Response to Industry Comments - Standards and Application Framework for the Use of ICMs for Regulatory Capital Purposes (2012-09-28)

Summary

This is a Bermuda Monetary Authority (BMA) letter responding to industry comments received on its June 2012 consultation on the revised Guidance Note, Standards and Application Framework for the Use of Internal Capital Models (ICMs) for Regulatory Capital Purposes. It explains how the Authority addressed key stakeholder concerns and confirms minor clarifying amendments made to the Guidance Note before it is finalised.

• Board and senior management training: The Authority retains the requirement that insurers provide evidence of the nature and extent of training given to the Board and senior executives on the internal capital model, as part of the model approval application. It clarifies this is not intended to adjudicate individual Board members' fitness and propriety, and has amended section B.51 to refer to 'the Board' rather than 'Board members'.
• Liquidity risk modelling: The Authority confirms liquidity risk will be reviewed to the extent it is captured within an insurer's internal capital model, and has added a clarifying footnote in section A.11 and clarified this point throughout the Guidance Note (see also section B.125).
• Minor amendments: The Authority made minor clarifying amendments to sections 29, 50, A.11, A.17, B.6.6, B.102, C.44, C.63, C.91 and C.108 of the Guidance Note; it states these amendments do not change the substantive requirements published for comment in June 2012.

The letter is primarily explanatory and confirms the finalised approach to the Guidance Note's requirements following consultation; it does not itself introduce new deadlines or transitional periods.

Key obligations

• Insurers applying to use an internal capital model (ICM) for regulatory capital purposes must have the Board formally approve the model for use within the business.
• Insurers must provide evidence of the nature and extent of training given to the Board and senior executives regarding the ICM's key elements as part of the model approval application process.
• Insurers must be prepared for the model review process to involve on-site and off-site examinations and discussions with the insurer's staff or representatives, including the Board and senior executives where relevant.

Applies to

insurers using or applying to use internal capital models for regulatory capital purposes