Notice - Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2013 - Update (2013-10-31)

Summary

This BMA notice finalises the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2013, following a public consultation on draft rules issued on 2 July 2013. It confirms the final changes made to the Schedules of the underlying solvency rules and revokes and replaces Schedules I through XII of the principal Rules with updated versions.

• Fixed income investments: Clarifies that sovereign-guaranteed bonds issued in the sovereign's own currency and rated AA- or better qualify for a BSCR rating of 0 (except mortgage-backed securities), and reduces the capital charge for mortgages not in good standing from 35% to 25%.
• Eligible capital schedule: Allows capital requirements associated with policyholder obligations to be offset against excess encumbered assets transferred from Tier 1 to Tier 2, and changes the presentation of the calculation comparing encumbered assets for policyholder obligations against those obligations.
• Other amendments: Various further changes to the Schedules are described as minor housekeeping amendments arising from internal review or industry consultation feedback.
• Paragraph 6 amendment: Inserts references to new Schedules IIA and VIIIA into paragraph 6 of the principal Rules.
• Stakeholder letter: The Authority published a general stakeholder letter responding to issues raised by the market during consultation, available separately on its website.

The amendments, including the fully revised Schedules I through XII, became effective on 1 January 2014, affecting Class C, Class D and Class E insurers' calculation of the Bermuda Solvency Capital Requirement (BSCR) and eligible capital.

Key obligations

• Class C, Class D and Class E insurers must calculate fixed income investment risk capital using the revised BSCR rating factors, including the 0% factor for qualifying AA- or better rated sovereign-guaranteed bonds and the reduced 25% factor for mortgages not in good standing.
• Class C, Class D and Class E insurers must apply the revised Eligible Capital schedule methodology for offsetting capital requirements associated with policyholder obligations against excess encumbered assets transferred from Tier 1 to Tier 2.
• Insurers must use the replaced Schedules I through XII of the principal Rules for BSCR and solvency calculations from the effective date.

Applies to

Class C insurers, Class D insurers, Class E insurers

Deadlines

• 1st January 2014: Effective date on which the amendments to the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules come into operation.

Related documents

• This document amends Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011