Notice - Insurance (Prudential Standards)(Class 3A Solvency Requirement) Rules 2011 (2011-11-14)

Summary

This notice from the Bermuda Monetary Authority accompanies the draft Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011, which set out the method for calculating the Bermuda Solvency Capital Requirement (BSCR) for Class 3A insurers and the related annual solvency reporting. The Rules were revised following industry consultation and were still subject to final legislative review by the Attorney General's Chambers at the time of this notice.

• Terminology and interpretation: "Executive management" replaced with "chief and senior executives" for consistency with the Insurance Code of Conduct 2010 and Insurance Act 1978; interpretation sections updated across the Rules.
• Operational risk charge: A new operational risk charge added under Schedule I, based on Corporate Governance and Risk Management Function score tables.
• CISSA (Schedule VII) changes: Question 11 on models/tools removed from Schedule VII(c); a new question 7 added to Schedule VII(a) requiring detail on restricted subsidiary assets.
• Premium and reserve risk charges: Amended under Schedule I to allow credit for statutory line of business diversification and for favourable CISSA Risk Mitigation Strategy and Concentration Risk Mitigation Strategy responses.
• Catastrophe Risk Return: Schedule VIII updated to request both gross and net exposures.

The Rules require every Class 3A insurer to calculate its Enhanced Capital Requirement (ECR) at the end of each financial year using either the BSCR-SME model or an Authority-approved internal capital model, and to maintain available statutory capital and surplus equal to or exceeding the ECR. The ECR is phased in over three years, and insurers must file an annual capital and solvency return and retain records for five years.

Key obligations

• Every Class 3A insurer must calculate its ECR at the end of its relevant financial year using the BSCR-SME model or an approved internal capital model.
• Every Class 3A insurer must maintain available statutory capital and surplus equal to or exceeding the value of its ECR, subject to the three-year phase-in (50% for FY2011, 75% for FY2012, 100% for FY2013 and beyond).
• An insurer wishing to use an internal capital model instead of the BSCR-SME model must apply to the Authority for approval, satisfying the Authority as to appropriateness, integration into risk management, and control frameworks.
• An insurer served notice of non-approval or of proposed revocation of an internal capital model may make written representations to the Authority within 28 days of the notice.
• Every Class 3A insurer must furnish the Authority with its capital and solvency return (electronic and printed BSCR-SME model plus Schedules II, III, IV, V, VI, VII, VIII and X, and if applicable a printed approved internal capital model) on or before its filing date.
• An insurer must keep a copy of its capital and solvency return at its principal office for five years from its filing date and produce it to the Authority if directed, by the specified date.

Applies to

Class 3A insurers

Deadlines

• 31 December 2011: Date the Rules come into force / commencement.
• financial year ending 2011: Applicable ECR is 50% of the amount determined by Schedule I or an approved internal capital model.
• financial year ending 2012: Applicable ECR is 75% of the amount determined by Schedule I or an approved internal capital model.
• financial year ending 2013 and beyond: Applicable ECR is the full amount determined by Schedule I or an approved internal capital model.
• 28 days from the date of the notice: Period within which an insurer may make written representations to the Authority after being notified of non-approval or proposed revocation of an internal capital model.
• on or before filing date (per section 17(4) of the Insurance Act 1978): Deadline for an insurer to furnish its capital and solvency return to the Authority.
• five years from filing date: Period for which an insurer must retain a copy of its capital and solvency return at its principal office.