Notice - Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2013 (Consultation) (2013-07-01)

Summary

This is a BMA consultation notice proposing amendments to the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Rules 2008, which set out the Bermuda Solvency Capital Requirement (BSCR) framework for Class 4 and Class 3B commercial insurers. The notice explains proposed changes to the BSCR schedules and invites stakeholder comment before the changes are finalised.

• New Schedule IIA: Adds a schedule to capture underlying assets of an insurer's funds held by ceding reinsurers in segregated accounts or trusts, for which the insurer bears the corresponding market risk.
• Fixed income and equity investment risk (Schedule I, paragraphs 2 and 3): Refines the breakdown of BSCR ratings used to calculate fixed income and equity investment risk charges.
• Credit risk charge (Schedule I, paragraph 7): Prescribes a new set of ratings for calculating the credit risk charge based on the reinsurer's credit rating.
• Catastrophe risk charge (Schedule I, paragraph 8): Changes the catastrophe risk charge calculation for fully funded Special Purpose Insurers and catastrophe bonds and other collateral, and reduces the credit risk charge associated with reinsurance recoveries from ceded catastrophe losses from 12.2 percent to 10.0 percent.
• Schedule II: Aligned with the amended paragraphs 2 and 3 of Schedule I.
• Schedule V disclosure: Adds additional disclosure requirements reflecting the Schedule I paragraph 7 and 8 amendments, with consequential changes to the Instructions Affecting Schedule V to give the Authority greater insight into an insurer's business and risk.
• Amendment Rules mechanics: The draft Amendment Rules 2013 amend paragraph 6 of the principal Rules (inserting a reference to new Schedule IIA) and revoke and replace Schedules I through X of the principal Rules.

The proposals apply to all commercial insurers subject to the Class 4 and Class 3B solvency requirement, and to Long-Term Insurers with fully funded Special Purpose Insurer or catastrophe-linked arrangements. Comments were sought as part of the consultation, with proposed effect from 1 January 2014, though the document is a draft/consultation and not yet a final binding rule.

Key obligations

• Interested parties wishing to comment on the proposed Schedule amendments must submit comments to policy@bma.bm by 6 September 2013.
• Once finalised, affected insurers will need to submit BSCR reporting using the revised Schedules I through X (including new Schedule IIA) and the amended Schedule V disclosure requirements, proposed to take effect 1 January 2014.

Applies to

Class 4 insurers, Class 3B insurers, commercial insurers, Long-Term Insurers with Special Purpose Insurer or catastrophe bond arrangements

Deadlines

• 6th September 2013: Deadline for stakeholders to submit comments on the proposed Schedule amendments to policy@bma.bm.
• 1st January 2014: Proposed effective date for the amendments to become operative.