Insurance (Eligible Capital) Rules 2012 (BR 62/2012)

Summary

These Rules, made by the Bermuda Monetary Authority under the Insurance Act 1978, set out how an insurer's available statutory capital and surplus must be classified into capital tiers (tier 1, 2 and 3, each split into basic and ancillary components) and how much of each tier may count towards meeting the insurer's minimum margin of solvency (MSM) and enhanced capital requirement (ECR).

• Capital tiering: Defines detailed qualifying criteria (subordination, maturity, redemption restrictions, loss absorbency, coupon deferability, no set off rights, unencumbered status) for classifying capital instruments and surplus as tier 1 basic, tier 1 ancillary, tier 2 basic, tier 2 ancillary, tier 3 basic or tier 3 ancillary capital.
• MSM coverage: Available statutory capital and surplus must equal or exceed the minimum margin of solvency, with tier 1 capital at least 80% of that value and tier 2 capital capped at 25% of the tier 1 amount.
• ECR coverage for Class 3B and Class 4 insurers: Tier 1 capital must be at least 60% of the ECR, tier 2 capped at 66.67% of tier 1, and tier 3 capped at 17.65% of the tier 1 plus tier 2 aggregate, subject to combined tier 2 and tier 3 not exceeding 66.67% of tier 1.
• ECR coverage for Class 3A, C, D and E insurers: Tier 1 capital must be at least 50% of the ECR, tier 2 capped at the tier 1 amount, and tier 3 capped at 17.65% of the tier 1 plus tier 2 aggregate, subject to combined tier 2 and tier 3 not exceeding the tier 1 amount.
• Transitional relief: Certain capital instruments that do not meet specified coupon cancellation/deferral or non redemption features may still count toward tier 1, 2 or 3 capital until 1 January 2026.

The Rules came into operation on 1 January 2013 and have been amended several times since, most recently affecting sub rules on capital tiering and the Rule 3 ECR/MSM coverage calculations.

Key obligations

• Class 3A, Class 3B, Class 4, Class C, Class D and Class E insurers must maintain available statutory capital and surplus equal to or exceeding their minimum margin of solvency, comprised of tier 1 capital of at least 80% of the MSM value and tier 2 capital not exceeding 25% of that tier 1 amount.
• Class 3B and Class 4 insurers must maintain available statutory capital and surplus equal to or exceeding their ECR, with tier 1 capital at least 60% of the ECR, tier 2 capital not more than 66.67% of tier 1, and tier 3 capital not more than 17.65% of the tier 1 and tier 2 aggregate (subject to the combined tier 2/tier 3 cap of 66.67% of tier 1).
• Class 3A, Class C, Class D and Class E insurers must maintain available statutory capital and surplus equal to or exceeding their ECR, with tier 1 capital at least 50% of the ECR, tier 2 capital not more than the tier 1 amount, and tier 3 capital not more than 17.65% of the tier 1 and tier 2 aggregate (subject to the combined tier 2/tier 3 cap equal to the tier 1 amount).
• Insurers must classify capital instruments into the correct tier using the criteria in sub-rules (2) to (7) (subordination, maturity, redeemability, loss absorbency, coupon deferability, absence of set off rights, and unencumbered status) when calculating eligible capital.

Applies to

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

Deadlines

• 1 January 2013: Commencement date on which the Insurance (Eligible Capital) Rules 2012 come into operation.
• until 1 January 2026: Transitional period during which certain capital instruments that do not meet specified coupon cancellation/deferral or non-redemption conditions may still qualify as tier 1, tier 2 or tier 3 capital.

Related documents

• This document is made under Insurance Act 1978