Response to Industry Comments - The Insurance (Group Supervision) Rules 2011

Summary

This is the Bermuda Monetary Authority's written response to industry comments received on the draft Insurance (Group Supervision) Rules 2011. It works through numbered topics raised by insurers and clarifies how the final Group Rules will operate, including their interaction with the Insurance Code of Conduct, the role of the Designated Insurer (DI), board and executive responsibilities, capital and solvency requirements, and reporting obligations for insurance groups supervised by the Authority.

• Scope and governance: The Group Rules apply to insurance groups for which the Authority is group supervisor; the Authority will appoint a Designated Insurer (DI) for each group, and the parent board is responsible for risk tolerance, capital adequacy oversight, and establishing key functions (internal audit, compliance, risk management, actuarial).
• Capital and solvency: The parent board must ensure the group's assets exceed liabilities by the aggregate minimum margin of solvency (MSM) of qualifying members, and that the group holds eligible capital equal to or exceeding the greater of the MSM and the group Enhanced Capital Requirement (ECR); an aggregation approach to capital may be permitted on application.
• DI reporting duties: The DI must notify the Authority if the group fails to meet the MSM or ECR, must file a capital and solvency return with a declaration of solvency if the ECR is breached, and must notify the Authority of material breaches of statutory requirements by any group member located outside Bermuda.
• Group ORSA and documentation: The Group Solvency Self-Assessment (GSSA) serves as the group ORSA; groups must maintain supporting workpapers, board minutes and documentation of models used to determine solvency and capital requirements.
• Capital instrument classification: Guidance is given on classification of subordinated debt, letters of credit, pooled guarantees and grandfathered hybrid instruments for tier 1/tier 3 eligible capital purposes.
• Reinsurance and certification reporting: Groups must furnish particulars of ceded reinsurance for their top ten unaffiliated reinsurers and any reinsurer with recoverables exceeding 15 percent of group statutory capital and surplus, and the insurance group business solvency certificate must be signed by at least two parent board directors and the group CEO.

The Group Rules were confirmed to commence on 1 January 2013, other than the requirements for filing statutory returns and group financial statements, and compliance with enhanced capital requirements under the related Group Solvency Requirement Rules 2011 also does not commence until 1 January 2013. The Authority indicates further detail on the DI's statutory obligations and role of the Principal Representative will be set out in a forthcoming Guidance Note.

Key obligations

• The parent board must ensure the insurance group's assets exceed its liabilities by the aggregate minimum margin of solvency (MSM) of each qualifying member
• The parent board must ensure the group holds eligible capital equal to or exceeding the greater of the MSM and the insurance group ECR
• The Designated Insurer (DI) must notify the Authority if it knows or has reason to believe the insurance group has failed to meet the MSM or ECR
• If the insurance group fails to meet the ECR, the DI must file a capital and solvency return prepared using post-loss data and unaudited interim statutory financial statements, together with a declaration of solvency
• The DI must notify the Authority of material breaches of statutory requirements by any group member located outside Bermuda that could lead to supervisory or enforcement action
• The parent board must confirm organisational, governance and communications structures are in place to support the DI's role
• An insurance group must furnish the Authority with particulars of ceded reinsurance of its top ten unaffiliated reinsurers and any reinsurer with recoverable balances exceeding 15% of the group's statutory capital and surplus
• The insurance group business solvency certificate must be signed by at least two directors of the parent board and the group's chief executive officer
• The group actuary's certificate must state whether the aggregate liabilities of the group exceeded those shown in the group statutory balance sheet, and must be signed and dated

Applies to

insurance groups, designated insurers (DI), insurers registered under Section 4 of the Insurance Act 1978, parent boards of insurance groups

Deadlines

• 1st January, 2013: Commencement of the Insurance (Group Supervision) Rules 2011, except for requirements relating to filing of statutory returns and group financial statements
• 1st January, 2013: Commencement of compliance with enhanced capital requirements under the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011