Catastrophe Risk Return Guidelines (December 2016)

Summary

These BMA guidelines explain how insurers must complete the Catastrophe Risk Return (Cat Return), which is embedded within the annual Capital and Solvency Return. They update the original July 2014 guidelines to clarify concepts and make compliance easier, covering catastrophe risk assessment, stress and scenario testing, and the specific data schedules insurers must populate.

• Who must file: All Insurance Groups, Class 4 and Class 3B insurers (including reinsurers) must complete and submit the Cat Return annually, as must Class 3A insurers that write property catastrophe business.
• Waivers: Insurers that do not retain catastrophe exposure may apply to the Authority for an exemption from filing, or may submit a Nil Return instead.
• Required schedules: The Cat Return must include Company Information, EP Curve Total and EP Curve Insurance sheets, EP Curves for five region-perils (Atlantic hurricane, North American earthquake, European windstorm, Japanese earthquake, Japanese typhoon), Region-Peril Exposure to Zones and Statutory Lines, Accumulations Overview, Data Analysis, Reinsurance Disclosures, Insurance Terrorism Exposure, Reinsurance Terrorism Limits, and Assumed Exchange Rates.
• EP Curve Insurance threshold: An EP Curve for insurance on aggregated region-perils is required whenever insurance net premiums exceed 10 percent of total net premiums written.
• Purpose of the return: The Authority uses the Cat Return to assess the reasonableness of catastrophe model inputs into regulatory capital, to evaluate liquidity risk from catastrophe exposure, to introduce terrorism exposure assessment, and to publish aggregated catastrophe modelling practice information for the Bermuda market.

The guidance also sets out detailed definitions (modelable, not-modelable, data deficient, model deficient, modelled, proportional, etc.) and worked numerical illustrations to standardise how insurers report gross, ground-up and net loss figures, including guidance on assumed exchange rates for EUR, GBP, Yen and CHF.

Key obligations

• Insurance Groups, Class 4 and Class 3B insurers must complete and submit the Cat Return annually from 2010 year-end onward, unless granted a waiver.
• Class 3A insurers writing property catastrophe business must complete and submit the Cat Return annually from 2011 year-end onward.
• Insurers not retaining catastrophe exposure must either apply to the Authority for an exemption from filing or submit a Nil Return.
• Insurers must complete EP Curve Total, EP Curve Insurance, and the five region-peril EP Curve sheets as part of the Cat Return.
• Insurers must provide an EP Curve for insurance on aggregated region-perils whenever insurance net premiums exceed 10 percent of total net premiums written.
• Insurers must complete all required Cat Return sheets, including Reinsurance Disclosures, Insurance Terrorism Exposure, Reinsurance Terrorism Limits, and Assumed Exchange Rates, and provide assumed exchange rates for USD:EUR, USD:GBP, USD:Yen and USD:CHF (and other currencies where relevant).
• Insurers must be prepared to provide additional information or permutations if requested by the Authority to resolve questions or comparability issues.

Applies to

Insurance Groups, Class 4 insurers, Class 3B insurers, Class 3A insurers writing property catastrophe business, Reinsurers

Deadlines

• annual filing from 2010 year-end and beyond: Insurance Groups, Class 4 and Class 3B insurers required to submit the Cat Return annually
• annual filing from 2011 year-end and beyond: Class 3A insurers writing property catastrophe business required to submit the Cat Return annually