Notice - BSCR Models for 2016 Year-End and Reporting Clarifications (2017-02-28)

Summary

This BMA notice addresses two things related to the 2016 year end BSCR (Bermuda Solvency Capital Requirement) reporting cycle for commercial insurers and insurance groups: a re-published version of the BSCR models to fix technical and formula errors, and a set of clarifications on how certain stress scenarios and schedules should be completed.

• Model re-publication: The Authority re-published the Class 4, Class 3B, Class 3A, Class C, Class D, Class E and Insurance Group BSCR models because insurers using Windows 10 experienced macro and functionality problems, and because Form 1SFS incorrectly referenced consolidated rather than unconsolidated columns for the Funds Held By Ceding Reinsurers note.
• Use of prior model: Insurers not affected by the Windows 10 issue or the Form 1SFS error may continue to use the model published on 2 December 2016.
• Inflation shock (R7): Insurers must apply inflation rates to inflation sensitive assets and liabilities, disclose details for any inflation adjusted investment notes, attach supporting documentation for all four inflation scenarios, and input the Severe Inflation scenario result in Schedule V(e).
• Mortgage loan shock (R8): Insurers writing mortgage business must shock the default rate to 9.47 percent; insurers holding agency MBS or real estate securities must shock the prepayment rate to 11.47 percent and apply an 11.47 percent default rate for non-agency MBS, report the cumulative result in Schedule V(e), attach supporting documentation, and answer the four R8 questions in the attachment.
• Cyber risk: (Re)insurers writing cyber risk products must provide details in Schedule V(e) and attach a template copy of the relevant (re)insurance contract; those with policies lacking a cyber exclusion clause (e.g. D&O covers with implicit cyber exposure) must attach details of the affected products.
• Catastrophe risk return: Schedules X(a), X(b) and X(f) figures for gross and net catastrophe premium and limits exposed (modeled and not modeled) must reconcile as clarified, so total catastrophe limits on Schedule X(a) equal total catastrophe limits on Schedule X(f).

The notice is informational and clarificatory in nature, aimed at ensuring consistent completion of the 2016 year end BSCR filings; queries can be directed to the Authority's risk analytics team.

Key obligations

• Insurers affected by the Windows 10 or Form 1SFS issue must use the re-published BSCR model for 2016 year end reporting
• Provide supporting documentation for all four R7 inflation stress scenarios and input the Severe Inflation scenario result in Schedule V(e)
• Disclose details of any inflation adjusted investment notes for the R7 inflation shock
• Shock mortgage business exposure by increasing the default rate to 9.47 percent and provide supporting documentation and answers to the four R8 questions in the attachment
• Shock agency MBS or real estate related investment prepayment rates to 11.47 percent and apply an 11.47 percent default rate for non-agency MBS, reporting the cumulative result in Schedule V(e)
• (Re)insurers writing cyber risk products must provide Schedule V(e) details and attach a template copy of the (re)insurance contract
• (Re)insurers with policies lacking a cyber exclusion clause must attach details of products with cyber exposure
• Ensure Schedule X(a), X(b) and X(f) catastrophe premium and limits figures reconcile as specified

Applies to

Class 4 insurers, Class 3B insurers, Class 3A insurers, Class C insurers, Class D insurers, Class E insurers, Insurance Groups