Response to Comments on the Consultation Paper on Catastrophe Risk Return Guidelines (2010-12-08)

Summary

This is the Bermuda Monetary Authority's response to industry comments received on its Consultation Paper on Catastrophe Risk Return Guidelines and the accompanying Catastrophe Risk Return (Cat Return) template. It explains how the Authority has revised the Cat Return and Cat Guidelines in light of stakeholder feedback, and clarifies several reporting requirements for insurers submitting catastrophe exposure data.

• EP curves: Exceedance Probability curve requirements have been narrowed: the reinsurance EP curve is eliminated, the insurance EP curve is only required where net insurance premiums exceed 10% of total net premiums written, and only quantitative data is needed for region-peril EP curve sheets.
• Policies without limits: Insurers may report policies in Europe and Asia lacking limits or Total Insured Value as having non-determinable TIV or no limits.
• Loading factor: The average loading factor to ground-up losses need only be reported for the 'EP curve total' and 'EP curve insurance', not for every region-peril.
• Exchange rates: Insurers must disclose the exchange rate(s) used to translate amounts to US dollars, but only for the 'EP curve total perils'.
• Trial run filing: The Cat Return trial run deadline is extended to June 2011; insurers using the extension will receive standalone documents, and year-end submission of the catastrophe information the Cat Return replaces will not be required.
• Intra-group and limits calculations: Insurers must model intra-group net losses for recoveries and calculate limits exposed as the sum of all limits providing contractual protection, including specific treatment for business without aggregate/occurrence limits or non-determinable TIV.
• Terrorism exposure: Terrorism exposure must be reported on a worldwide (not just US) basis, and where aggregate terrorism exposure to a reinsurance contract cannot be determined but coverage is provided, reinsurers must include 100% of the terrorism limit provided.

The document is primarily explanatory, setting out how the Authority intends to finalise and apply the Cat Return and Cat Guidelines, but it contains specific reporting instructions that Class 4 (and other relevant) insurers must follow when completing the Cat Return.

Key obligations

• Insurers must submit the revised Cat Return, including EP curve data, in accordance with the amended scope described (e.g., insurance EP curve only if net insurance premiums exceed 10% of total net premiums written).
• Insurers must report the exchange rate(s) used to translate amounts to US dollars for the 'EP curve total perils'.
• Insurers must model intra-group net losses for recoveries when completing EP curve information.
• Insurers must calculate limits exposed as the sum of all limits providing contractual protection for insurance, reinsurance, and combined bases, and report premium in designated cells where limits or TIV are not determinable.
• Insurers must report terrorism exposure on a worldwide basis, following the Authority's guidelines on target location.
• Reinsurers must include 100% of the terrorism limit provided where aggregate terrorism exposure to a reinsurance contract cannot be determined but coverage is provided.
• Insurers wishing to use the extended trial run deadline must file using the standalone documents supplied by the Authority by the extended June 2011 deadline.

Applies to

insurers, Class 4 insurers, reinsurers

Deadlines

• June 2011: Extended deadline for the Cat Return trial run filing (extended from the original 2010 filing timeline).