Instructions to Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011

Summary

This document sets out the detailed mathematical instructions and prescribed capital charge tables used to calculate the Bermuda Solvency Capital Requirement (BSCR) under the Insurance Group Solvency Requirement framework. It amends the underlying 2011 Rules by inserting a revised BSCR formula, new risk module sub-formulas, correlation matrices, and capital charge factor tables for fixed income, equity, currency, interest rate/liquidity, credit, and concentration risk.

• BSCR formula: Replaces the group BSCR calculation with a formula combining the Basic BSCR risk charge, operational risk charge, regulatory capital adjustment (for regulated non-insurance financial operating entities and unregulated entities), and other capital adjustment charges.
• Risk module breakdowns: Provides detailed sub-formulas and correlation matrices for market risk (fixed income, equity, interest rate, currency, concentration), P&C insurance risk (premium, reserve, catastrophe), long-term insurance risk (mortality, stop-loss, riders, morbidity, longevity, variable annuity, other), and credit risk.
• Capital charge tables: Sets prescribed capital charge percentages by asset type and BSCR rating for corporate/sovereign bonds, mortgage-backed securities, equities, mortgages, cash and cash equivalents, and other fixed income instruments, with instructions on how each is to be reported consistent with statutory financial reporting.
• Transitional factors: Introduces a phased transition factor applied to certain adjustment terms: 33 percent for financial years beginning on or after 1 January 2018, 66 percent for years beginning on or after 1 January 2019, and 100 percent for years beginning on or after 1 January 2020.
• Reporting schedules: Prescribes new or amended reporting schedules (including Schedule XXA for currency risk and Schedule XXIA for concentration risk) requiring insurance groups to disclose currency exposures representing at least 95 percent of economic balance sheet liabilities, and their 10 largest single-counterparty exposures by asset type, rating and value.

The document is highly technical and formula-driven, intended for actuarial and risk teams within regulated insurance groups to implement the prescribed BSCR calculation methodology and completion of associated regulatory return schedules.

Key obligations

• Insurance groups must calculate their Basic BSCR risk module charge, operational risk charge, and capital adjustment charges using the prescribed formulas and correlation matrices in the Rules.
• Insurance groups must apply the phased transition factor (33 percent for FY2018, 66 percent for FY2019, 100 percent for FY2020) to specified adjustment terms in the BSCR calculation.
• Insurance groups must report fixed income, equity, interest rate/liquidity, currency, and concentration risk exposures using the prescribed capital charge tables and on a basis consistent with statutory financial reporting.
• Insurance groups must disclose currencies representing at least 95 percent of economic balance sheet liabilities in Schedule XXA.
• Insurance groups must disclose their 10 largest exposures to single counterparty risk, including related and connected counterparties, in Schedule XXIA.

Applies to

insurance groups

Deadlines

• financial year beginning on or after 1 January 2018: Transition factor of 33 percent applies to specified BSCR adjustment terms.
• financial year beginning on or after 1 January 2019: Transition factor of 66 percent applies to specified BSCR adjustment terms.
• financial year beginning on or after 1 January 2020: Transition factor of 100 percent applies to specified BSCR adjustment terms.