Insurance (Prudential Standards) (Class 4 Solvency Requirement) Amendment Order 2009 (Draft)

Summary

This is a draft amendment order that would revise Bermuda's Insurance (Prudential Standards) (Class 4 Solvency Requirement) Order 2008, which sets the capital and solvency framework for Class 4 insurers. It remains at consultation/draft stage and has not been enacted; the draft names a proposed commencement date of 31 December 2009.

• New risk definitions: Adds definitions for business continuity risk, business processes risk, compliance risk, distribution channel risk, fraud risk, human resources (HR) risk, information technology (IT) risk, and outsourcing risk, used in the operational risk charge calculation.
• Capital and solvency return format: Requires every Class 4 insurer's capital and solvency return to comprise an electronic and printed BSCR model, printed Schedules II to VI, and (where applicable) a printed copy of an approved internal capital model.
• Director declaration requirement: Introduces a new requirement that each capital and solvency return be accompanied by a declaration, signed by two directors and the insurer's principal representative, attesting the information is accurate in all material respects.
• New offence and penalty: Creates a summary offence for knowingly or recklessly making a false or misleading statement or return to the Authority, punishable by a fine of up to $50,000.
• Operational risk charge methodology: Replaces the fixed operational risk charge range with a scored methodology (Table 7 and supporting Tables 7A to 7F) assessing corporate governance, risk management function, and risk identification, measurement, response, and monitoring processes across eight operational risk areas, producing an overall score that determines the applicable charge (1% to 10%).
• Revised Schedule V disclosures: Replaces Schedule V (schedule of risk management) with an expanded set of required disclosures for Class 4 general business insurers, including governance structure, intra-group exposures, effective duration of assets and liabilities, investment policy, gross and net probable maximum loss, average annual loss, catastrophe exposure limits by territory zone, projected premiums and income, actual attritional and large claims losses, stress and scenario impacts, and a description of the insurer's risk management program.

Because this is a draft consultation document, the obligations below reflect what would apply if the order is made in its current form; they are not yet in force.

Key obligations

• Every Class 4 insurer would be required to make a capital and solvency return comprising an electronic and printed BSCR model, printed Schedules II to VI, and, where applicable, a printed copy of an approved internal capital model.
• Each capital and solvency return would need to be accompanied by a declaration signed by two directors and the insurer's principal representative confirming the information is accurate in all material respects.
• Insurers would need to calculate their operational risk charge (rho) using the new scored methodology in Tables 7 and 7A to 7F rather than the prior fixed range.
• Class 4 general business insurers would need to prepare and disclose the expanded Schedule V risk management particulars, including governance structure, intra-group exposures, PML calculations, catastrophe exposure limits by zone, and risk management program description.
• Persons submitting statements or returns to the Authority must not knowingly or recklessly make false or misleading statements, on pain of a summary offence and fine of up to $50,000.

Applies to

Class 4 insurers, Class 4 general business insurers

Deadlines

• 31 December 2009: Proposed commencement date of the draft Amendment Order, if made.