Response to Comments on the Consultation Paper on Disclosures and Transparency (2010-12-08)

Summary

This is a letter from the Bermuda Monetary Authority responding to industry comments on its June 2010 Consultation Paper on Disclosures and Transparency. It clarifies how various proposed reporting and disclosure requirements for Class 4 and Class 3B insurers, and for Bermuda insurance groups, will actually operate, without introducing a formal new rule itself.

• Loss triangles: For the 2010 reporting year, Class 4 and 3B insurers may file either loss triangles or a reconciliation of beginning and ending net loss reserve balances by statutory line of business; templates will be published.
• Reporting templates: The Authority will provide templates where standardised reporting is required, but not where insurers must use their own formats (e.g. investments/derivatives, underwriting performance, risk register).
• Underwriting performance disclosure: Quantitative submissions under Schedule V remain unchanged; qualitative commentary format is not prescribed but should give a high-level summary of key drivers.
• Investments and derivatives disclosure: No prescribed format for disclosing derivatives policies; existing investment policy disclosures to the Authority are acceptable.
• Group exposure disclosures: Intra-group transaction disclosure is limited to the Bermuda legal entity; group statutory capital requirement submissions will depend on the Group-wide Supervisor's methodology.
• Quarterly financial statements: For 2011 year-end, insurers must submit quarterly unaudited internal management financial statements, with the accounting basis disclosed; no prescribed format or footnotes required.
• Top 10 counterparty disclosure: Bermuda insurance groups must disclose the top 10 external exposures across the group, not intra-group exposures.
• Board declarations: All Capital and Solvency Return filings continue to require a formal board declaration under Section 6A of the Insurance Prudential Standards (Class 4 Solvency Requirement) Order 2008; no change.
• Cat Return trial run: The catastrophe risk return trial run will be embedded in 2010 filing documents, but the deadline is extended to June 2011; insurers using the extension get stand-alone documents.
• XBRL: 2010 reporting templates are expected to be XBRL enabled, which should be largely unnoticed by insurers since XBRL-enabled forms will be provided.
• Risk register: Insurers should keep the risk register, including assessment of material risks required under the Insurance Code of Conduct, current even if substantive work is not done at year-end.

Overall, the letter confirms the Authority's phased approach to enhanced regulatory disclosures (with public disclosure proposals deferred to a later paper) and signals several practical accommodations for insurers ahead of finalising the Disclosures framework.

Key obligations

• Class 4 and 3B insurers may file either loss triangles or a net loss reserve reconciliation by statutory line of business for the 2010 reporting year
• Class 4 and 3B insurers must submit quarterly unaudited internal management financial statements for 2011 year end, disclosing the accounting basis used
• Insurers must disclose intra-group transactions relating only to the Bermuda legal entity, not group-wide transactions
• Bermuda insurance groups must disclose their top 10 external counterparty exposures across the group
• All Capital and Solvency Return filings require a formal board declaration under Section 6A of the Insurance Prudential Standards (Class 4 Solvency Requirement) Order 2008
• Insurers must keep their risk register current with an assessment of material risks per the Insurance Code of Conduct
• Insurers wishing to use the Cat Return trial run extension must use the stand alone documents supplied by the Authority

Applies to

Class 4 insurers, Class 3B insurers, Bermuda insurance groups

Deadlines

• June 2011: Extended deadline for the catastrophe risk return (Cat Return) trial run filing
• 2011 year-end: Insurers must submit quarterly unaudited internal management financial statements