Insurance (Prudential Standards) (Class 4 Solvency Requirement) Amendment Order 2010

Summary

This Order, made by the Bermuda Monetary Authority under section 6A of the Insurance Act 1978, amends the Insurance (Prudential Standards) (Class 4 Solvency Requirement) Order 2008. Its main effect is to extend the Class 4 solvency and risk management framework to Class 3B insurers, add new risk-related definitions, and introduce new commercial insurer's solvency self-assessment (CISSA) and catastrophe risk reporting schedules.

• Scope extended to Class 3B: Several provisions of the principal Order (paragraphs 3, 5, 6, and Schedules V and VI) are amended to insert Class 3B alongside Class 4, bringing Class 3B insurers within the same solvency, risk management and reporting requirements.
• New risk definitions: Adds definitions for catastrophe risk, concentration risk, credit risk, encumbered assets, group risk, legal risk, liquidity risk, market risk, operational risk, premium risk, reputational risk, reserve risk and strategic risk.
• Health line item added: Schedules I, III and IV are amended to insert a new Health line (with associated capital factors of 15.0% and 12.5% in Tables 4 and 5) and related reporting instructions.
• Risk register requirement: Schedule V is amended to require insurers to disclose a risk register describing material risks, risk owners, impact/probability assessments, and mitigation controls.
• New Schedules VII to X: Adds Schedule VII (CISSA capital summary, general questions, and material risk assessment tables), and Schedules VIII, IX and X (including a Catastrophe Risk Return and eligible capital/Tier 1-3 reporting tables).
• CISSA filing obligation: Insurers must undertake and file with the Authority a CISSA report assessing material risks and required capital, approved and signed by two board members.

The amendments took effect on 31 December 2010, but the new and amended Schedules (including the CISSA and catastrophe risk return requirements) only came into operation a year later, on 31 December 2011, giving affected insurers a transition period to prepare their systems and disclosures.

Key obligations

• Class 4 and Class 3B insurers must complete Schedule V's risk management disclosures, including a new risk register identifying material risks, risk owners, impact/probability assessment and mitigation controls.
• Class 4 and Class 3B insurers must undertake and file with the Authority a CISSA (Commercial Insurer's Solvency Self Assessment) report under Schedule VII, including capital summary tables, governance questions and a material risk assessment, approved and signed by two members of the Board of Directors.
• Insurers must report a new Health line item and associated capital charges (15.0% and 12.5%) in Schedules I, III and IV filings.
• Insurers must complete the new Catastrophe Risk Return under Schedule VIII and the eligible capital tables (Tiers 1-3) under the newly added Schedules.

Applies to

Class 4 insurers, Class 3B insurers, commercial insurers

Deadlines

• 31st day of December 2010: Commencement date of the Order's general amendments.
• 31st day of December 2011: Date on which the amended and new Schedules (including CISSA and catastrophe risk return requirements) come into effect.

Related documents

• This document is made under Insurance Act 1978