Notice - Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011 (2013-07-01)

Summary

This is a consultation notice issued by the Bermuda Monetary Authority (BMA) proposing amendments to the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011. The proposed changes refine the Bermuda Solvency Capital Requirement (BSCR) formula and reporting schedules applicable to Long-Term (life) insurers in Classes C, D and E, and add new schedules for reporting purposes.

• New schedules: Adds Schedule IIA (reporting of underlying assets of funds held by ceding reinsurers in segregated accounts/trusts) and Schedule VIIIA (internal model based capital requirements for variable annuities).
• BSCR formula refinements (Schedule I): Introduces a 25% negative correlation between mortality and longevity risk, refines fixed income and equity investment risk factors using new BSCR ratings, revises credit capital calculation to reflect reinsurer credit ratings, requires capture of annuitant attained age/commencement age for longevity products, and allows insurers to use internal capital models for variable annuity capital requirements.
• Consequential schedule changes: Aligns Schedules II, VII and VIII with the Schedule I amendments; amends Schedule V to add disclosure requirements and update the Instructions Affecting Schedule V.
• Class C reporting alignment: Amends Parts I, II, V, VII and VIII of Schedule XIII (Class C reporting) to mirror Class D and E requirements, and adds new Parts IIA and VIIIA to Schedule XIII for the same segregated-account asset reporting and internal model variable annuity capital reporting.
• Housekeeping change: Capital calculations move from using statutory net reserves to reserves net of deferred acquisition costs, value of business acquired, and/or present value of future profits, among other minor changes.

The notice invites industry comment on the proposed Schedules and states that, if adopted, the amendments (styled as the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2013) would come into operation on 1 January 2014, revoking and replacing Schedules I through XII of the principal Rules.

Key obligations

• Class C, Class D and Class E long-term insurers must, from the effective date, calculate their BSCR using the revised formula reflecting the mortality/longevity correlation, refined fixed income and equity risk factors, revised credit risk calculation, and longevity/variable annuity provisions in the amended Schedule I.
• Affected insurers must report underlying assets of funds held by ceding reinsurers in segregated accounts/trusts using new Schedule IIA (or Part IIA of Schedule XIII for Class C insurers).
• Insurers using internal capital models for variable annuity guarantee risk must report using new Schedule VIIIA (or Part VIIIA of Schedule XIII for Class C insurers).
• Insurers must comply with the additional disclosure requirements added to Schedule V and the updated Instructions Affecting Schedule V.
• Insurers must use reserves net of deferred acquisition costs, value of business acquired and/or present value of future profits (rather than statutory net reserves) in capital calculations.
• Interested parties wishing to comment on the proposed Schedules must submit comments to policy@bma.bm by 6 September 2013.

Applies to

Class C insurers, Class D insurers, Class E insurers, Long-term (life) insurers

Deadlines

• 6th September 2013: Deadline for submitting comments on the proposed Schedules to policy@bma.bm.
• 1st January 2014: Proposed effective date for the amendments (Amendment Rules) to come into operation.

Related documents

• This document amends Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011