Response to the Own Risk and Solvency Assessment (ORSA) Process Discussion Paper Comments (2010-01-29)

Summary

This is a letter from the Bermuda Monetary Authority to Class 4 and 3B (Re)Insurers responding to industry comments received on its earlier Discussion Paper on the Own Risk and Solvency Assessment (ORSA) Process. It clarifies the Authority's thinking on several issues raised by stakeholders but does not itself impose new binding rules; it signals the direction the Authority intends to take as ORSA and related frameworks (electronic reporting, capital add-ons, group supervision, Code of Conduct) are developed.

• Streamlined electronic reporting: The Authority is developing an XBRL based electronic reporting platform for ORSA and related filings, will supply XBRL enabled filing documents, and will allow insurers using their own XBRL systems to file directly, with appropriate testing and implementation time before mandatory use.
• Capital add-ons: Capital add-ons will only be imposed in exceptional circumstances and as a last resort, where the Enhanced Capital Requirement (ECR) under the BSCR or an internal model is judged not prudent for the insurer's risk profile, or where material deficiencies exist in internal controls or governance. Insurers may challenge a proposed add-on and may appeal to an independent Tribunal under Section 44A of the Insurance Act 1978; an add-on is not in force during an appeal and, if ultimately imposed, takes effect no earlier than 90 days after the final decision.
• Group versus legal entity scope: ORSA's application to insurance groups will follow the definition of 'group' being developed under the Authority's group wide supervision regime, covering insurance and non insurance entities (regulated and unregulated), with unregulated entities' scope limited to intra group transactions and investments in unregulated entities.
• Risk taking versus risk assessment independence: The Authority acknowledges full independence between risk taking and risk assessment may not be feasible for all insurers, and is developing a Code of Conduct proposing that insurers establish a risk oversight function (which may be led by a Chief Risk Officer or shared among operational unit leaders) with a mechanism for direct reporting to the board or a board committee.

The letter is framed as a response to consultation feedback rather than a final rule, so most content describes the Authority's proposed approach and future direction rather than immediate compliance requirements.

Key obligations

• Insurers should be prepared to submit their own assessment of qualitative risks (such as reputational and strategic risk) and propose corresponding ECR adjustments where such risks are identified as material to the company
• Insurers proposing to file using internal XBRL systems should ensure their internal forms are XBRL enabled and undergo the Authority's testing process before implementation
• Insurers should be prepared to establish a risk oversight function (e.g., a Chief Risk Officer or shared responsibility among operational leaders) with a mechanism for direct reporting to the board or board committees, as anticipated under the forthcoming Code of Conduct

Applies to

Class 4 insurers, Class 3B insurers, (Re)Insurers

Deadlines

• 90 days from the date of the final decision: A capital add-on, if ultimately imposed after appeal, will not come into effect earlier than 90 days from the date of the Authority's final decision