Response to Industry - Amendment rules with respect to insurance group supervision and group solvency requirement (2012-11-13)

Summary

This is a letter from the Bermuda Monetary Authority responding to industry comments on draft amendment rules covering insurance group supervision and group solvency requirements, as well as related amendments to prudential rules for solo Class 4, 3B, Class E and Class 3A insurers. It summarises how the Authority has revised the rules in response to stakeholder feedback and sets out remaining transitional arrangements.

• Internal audit compensation: Wording revised so compensation of the group internal audit function head must not compromise independence, with the parent board (or committee) setting and periodically reviewing that compensation.
• Board responsibilities: References to the board having to ensure certain activities are undertaken have been softened to responsibility language, but a new requirement is added for the board to review the group solvency self assessment annually and after any changes.
• Eligible capital transitional provision: The Group Rules and the Eligible Capital Amendment Rules have been revised to add a transitional provision, extending to 1st January 2024, for instruments that otherwise meet eligible capital criteria except for redemption/settlement conditions.
• Public disclosure: Rules amended to require submission of an unaudited statement for public disclosure regarding the group's compliance with the minimum margin of solvency and the enhanced capital requirement (ECR).
• Actuarial opinion terminology: References to the Group Actuary's certificate in Schedule 2 are changed to refer to an opinion, consistent with the draft Guidance Note on Chief Actuary's Opinion.
• Bermuda dollar accounts: Prudential Standards rules amended to require accounts be stated in Bermuda dollars (exchange rate to US dollars treated as 1:1).
• Class 4 and 3B changes: Director signature on the CISSA is eliminated, but the Board must review the CISSA annually and after material changes; the statutory declaration must instead be signed by two directors (one may be CEO) plus the CRO or CFO; schedules adjusted to mirror electronic filings.
• Class E (Long-Term) changes: The ECR for Long-Term classes is repealed and will not take effect until 1st January 2014, phased in over three years; director signature on CISSA eliminated but annual Board review required; schedules adjusted for electronic filings.
• Class 3A changes: Director signature on CISSA eliminated but annual Board review required; a new declaration of capital and solvency returns must be signed by two directors and the insurer's principal representative; schedules adjusted for electronic filings.
• Group ECR timing: Legal enforceability of the group ECR is delayed until a date to be determined following further industry consultation, in light of Solvency II implementation delays in Europe.

The Authority invites any final comments on the revised rules to be submitted by a stated deadline, and indicates further communication on group ECR timing and transitional arrangements will follow before year end.

Key obligations

• The parent board (or an appropriate committee) must establish and periodically review compensation of the head of internal audit and set guidelines for other internal audit staff compensation.
• The board must review the group solvency self-assessment annually and after any material changes.
• Insurers must submit an unaudited statement for public disclosure of the group's compliance with the minimum margin of solvency and the ECR.
• Accounts under the amended Prudential Standards rules must be stated in Bermuda dollars.
• For Class 4 and 3B insurers, the statutory declaration must be signed by two directors (one of whom may be the chief executive) and either the chief risk officer or chief financial officer.
• For Class 4, 3B, Class E and Class 3A insurers, the Board must review the CISSA annually and after any material changes, even though director signature on the CISSA itself is no longer required.
• For Class 3A insurers, the declaration of capital and solvency returns must be signed by two directors and the insurer's principal representative.
• Any final comments on the revised Rules must be submitted to policy@bma.bm by Friday, 7th December 2012.

Applies to

insurance groups subject to group supervision, Class 4 insurers, Class 3B insurers, Class E insurers (Long-Term), Class 3A insurers, solo insurers subject to prudential supervision rules

Deadlines

• Friday, 7th December 2012: Deadline for stakeholders to submit any final comments on the revised Rules to policy@bma.bm.
• 1st January 2014: Deferred effective date for the ECR and eligible capital rules applicable to Long-Term (Class E) companies; ECR to be phased in over 3 years from this date.
• 1st January 2024: Transitional provision deadline for inclusion of certain instruments in eligible capital under the Group Rules and Eligible Capital Amendment Rules.