Notice - Insurance (Prudential Standards)(Insurance Group Solvency Requirement) Amendment Rules 2014 (2014-06-18)

Summary

This is a BMA consultation notice proposing amendments to Schedule VIIIA of the Insurance (Prudential Standards) Rules, which governs the Insurance Group Solvency Requirement for long-term variable annuity guarantees calculated using an internal capital model. The proposed amendment would require affected insurance groups to prepare and file an actuarial memorandum alongside the existing quantitative schedule, giving the Authority a fuller narrative explanation of the group's internal model and results.

• Required capital amount: Overview of the required capital amount, key risks and risk mitigation techniques.
• Business overview: Description of the business conducted and key product features.
• Risk exposures: Qualitative description of key risk exposures (economic, mortality, surrender, annuitisation, withdrawal, expense, counterparty).
• Model approach: Explanation of the approach used to calculate total assets and required capital, including model details such as data sources, aggregations, reserve basis and timestep.
• Assumptions: Details of assumptions used, including economic scenarios, mortality and policyholder behaviour assumptions, and margins for conservatism.
• Reinsurance: Disclosure of assumed and ceded reinsurance arrangements, counterparties and collateral requirements.
• Hedging: Description of hedging targets, business covered, governance procedures and hedge effectiveness.
• Other risk mitigation: Disclosure of risk mitigation arrangements other than hedging.
• Model output: Presentation of model output and capital results, including stress test and sensitivity results.

The Authority invited comments on the proposed rules by 5th September 2014 and proposed that the amendment take effect from 1st January 2015. As a consultation notice, the rules described were proposed at the time of publication and their final adoption status is not confirmed by this document.

Key obligations

• Insurance groups using an internal capital model for long-term variable annuity guarantees would be required to file an actuarial memorandum with the Authority as part of the Capital and Solvency Return
• The actuarial memorandum must cover required capital, business overview, key risk exposures, model description, assumptions, reinsurance, hedging, other risk mitigation arrangements, and model output/results
• The designated insurer of the insurance group must indicate any significant changes from the last memorandum filed with the Authority
• The memorandum must be reviewed and signed by the Approved Actuary
• Interested parties were invited to submit comments on the proposed Rules to policy@bma.bm by the stated deadline

Applies to

insurance groups, designated insurers, Approved Actuary

Deadlines

• 5th September 2014: Deadline for submitting comments on the proposed Amendment Rules to policy@bma.bm
• 1st January 2015: Proposed effective date for the amendment to Schedule VIIIA