Stakeholder Letter on EBS and BSCR Trial Run Report

Summary

This is a 2016 stakeholder letter from the Bermuda Monetary Authority (BMA) summarizing the results of the 2015 Economic Balance Sheet (EBS) and Bermuda Solvency Capital Requirement (BSCR) trial run conducted with commercial insurers. It reports on industry feedback and confirms the Authority's conclusions on the EBS/BSCR framework going forward; it is informational rather than a new binding rule.

• Trial run scope: For 2015, commercial insurers were required to submit an EBS trial run alongside their regular statutory filing, including BSCR capital charge amendments for cash and cash equivalents credit risk, currency risk, concentration risk, and geographic diversification (general business only).
• Results: No participants breached their Target Capital Level (120% of the Enhanced Capital Requirement) as a result of the EBS/BSCR changes, and the Authority found no significant overall impact.
• Currency risk clarification: Insurers without three years of EBS-basis data may use unconsolidated/non-EBS figures until EBS data is available; newly formed insurers without prior-year data should submit current year balances without the currency risk charge.
• Concentration risk clarification: Counterparty exposure grouping should consider control relationships and economic inter-dependence between counterparties.
• No 2016 legislative changes: The Authority concluded the EBS framework and BSCR changes form a sound basis for regulatory reporting and confirmed no significant legislative amendments in 2016.
• Future consultation: A further consultation paper on proposed BSCR changes was expected in Q4 2016, intended for implementation from 2017 year-end filings onward.

The letter does not itself impose new ongoing obligations beyond the already-completed 2015 trial run, but signals that additional guidance will be incorporated into the Capital and Solvency Return Instruction Handbook and Guidance Note for Statutory Reporting Regime, and that further BSCR changes were anticipated for 2017 and beyond.

Key obligations

• Commercial insurers were required to include an EBS trial run submission (with BSCR capital charge amendments for cash/cash equivalents credit risk, currency risk, concentration risk, and geographic diversification for general business) in their 2015 regular statutory filing.
• Insurers lacking three years of EBS-basis data must use unconsolidated/non-EBS figures until EBS data becomes available when calculating the currency risk BSCR proxy.
• Newly formed insurers without prior-year data must submit current year balances without applying the currency risk charge.
• Insurers must assess counterparty exposure for concentration risk purposes based on control relationships and economic inter-dependence.

Applies to

commercial insurers, insurance groups

Deadlines

• Q4-2016: Expected release of a further consultation paper proposing BSCR changes
• 2017 year-end filings and beyond: Anticipated implementation date for proposed BSCR changes from the Q4-2016 consultation