Guidance Note #4: Role of the Loss Reserve Specialist (March 2006)

Summary

This is Bermuda Monetary Authority Guidance Note #4 (March 2006), explaining the role, appointment, and reporting obligations of the Loss Reserve Specialist (LRS) under the Insurance Act 1978 and its regulations. It applies to all insurers registered under the Act that carry on general business, and to all Loss Reserve Specialists approved by the Authority.

• Appointment: Insurers required to obtain an LRS opinion must appoint an LRS and have the appointment approved in writing by the Authority.
• Notification duties: Insurers and LRSs must notify the Authority in writing of changes to application information, changes in LRS, resignations, or revocations, generally within 14 days.
• Statutory return opinions: Class 2, 3 and 4 insurers must include an LRS opinion on loss and loss expense provisions with their statutory financial return (annually for Class 3/4, every third year for Class 2); Class 1 insurers and some Class 2 insurers must obtain one where professional liability premium exceeds 30% of gross premium, in certain prior-year situations, or where discounting affects the solvency margin.
• Solvency failure filing: A Class 4 insurer whose capital falls to $75,000,000 or less and fails its general business solvency margin must file unaudited interim financial statements and an LRS opinion within 45 days, together with a solvency certificate and remediation report.
• Working papers and access: The LRS must retain supporting reports and records and make them available in Bermuda on request; insurers must give the LRS reasonable access to information needed to complete the opinion.
• Opinion format: The LRS opinion communicated with the statutory return must follow an eight-part minimum standard covering identification, scope, conditions and limitations, opinion, relevant comment, work papers, and signature.

The guidance also sets minimum standards the Authority expects insurers to observe, requiring compliance with Insurance Amendment Act 2004 changes immediately, and with other guidance matters no later than the filing of the insurer's statutory financial return for the 2006 financial year end, unless otherwise agreed with the Authority.

Key obligations

• Insurers writing general business must appoint an Authority-approved Loss Reserve Specialist where the Act requires an LRS opinion.
• Insurers must apply in writing to the Authority for approval of their LRS candidate.
• Insurers must notify the Authority in writing within 14 days of any change to information in the LRS application.
• Insurers must notify the Authority in writing within 14 days of a decision to change the LRS, with reasons.
• A resigning LRS must give the Authority written notice within 14 days if there are circumstances warranting disclosure.
• An LRS whose appointment is revoked must provide the Authority a written statement within 14 days if warranted by the circumstances.
• New LRS candidates must provide the Authority a letter of undertaking to perform duties per the Act and relevant professional standards.
• Class 2, 3 and 4 insurers must include an LRS opinion on loss and loss expense provisions with their statutory financial return (annually for Class 3 and 4; every third year for Class 2).
• Class 1 insurers and certain Class 2 insurers must obtain and include an LRS opinion where professional liability premiums exceed 30% of gross premium, in specified prior-year continuation scenarios, or where discounting loss provisions would otherwise fail the solvency margin on an undiscounted basis.
• A Class 4 insurer whose capital and surplus falls to $75,000,000 or less and that fails its general business solvency margin must file unaudited interim financial statements and an LRS opinion within 45 days, with a solvency certificate and a report on remediation.
• The LRS must retain relevant reports, records and documents and make them available for review in Bermuda upon the Authority's request.
• Insurers must make reasonable arrangements, including prompt provision of requested information, to enable the LRS to complete assigned responsibilities.
• The LRS opinion must be communicated in a report following the eight prescribed sections (identification, scope, conditions and limitations, opinion, relevant comment, work papers, and signature).

Applies to

Class 1 insurers, Class 2 insurers, Class 3 insurers, Class 4 insurers, insurers carrying on general business, Loss Reserve Specialists

Deadlines

• within 14 days of becoming aware of changes: Insurer must notify the Authority of changes to LRS application information.
• within 14 days of the decision to effect the change: Insurer must notify the Authority of a change in Loss Reserve Specialist and the reasons.
• within 14 days: A resigning LRS must give the Authority a written resignation letter with reasons, where warranted.
• within 14 days: An LRS whose appointment is revoked must provide the Authority a written statement of circumstances and reasons.
• within 45 days: Filing of unaudited interim statutory financial statements and LRS opinion, with solvency certificate and remediation report, following a Class 4 insurer's solvency margin failure.
• not later than the filing date of statutory financial returns for 2006 financial year ends: Deadline for insurers to come into compliance with other (non-2004-amendment) matters covered by the Guidance.