Insurance (Prudential Standards) (Class 4 Solvency Requirement) Order 2008 (Fifth Draft, 15 August 2008)

Summary

This is a draft Bermuda Monetary Authority order, circulated as part of a consultation paper (Fifth Draft, 15 August 2008), that would prescribe prudential capital standards for Class 4 insurers under section 6A of the Insurance Act 1978. It sets out how the Enhanced Capital Requirement (ECR) is calculated using the Bermuda Solvency Capital Requirement (BSCR) model or an approved internal capital model, and specifies the capital and solvency return that Class 4 insurers must file.

• Capital adequacy: Every Class 4 insurer must maintain available statutory capital and surplus equal to or exceeding its ECR, which can never be less than the statutory margin of solvency.
• ECR calculation: ECR is calculated at the end of each relevant (financial) year using either the BSCR model (Schedule I formula and risk charge tables) or an Authority-approved internal capital model.
• Internal model approval: Insurers may apply to substitute an internal capital model for the BSCR model; the Authority assesses appropriateness, integration into risk management, and model controls, and can impose conditions, refuse, or later revoke approval.
• Representations process: An insurer receiving notice of refusal or proposed revocation of an internal model may make written representations to the Authority within 28 days of the notice.
• Capital and solvency return: Every Class 4 insurer must file a capital and solvency return comprising the BSCR return (Schedule I, electronic and printed), printed Schedules II to VI, and, where applicable, a printed copy of its approved internal capital model, on or before its filing date under section 17 of the Act.
• Record keeping: A copy of the capital and solvency return must be kept available at the insurer's principal office on or before the filing date and retained there for five years from that date.

As drafted, the order was to come into operation on 31 December 2008, but because this document is a consultation draft, its provisions (including that commencement date and the detailed BSCR risk factor tables in the Schedules) may change before any final order is made.

Key obligations

• Maintain available statutory capital and surplus equal to or exceeding the calculated ECR at all times
• Calculate ECR annually at the end of the relevant financial year using the BSCR model or an Authority-approved internal capital model
• File a complete capital and solvency return (BSCR return plus Schedules II-VI, and internal model copy if applicable) with the Authority on or before the filing date
• Make a copy of the capital and solvency return available at the insurer's principal office on or before the filing date
• Retain a copy of the capital and solvency return at the principal office for five years from the filing date
• If notified of refusal or proposed revocation of an internal capital model approval, submit any written representations to the Authority within 28 days of the notice

Applies to

Class 4 insurers

Deadlines

• 31 December 2008: Proposed commencement date of the draft Order as circulated in this Fifth Draft
• 28 days from the date of notice: Period for a Class 4 insurer to make written representations after being notified that the Authority will not approve, or proposes to revoke approval of, its internal capital model
• on or before its filing date: Deadline for a Class 4 insurer to furnish its capital and solvency return to the Authority and make a copy available at its principal office
• five years beginning with the filing date: Period an insurer must retain a copy of its capital and solvency return at its principal office