Notice - Insurance (Prudential Standards)(Class 4 and Class 3B Solvency Requirement) Amendment Rules 2011 (2011-11-14)

Summary

This notice announces final amendments to the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Rules 2008, following a 2011 market consultation. The Amendment Rules were attached to the notice and took effect on 31 December 2011. They affect the Bermuda Solvency Capital Requirement (BSCR) methodology and related solvency reporting schedules for Class 4 and Class 3B registered insurers.

• New definitions: Rule 2 adds definitions for double or multiple gearing, interest rate/liquidity risk, and material intra-group transaction (a transaction at or above 5 percent of available capital and surplus, or a linked series reaching 10 percent, or high qualitative risk).
• Model approval revocation: Rule 3/4 lets the Authority revoke approval of an internal capital model used for the Enhanced Capital Requirement (ECR) where it is no longer appropriate, including after substantial business changes.
• New quarterly financial return: A new Rule 6AB requires every insurer that is not part of a group for which BMA is the group supervisor to prepare and file quarterly financial returns (unaudited financial statements plus intra-group transaction and counterparty exposure detail) by the last day of May, August and November each year.
• Interest rate shock increase: Schedule I's interest rate adjustment for bonds is increased from 120 basis points (1.2 percent) to 200 basis points (2.0 percent), aligning with international standards.
• Expanded risk management disclosures: Schedule V is amended to require additional governance, group structure and intra-group exposure disclosures, and to require insurers to retain (for at least five years) supporting documentation used to derive probable maximum loss and average annual loss figures, available to the Authority on request.
• CISSA summary and eligible capital changes: Schedule VII's CISSA Capital Summary table (Table 8) is revised to separate operational risk and add a regulatory capital comparison column, with new qualitative questions; Schedule X (Schedule of Eligible Capital) is replaced with a new Tier 1/2/3 eligible capital table (Table 9) and capital instrument particulars (Table 9A).

The notice states the Rules were still subject to final legislative review by the Attorney General's Chambers under the Statutory Instrument Act 1977, though no further substantive changes were anticipated.

Key obligations

• Insurers not part of a group for which BMA is the appointed Group Wide Supervisor must file quarterly financial returns (unaudited financial statements, intra-group transaction details, and largest counterparty exposures) on or before the last day of May, August and November each year
• Insurers must apply the revised 200 basis point (2.0 percent) interest rate shock in Schedule I when calculating the BSCR
• Insurers must provide expanded governance, group structure and intra-group exposure disclosures under Schedule V, including a list and details of material intra-group transactions
• Insurers must retain supporting documentation used to derive gross/net probable maximum loss and average annual loss for at least five years after filing the related capital and solvency return, and produce it to the Authority on request
• Insurers must complete the revised CISSA Capital Summary (Table 8) and additional qualitative questions under Schedule VII
• Insurers must report eligible capital using the new Tier 1, Tier 2 and Tier 3 structure in Table 9 and capital instrument particulars in Table 9A under the replaced Schedule X

Applies to

Class 4 registered insurers, Class 3B registered insurers

Deadlines

• December 31, 2011: Effective date on which the Amendment Rules come into operation
• last day of May, August and November of every year: Deadline for filing quarterly financial returns under new Rule 6AB (for insurers not part of a BMA-supervised group)
• at least five years after a capital and solvency return has been filed: Minimum retention period for supporting documentation on probable maximum loss and average annual loss calculations under Schedule V