, quoted/unquoted investments, receivables, reinsurance balances, sundry assets) to support the new capital calculations.
• Transitional reclassification: Requires every insurer currently registered as a long-term insurer to apply to the Authority for reclassification into the appropriate new class, accompanied by an application fee ($500 for Class A/B, $1,000 for Class C/D/E).

Insurers that fail to apply for reclassification in time risk having their registration cancelled by the Authority. During the transitional period, insurers continue to be regulated under the rules applicable to their existing class until reclassified.

Key obligations

• Existing long-term insurers that qualify for a new class must apply to the Authority for reclassification as a Class A, B, C, D or E insurer before 30 September 2011.
• Reclassification applications must be accompanied by a fee of $500 (Class A or B) or $1,000 (Class C, D or E).
• Insurers must meet the prescribed minimum margin of solvency for their class before the Authority will register them.
• Class 3B, Class 4 and Class E insurers must meet both the minimum margin of solvency and the Enhanced Capital Requirement (ECR) at the date of registration (or, for Class 4/E, by the date business commences).
• Class E insurers must undertake and submit a Commercial Insurer Solvency Self Assessment (CISSA), including risk questionnaires and economic capital calculations for asset liability, operational, group, reputational and strategic risk.
• Insurers must maintain minimum share capital appropriate to their class (Class A $120,000; Class B $250,000; Class C, D or E $1,000,000).
• Insurers falling within the transitional category that do not apply for reclassification before the deadline may have their registration cancelled by the Authority.

Applies to

long-term insurers, Class A insurers, Class B insurers, Class C insurers, Class D insurers, Class E insurers

Deadlines

• 30 September 2011: Deadline for existing long-term insurers to apply to the Authority for reclassification into the new Class A-E structure.
• 31 December 2011: End of the transitional period; also the stated commencement date for the Insurance Returns and Solvency Amendment Regulations 2010 and the Insurance Prudential Standards (Class E Solvency Requirement) Order 2010.

Related documents

• This document amends Insurance Act 1978
• This document amends Insurance Accounts Regulations 1980
• This document amends Insurance Returns and Solvency Regulations 1980