Eligible Capital Rules 2011

Summary

This is a Bermuda Monetary Authority rule (issued under the Insurance Act 1978) that defines what counts as eligible capital for insurers and sets the tiering structure and quantitative limits used to test whether an insurer meets its minimum margin of solvency and its enhanced capital requirement (ECR). It classifies capital instruments into Tier 1, Tier 2 and Tier 3 basic and ancillary capital based on loss absorbency, subordination, maturity and redemption features.

• Scope: Applies to Class 3A, Class 3B, Class 4 and Class E insurers licensed under the Insurance Act 1978.
• Capital tiering: Defines Tier 1 basic and ancillary capital, Tier 2 basic and ancillary capital, and Tier 3 basic and ancillary capital, each with detailed qualifying criteria (loss absorbency, subordination, maturity, non-redeemability, coupon deferrability, absence of set-off rights, and being unencumbered).
• Minimum margin of solvency test: Available statutory capital and surplus must equal or exceed the minimum margin of solvency, comprising at least 80 percent Tier 1 capital, with Tier 2 capital capped at 25 percent of the Tier 1 amount.
• ECR test for Class 3B and Class 4 insurers: Available statutory capital and surplus must equal or exceed the ECR, made up of at least 60 percent Tier 1 capital, Tier 2 capital capped at 66.67 percent of the Tier 1 amount, and Tier 3 capital capped at 17.65 percent of the combined Tier 1 and Tier 2 amounts (subject to an overall 66.67 percent limit).
• ECR test for Class 3A and Class E insurers: Available statutory capital and surplus must equal or exceed the ECR, made up of at least 50 percent Tier 1 capital, Tier 2 capital capped at the Tier 1 amount, and Tier 3 capital capped at 17.65 percent of the combined Tier 1 and Tier 2 amounts (subject to a limit equal to the Tier 1 amount).
• Encumbered assets adjustment: Sets out how encumbered assets held for policyholder obligations, and other encumbered assets, must be added back to or deducted from statutory capital and surplus calculations.

The rules state a commencement date of 31 December 2011, though the source metadata marks this version as a draft, so licensees should confirm current status and any subsequent finalised text before relying on it.

Key obligations

• Every Class 3A, Class 3B, Class 4 and Class E insurer must maintain available statutory capital and surplus equal to or exceeding its minimum margin of solvency, comprising at least 80 percent Tier 1 capital with Tier 2 capital not exceeding 25 percent of that Tier 1 amount.
• Every Class 3B and Class 4 insurer must maintain available statutory capital and surplus equal to or exceeding its ECR, comprising at least 60 percent Tier 1 capital, Tier 2 capital not exceeding 66.67 percent of the Tier 1 amount, and Tier 3 capital not exceeding 17.65 percent of the combined Tier 1 and Tier 2 amounts subject to an overall 66.67 percent cap.
• Every Class 3A and Class E insurer must maintain available statutory capital and surplus equal to or exceeding its ECR, comprising at least 50 percent Tier 1 capital, Tier 2 capital not exceeding the Tier 1 amount, and Tier 3 capital not exceeding 17.65 percent of the combined Tier 1 and Tier 2 amounts subject to a cap equal to the Tier 1 amount.
• Capital instruments must satisfy the specified qualifying criteria (loss absorbency, subordination, maturity, non-redeemability, coupon deferrability, no set-off rights, unencumbered status) to be classified and counted within the relevant capital tier.
• Insurers must adjust available statutory capital and surplus for encumbered assets held for policyholder obligations and other encumbered assets as set out in the calculation methodology.

Applies to

Class 3A insurers, Class 3B insurers, Class 4 insurers, Class E insurers

Deadlines

• 31 December 2011: Stated commencement date on which the Eligible Capital Rules 2011 come into force.

Related documents

• This document is made under Insurance Act 1978