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

Summary

This is draft legislation released by the Bermuda Monetary Authority to implement its Consultation Paper on a Solvency Framework for Long-term Insurance. It comprises four draft instruments amending the Insurance Act 1978 and related regulations: an Insurance Amendment Act creating new long-term insurer license classes, amended Insurance Accounts Regulations revising the statutory balance sheet, amended Insurance Returns and Solvency Regulations setting minimum solvency margins, and a Prudential Standards Order introducing enhanced capital and self-assessment requirements for the largest class of insurer.

• New license classes: Long-term insurers would be reclassified into Class A (single-parent captive), Class B (multi-owner captive/group), Class C (total assets under $250 million), Class D ($250 million to under $500 million) or Class E ($500 million or more).
• Minimum share capital: Proposed minimum share capital is $120,000 for Class A, $250,000 for Class B, and $1,000,000 for Class C, D or E insurers.
• Minimum solvency margins: Schedule III sets minimum solvency margins by class: the greater of a fixed dollar amount ($120,000 to $10,000,000 depending on class) or 2.5% of assets.
• Enhanced requirements for Class E: Class E insurers would be subject to an Enhanced Capital Requirement (ECR) calculated under a Bermuda Solvency Capital Requirement (BSCR) model or an approved internal capital model, and must perform a Commercial Insurer Solvency Self Assessment (CISSA) covering risks such as credit, concentration, operational, business continuity, HR, IT, fraud, distribution channel, group, reputational and strategic risk.
• Balance sheet changes: The Insurance Accounts Regulations' Form 4 statutory balance sheet would be revised to separately itemize equities, quoted/unquoted investments, receivables and sundry assets (including derivatives and segregated accounts).
• Transitional reclassification: Insurers currently registered as long-term insurers that qualify for a new class must apply to the Authority for reclassification, paying an application fee of $500 (Class A/B) or $1,000 (Class C/D/E); until reclassified they remain regulated as long-term insurers.

As draft legislation attached to a consultation, none of these provisions are yet in force; they represent proposals that were to take effect on the stated commencement dates once enacted, and readers should check for a subsequently finalized version before relying on specific thresholds or deadlines.

Key obligations

• Long-term insurers qualifying for a new class must apply to the BMA for reclassification as a Class A, B, C, D or E insurer before 30 September 2011, or risk cancellation of their registration
• 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 minimum share capital and minimum solvency margin prescribed for their class before registration
• Class 3B, Class 4 or Class E insurers must meet both their minimum margin of solvency and their enhanced capital requirement (ECR) at registration (or, for Class 4/E, by commencement of business)
• Class E insurers must calculate their ECR using the BSCR model or an approved internal capital model and complete a CISSA covering specified risk categories
• Insurers must submit the revised Form 4 statutory balance sheet format under the amended Insurance Accounts Regulations

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