Response to Comments on the Consultation Paper on the CISSA (2010-12-08)

Summary

This is a letter from the Bermuda Monetary Authority responding to industry comments on its earlier Consultation Paper on the Commercial Insurer's Solvency Self Assessment (CISSA), which is Bermuda's equivalent of the ORSA regime under Solvency II and IAIS standards. It clarifies the Authority's positions on numerous points raised during consultation rather than introducing new rules from scratch, but in doing so it confirms several concrete filing and governance requirements for insurers.

• Reporting template: The CISSA return format has been revised to align with ORSA requirements under IAIS and Solvency II, giving insurers flexibility to describe their own risk and capital assessment methods.
• Regulatory capital computation: Insurers must submit regulatory capital computed at 99.0% Tail Value at Risk, using an Authority-approved internal model or the Bermuda Solvency Capital Requirement (BSCR) if no approved internal model is used, in addition to their own CISSA capital figure.
• Materiality and proportionality: The Authority will apply a consistent definition of materiality and will assess whether an insurer's CISSA processes are proportionate to the nature, scale and complexity of its business.
• Independent review and board sign-off: CISSA must include an oversight process with independent review (internal or external), and the board must declare that the CISSA is appropriate and aligned with the insurer's plans.
• Unquantified risks: Where risks such as reputational, liquidity, group or strategic risk are not quantified, insurers should record a nil amount in the CISSA return but must still show mechanisms for managing those risks.
• Legal entity vs group CISSA: Where the Authority is Group-wide Supervisor, insurers must generally file both a legal entity CISSA and a group CISSA, though exemptions or abbreviated filings may be sought under Section 6A of the Insurance Act where risk management is centralised and largely duplicative.
• Filing consolidation and timing: CISSA submissions will be consolidated within the annual Capital and Solvency Return, consistent with Solvency II's Solvency and Financial Condition Report approach; the underlying CISSA work can be performed at any point during the preceding year.
• Trial run extension: The Authority has extended the mandatory trial runs for CISSA and related documents to June 2011.

Overall, the letter confirms that CISSA will proceed largely as proposed, with clarified expectations on capital computation, board and independent review responsibilities, and the legal entity/group filing structure, while giving insurers additional time via the extended trial run period.

Key obligations

• Insurers must submit regulatory capital computed at 99.0% Tail Value at Risk using an Authority-approved internal model or the BSCR, in addition to their own CISSA capital assessment.
• Insurers must ensure the CISSA process and return undergo an appropriate oversight process involving independent review, conducted in accordance with the proportionality principle.
• The insurer's board must formally declare that it believes the CISSA is appropriate and aligned with the insurer's plans.
• Where risks such as reputational, liquidity, group or strategic risk are not quantified, insurers must record a nil amount in the CISSA return and demonstrate mechanisms for managing those risks.
• Where the Authority is Group-wide Supervisor, insurers must file a legal entity CISSA in addition to the group CISSA, unless an exemption or modification is granted under Section 6A of the Insurance Act.
• Where the Authority is not the Group-wide Supervisor, insurers must still submit a legal entity CISSA unless the group CISSA submitted to the GWS is broadly equivalent and the Bermuda legal entity's results are discernible.
• Insurers must file the CISSA submission as part of their annual Capital and Solvency Return filing, reflecting the insurer's current view of its risk and solvency position.

Applies to

commercial insurers, insurance groups

Deadlines

• June 2011: Extended deadline for mandatory trial runs of CISSA and other related documents.