Stakeholder Letter on Proposed Enhancements to the Regulatory Regime and Fees for Commercial Insurers (2023-07-28)

Summary

This is a stakeholder letter from the Bermuda Monetary Authority (BMA) responding to industry feedback on its February 2023 Consultation Paper (CP1) proposing enhancements to the regulatory regime and fees for commercial insurers. It summarises the feedback received, the Authority's responses, and the revisions being carried into a second consultation paper (CP2), and it sets out the Authority's revised fee schedule in an appendix.

• Technical provisions: Feedback on risk margin (unconsolidated basis), Scenario Based Approach (SBA) eligibility and approval process, and Standard Approach discount curves; BMA revised SBA approval triggers, renamed the Base Lapse Adjustment to Lapse Cost, clarified default/downgrade cost exceptions, and set expectations for asset ring-fencing and internal audit oversight of SBA models.
• BSCR computation: Refinements to long-term lapse and expense risk charges, including added prudential liquidity requirements for mass lapse risk, and revisions to the property and casualty catastrophe risk module (man-made catastrophe submodule), with a three-year phase-in starting year-end 2024 reporting.
• Fees: The Authority will proceed with a three-year transitional/phase-in period for increased annual business fees for long-term entities and will consider case-by-case fee amendment requests under Section 14(10) of the Insurance Act; fee proposals themselves are not being re-consulted on.
• Impact assessment: Trial-run submissions from nearly 50 insurers indicate a moderate negative solvency impact for long-term insurers and a smaller impact for P&C insurers, with diversification benefits limiting the aggregate capital effect.

The appendix sets out a detailed, revised fee table for Section 6D applications, Class C, D and E insurers, retail-business supplements, and Internationally Active Insurance Groups (IAIGs), with a stated general due date for annual business fees.

Key obligations

• Annual business fees under the revised fee schedule are due on or before 31 March
• Insurers using the Scenario Based Approach (SBA) must ensure assets backing SBA liabilities are not used or pledged for any purpose other than meeting the policyholder liabilities they are assigned to, and must establish adequate controls to that effect
• Insurers using the SBA must provide holistic annual regulatory reporting on SBA model risk management activities, including internal audit activities
• Existing insurers using the SBA must obtain BMA's prior approval where there are material changes to their existing SBA model
• Insurers seeking a fee amendment must submit a request to the BMA for case-by-case consideration under Section 14(10) of the Insurance Act

Applies to

Commercial insurers, Long-term insurers, Property and casualty (P&C) insurers, Class C insurers, Class D insurers, Class E insurers, Insurers using the Scenario Based Approach (SBA), Internationally Active Insurance Groups (IAIGs)

Deadlines

• 31 March: Annual business fees under the revised fee schedule are due on or before this date
• year-end 2024 reporting: Start of the three-year phase-in period for the new man-made catastrophe risk charges
• three-year transitional/phase-in period: Phase-in period for increased annual business fees for long-term entities