Notice - Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Amendment Rules 2013 (consultation)

Summary

This is a Bermuda Monetary Authority consultation notice proposing amendments to the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011, which set out the Group Bermuda Solvency Capital Requirement (Group BSCR) formula and supporting Schedules used by insurance groups to calculate regulatory capital. The notice explains the rationale for the proposed changes and invites stakeholder comment before the Rules are finalised.

• New Schedules: Adds Schedule IIA (market risk on underlying assets held by ceding reinsurers in segregated accounts/trusts) and Schedule VIIIA (internal capital model requirement for variable annuities).
• Fixed income and equity risk: Paragraphs 2 and 3 of Schedule I would be amended to introduce a new set of BSCR ratings for a more refined breakdown of fixed income and equity investment risk.
• Credit and catastrophe risk: Paragraph 7 would apply new BSCR ratings to credit capital calculations; Paragraph 8 would recognise fully funded Special Purpose Insurers, catastrophe bonds and collateral arrangements, and reduce the credit risk charge on ceded catastrophe recoveries from 12.2% to 10.0%.
• Longevity and variable annuity risk: Paragraph 14 would distinguish immediate versus deferred payout annuities by attained/commencement age; Paragraph 15 would let insurance groups use an internal capital model for variable annuity capital requirements, with a refined factor-based approach where internal models are not practical.
• Consequential Schedule alignment: Schedules II, VII and VIII would be aligned with the revised Paragraphs 2, 3, 14 and 15 of Schedule I.
• Disclosure amendments: Schedule V would be amended for additional disclosure requirements linked to the Paragraph 7 and 8 changes, with consequential updates to the instructions affecting Schedule V.
• Housekeeping changes: Various Schedules would be revoked and replaced for ease of review, and capital calculations would move from statutory net reserves to reserves net of deferred acquisition costs, value of business acquired and/or present value of future profits, among other minor amendments.
• Board sign off: Minor housekeeping amendments require the board to sign the declaration reflecting changes agreed between the Authority and stakeholders in connection with the Long-Term insurer regime.

The proposals would amend Paragraph 6 (to reference new Schedules IIA and VIIIA) and Paragraph 7(a) (replacing 'insurer' with 'parent company') of the principal Rules, and would revoke and replace Schedules I through XIII in full. The Authority proposes that all amendments take effect from 1 January 2014, and it invited comments from commercial insurers and other stakeholders by 6 September 2013.

Key obligations

• Insurance groups and other interested stakeholders were invited to submit written comments on the proposed amendments to policy@bma.bm by 6 September 2013
• If adopted as proposed, insurance groups' boards would need to sign the required declaration reflecting agreed changes to the Long-Term insurer regime housekeeping amendments
• If adopted, insurance groups would need to recalculate Group BSCR components (fixed income, equity, credit, catastrophe, longevity and variable annuity risk charges) using the new BSCR ratings and revised Schedules I through XIII
• If adopted, insurance groups would need to comply with additional disclosure requirements under the revised Schedule V and its instructions

Applies to

insurance groups, commercial insurers, Long-Term insurers, reinsurers

Deadlines

• 6th September 2013: Deadline for stakeholders to submit comments on the proposed Amendment Rules and Schedules to policy@bma.bm
• 1st January 2014: Proposed effective date on which all amendments to the Rules and Schedules would come into operation

Related documents

• This document amends Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011