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

Summary

This is a package of draft legislative instruments published for consultation to implement Bermuda's proposed Solvency Framework for long-term (life) insurers. It comprises four draft measures: an amendment to the Insurance Act 1978 creating new long-term insurer license classes, amended accounts regulations, amended solvency margin regulations, and a new prudential standards order for the largest insurers. As drafted material, none of it is yet in force; it shows the regulator's intended approach and will change registration, capital and reporting requirements for long-term insurers once enacted.

• Insurance Amendment (No. 4) Act 2010: Replaces the single 'long-term insurer' category with five new classes (Class A, B, C, D, E) based on ownership structure and total assets, sets new minimum share capital per class ($120,000 Class A; $250,000 Class B; $1,000,000 Class C, D and E), and requires existing long-term insurers to apply for reclassification.
• Insurance Accounts Amendment (No 3) Regulations 2010: Revises the statutory balance sheet (Form 4) line items for equities, receivables, reinsurance balances and sundry assets used in solvency calculations.
• Insurance Returns and Solvency Amendment Regulations 2010: Introduces a new Schedule III setting minimum solvency margins by class (e.g. greater of $120,000 or 2.5% of assets for Class A, up to greater of $10,000,000 or 2.5% of assets for Class E).
• Insurance Prudential Standards (Class E Solvency Requirement) Order 2010: Introduces an Enhanced Capital Requirement (ECR) and Commercial Insurer Solvency Self Assessment (CISSA) regime specifically for Class E long-term insurers, including detailed risk questionnaires and capital modelling tables (e.g. asset liability, operational, group/reputational/strategic risk).

Under the draft transitional provisions, existing long-term insurers that qualify for one of the new classes must apply for reclassification before a fixed deadline, pay an application fee, and continue to be treated as a long-term insurer under the old rules until reclassified; insurers that do not apply in time risk having their registration cancelled.

Key obligations

• Existing long-term insurers qualifying for Class A, B, C, D or E must apply to the Authority for reclassification 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 failing to apply for reclassification before 30 September 2011 risk having their registration cancelled by the Authority.
• Long-term insurers must meet the new minimum share capital requirements applicable to their class (Class A $120,000; Class B $250,000; Class C, D, E $1,000,000).
• Long-term insurers must meet the new minimum solvency margin for their class as set out in Schedule III.
• Class E (and Class 3B/Class 4) insurers must, on registration, meet both the minimum margin of solvency and the enhanced capital requirement (ECR).
• Class E long-term insurers must complete and submit a Commercial Insurer Solvency Self Assessment (CISSA) covering asset liability, operational, group, reputational and strategic risk, among other risk categories.

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 qualifying for a new class to apply to the Authority for reclassification as Class A, B, C, D or E insurer.
• 31 December 2011: End of the transitional period during which reclassifying insurers continue to be treated as long-term insurers under the prior regime.
• 31 December 2011: 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