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

Summary

This is a Bermuda Monetary Authority notice announcing the finalised Insurance (Prudential Standards) (Class E Solvency Requirement) Rules 2011, made under section 6A of the Insurance Act 1978. The Rules prescribe how Class E long term insurers must calculate the Bermuda Solvency Capital Requirement (BSCR) and the enhanced capital requirement (ECR), and set out the related annual solvency reporting schedules filed with the Authority.

• Effective date: The Rules came into operation on 31 December 2011, following a 2010 market consultation and revisions based on 2011 industry feedback and data calls.
• Key changes from consultation draft: Replacement of executive management with chief and senior executives terminology; consolidation of the CISSA schedule into three worksheets; refinement of the credit risk charge for funds withheld to use the credit rating of assets withheld; a new Schedule V (risk management) and new Schedule IV Long Term (long term business premiums); and additional line items added to Schedule XII (eligible capital).
• ECR calculation and phase in: Every Class E insurer must calculate its ECR at the end of each relevant year using the Class E BSCR model or an approved internal capital model, and must maintain available statutory capital and surplus at or above the ECR. The full ECR is phased in over three years: 50 percent for the financial year ending 2011, 75 percent for 2012, and 100 percent from 2013 onward.
• Capital and solvency return: Every Class E insurer must file a capital and solvency return comprising the Class E BSCR model (electronic and printed) and Schedules II, IV, V, VI, VII, VIII, IX and XII, on or before its filing date, and must retain a copy at its principal office for five years.
• Declaration and offences: Each return must be accompanied by a declaration signed by two directors and the principal representative confirming it fairly represents the insurer's financial condition; knowingly or recklessly making a false or misleading statement or return is a summary offence punishable by a fine of up to $50,000.
• Internal capital models: Insurers may apply to the Authority to use an approved internal capital model instead of the Class E BSCR model; insurers may make written representations within 28 days of a notice of non-approval or proposed revocation.

The Rules themselves remain subject to final legislative review by the Attorney General's Chambers under the Statutory Instrument Act 1977, though no further substantive amendments were anticipated at the time of this notice.

Key obligations

• Every Class E insurer must calculate its ECR at the end of each relevant year using the Class E BSCR model or an approved internal capital model.
• Every Class E insurer must maintain available statutory capital and surplus equal to or exceeding the ECR.
• Every Class E insurer must make a capital and solvency return to the Authority comprising Schedules I, II, IV, V, VI, VII, VIII, IX and XII, filed on or before its filing date.
• Every Class E 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.
• Every capital and solvency return must be accompanied by a declaration signed by two directors and the principal representative.
• An insurer wishing to use an internal capital model instead of the Class E BSCR model must apply to the Authority for approval.
• An insurer served notice of non-approval or proposed revocation of an internal capital model may make written representations within 28 days of the notice.

Applies to

Class E insurers, long-term insurers

Deadlines

• 31st day of December 2011: Date on which the Insurance Prudential Standards (Class E Solvency Requirement) Rules 2011 come into operation.
• financial year ending in 2011: Applicable ECR is 50% of the amount determined by Schedule I or an approved internal capital model.
• financial year ending in 2012: Applicable ECR is 75% of the amount determined by Schedule I or an approved internal capital model.
• financial year ending in 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 its filing date: Deadline for an insurer to furnish the Authority with its capital and solvency return.
• five years beginning with its filing date: Period for which an insurer must retain a copy of its capital and solvency return at its principal office.