Response to the Consultation Paper on the Solvency Framework for Long-Term Insurers (2010-11-30)

Summary

This is the Bermuda Monetary Authority's formal response to industry feedback on its Consultation Paper on the Solvency Framework for Long-Term Insurers. It confirms and refines the classification system (Class A through E), revises capital requirements, and sets out a phased implementation timetable with specific filing deadlines for 2011 and 2012.

• Classification: Confirms a Class A to E licensing system; the Authority may reclassify an insurer based on risk characteristics, with a guidance note on long-term classification expected by December 15, 2010.
• Capital requirements: Revises the Minimum Margin of Solvency (MSM) tables by class and calibrates the Enhanced Capital Requirement (ECR) at a 99% TVaR confidence level; a separate, simplified BSCR template is created for Class C insurers.
• Phase-in: New ECR and MSM standards will be phased in over three years: 50% of the ultimate capital requirement in year one, 75% in year two, and 100% from year three onward.
• CISSA reporting: Consolidates the CISSA form to three worksheets and creates a simplified Class C version; dual licensed insurers may use group BSCR/CISSA templates.
• Internal capital models: Describes an evolving ICM review process; the Authority does not expect to approve a Long-Term business ICM before the end of 2011, and will run a Class E trial exercise in spring 2011.
• Other areas addressed: Economic balance sheet reporting, public disclosures and transparency (with limited waiver scenarios), group-wide supervision, and eligible capital treatment of trust account collateral and letters of credit.
• Filing schedule: Sets detailed 2011 and 2012 filing deadlines (financial statements, trial runs, BSCR-LT, CISSA-LT, reclassification applications) differentiated by insurer size and class.

Class A and Class B insurers are only required to meet the Minimum Margin of Solvency and are not subject to the other new requirements. The framework applies to general funds of Segregated Account Companies but not to business administered within segregated accounts.

Key obligations

• Insurers must meet phased-in ECR and MSM capital requirements: 50% of the ultimate requirement in year one, 75% in year two, and 100% in year three and onward.
• Class A and Class B insurers must comply with the Minimum Margin of Solvency requirements.
• Insurers with $500 million or more in assets must file 2010 financial statements by April 30, 2011.
• Insurers with $500 million or more in assets must complete the 2010 year-end trial run (BSCR-LT, CISSA-LT, underwriting performance review, investments, group wide supervision, product information, eligible capital, risk register) by June 30, 2011, unless exempted by the Authority.
• Insurers with $500 million or more in assets must submit a reclassification application (if not previously submitted) by September 30, 2011.
• Insurers with less than $500 million in assets must file 2010 financial statements by April 30, 2011 and a reclassification application by September 30, 2011.
• Class E insurers must file 2011 year-end statements (financial statements, BSCR, CISSA, underwriting performance, investments and derivatives, group exposure, product information, eligible capital, economic balance sheet, public disclosures, risk register) by April 30, 2012.
• Class C and Class D insurers must file 2011 financial statements by April 30, 2012 and complete the 2011 year-end trial run by June 30, 2012.
• Long-term insurance groups not already subject to group supervision under Class 3B or Class 4 requirements must complete the 2011 year-end trial run (financial reports, corporate governance, risk management, solvency information) by June 30, 2012.
• Dual licensed insurers may use the group BSCR template or an internal capital model on a combined general and long-term business basis to determine the ECR, and may use the group CISSA template for risk reporting.

Applies to

long-term insurers, reinsurers, Class A insurers, Class B insurers, Class C insurers, Class D insurers, Class E insurers, dual licensed insurers, long-term insurance groups, segregated account companies

Deadlines

• December 15, 2010: Authority expected to publish guidance note on long-term insurer classification.
• December 3, 2010: Authority expected to publish draft Eligible Capital rules legislation for comment.
• April 30, 2011: 2010 financial statements due for insurers with $500 million or more in assets and for insurers with less than $500 million in assets.
• June 30, 2011: 2010 year end trial run filings due (BSCR-LT, CISSA-LT, underwriting performance review, investments, group wide supervision, product information, eligible capital, risk register) for insurers with $500 million or more in assets, unless exempted.
• September 30, 2011: Reclassification application due (if not previously submitted) for both larger and smaller insurers.
• April 30, 2012: 2011 year end statements/financial statements due for Class E insurers and for Class C and Class D insurers.
• June 30, 2012: 2011 year end trial run due for Class C and Class D insurers and for long-term insurance groups not already subject to group supervision.
• second quarter of 2011: Anticipated update Consultation Paper on Disclosure and Transparency requirements.
• end of 2011: Authority does not anticipate approving a Long-Term business internal capital model before this time.