Insurance (Prudential Standards) (Class 3A Solvency Requirement) Amendment Rules 2012

Summary

This is a Bermuda Monetary Authority notice and accompanying draft Rules proposing amendments to the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011, which set out the Bermuda Solvency Capital Requirement for Small and Medium-sized Entities (BSCR-SME) applicable to Class 3A insurers. The notice describes housekeeping and substantive changes to definitions, capital charge tables and reporting schedules, and invites industry comment before finalisation.

• Policyholder obligations definition: Adds a definition of policyholder obligations for the Rules, clarifying that reserves reported must cover Form 1A Lines 16, 17(a) and 18, not just Line 17(a) as before.
• Credit risk charge (Schedule I, Table 6): Expands the capital charge factors for creditor to reflect the credit ratings of underlying investments in funds held by ceding insurers.
• Operational risk charge (Tables 7, 7A, 7B): Updates the Operational Risk Charge, Corporate Governance Score Table and Risk Management Function table to align with the Insurance Code of Conduct 2010.
• Fixed income schedule (Schedule VI): Removes the requirement for Class 3A insurers to report average duration/convexity and effective duration/convexity by security type for their fixed income portfolios.
• Schedule renumbering and content changes: Renames and replaces former Schedules VII, VIII and X with new Schedules IX (Solvency Self-Assessment description), X (Catastrophe Risk Return, aligned with catastrophe models) and XII (Schedule of Eligible Capital, aligned with proposed Form 8 changes).

The Rules are proposed to take effect on 1 January 2013. The Authority invited written comments on the draft Rules by 15 August 2012, to be sent to policy@bma.bm. As a consultation draft, the changes described are not yet in force and remain subject to finalisation by the Authority.

Key obligations

• Submit written comments on the draft Rules to policy@bma.bm by 15 August 2012
• Once effective, Class 3A insurers must report reserves as policyholder obligations covering Form 1A Lines 16, 17(a) and 18 rather than only Line 17(a)
• Once effective, Class 3A insurers must apply the expanded Table 6 credit risk capital charge factors reflecting ratings of underlying investments for funds held by ceding insurers
• Once effective, Class 3A insurers must complete the renamed and revised Schedules IX (business description), X (Catastrophe Risk Return) and XII (Schedule of Eligible Capital) in place of former Schedules VII, VIII and X
• Once effective, Class 3A insurers no longer need to report average/effective duration and convexity by security type under Schedule VI

Applies to

Class 3A insurers

Deadlines

• 15th August 2012: Deadline for submitting comments on the draft Rules to policy@bma.bm
• 1st January 2013: Proposed effective/commencement date of the Amendment Rules