Notice - Insurance (Group Supervision) Rules 2012 (2012-11-14)

Summary

This is a Bermuda Monetary Authority notice summarising industry feedback from the June 2012 consultation on the Insurance (Group Supervision) Rules and confirming the Authority's finalised policy positions. It also reproduces the full text of the resulting Insurance (Group Supervision) Amendment Rules 2012, which amend the principal 2011 Rules and are due to commence on 1 January 2013 (with one provision on 1 January 2014).

• Internal audit compensation: A new provision requires that compensation of persons responsible for the group internal audit function not compromise their independence; the parent board or a committee must establish and periodically review the head of internal audit's compensation and set guidelines for other internal audit staff.
• Board responsibilities: Language requiring the board to 'ensure' certain matters is replaced with language framing these as board responsibilities; a new duty is added for the parent board to review the group's solvency self-assessment and any changes annually.
• Eligible capital transition: Instruments that otherwise meet the Rules' capital quality criteria but lack the required non-redeemability/replacement feature on an ECR breach may continue to count as Tier 1, 2 or 3 capital until 1 January 2024.
• ECR suspended: The Enhanced Capital Requirement (ECR) requirement is suspended until 1 January 2014 while its implementation remains under consultation.
• Public disclosure statement: Group financial statements must be accompanied by an unaudited statement for public disclosure regarding the group's compliance with the minimum margin of solvency (MSM) and the ECR.
• Actuarial opinion terminology: References to the Group Actuary's certificate in Schedule 2 are changed to an 'opinion' for consistency with related guidance.
• Forms and Schedule 2 replaced: Forms 1, 2 and 8 of Schedule 1 and the whole of Schedule 2 to the principal Rules are revoked and replaced.

The notice invited further comments on the Rules by 7 December 2012, and the Authority indicated the changes described are final absent any substantive policy issues requiring further review.

Key obligations

• The parent board or an appropriate committee must establish and periodically review the compensation of the head of the group internal audit function and set guidelines for other internal audit staff compensation, to preserve its independence.
• The parent board must review annually the group's solvency self-assessment and any changes to it.
• Insurance groups must ensure the value of group assets exceeds group liabilities by the required minimum margin of solvency (MSM) calculation set out in amended paragraph 19.
• Group financial statements must be accompanied by an unaudited statement for public disclosure on the group's compliance with the MSM and ECR.
• Instruments included in eligible capital that lack the required non-redeemable/replacement-on-breach feature may only continue to be counted as Tier 1, 2 or 3 capital until 1 January 2024, after which they must meet the full requirement.
• Industry stakeholders wishing to comment on the Rules were required to submit comments to policy@bma.bm by 7 December 2012.

Applies to

insurance groups, parent companies of insurance groups, licensed insurers subject to group supervision

Deadlines

• 7th December 2012: Deadline for industry comments on the Rules, to be sent to policy@bma.bm.
• 1 January 2013: Commencement date for paragraphs 3 to 19, 21, 22 and 29 of the Insurance (Group Supervision) Amendment Rules 2012.
• 1 January 2014: Commencement date for paragraph 20 of the Amendment Rules, and the date until which the ECR requirement is suspended.
• 1 January 2024: End of transitional period during which qualifying capital instruments lacking the non-redeemable/replacement feature may still count as eligible Tier 1, 2 or 3 capital.

Related documents

• This document amends Insurance (Group Supervision) Rules 2011