Insurance (Prudential Standards) (Class 3A Solvency Requirement) Amendment Rules 2013

Summary

This is a notice from the Bermuda Monetary Authority (BMA) finalising amendments to the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011, following a public consultation on draft rules published on 2 July 2013. The amending Rules revoke and replace Schedules I through XII of the principal Rules, which set out the Bermuda Solvency Capital Requirement for small and medium-sized entities (BSCR-SME) and the eligible capital calculation for Class 3A insurers.

• Fixed income investments: Clarifies that sovereign-guaranteed bonds issued in the sovereign's own currency and rated AA- or better qualify for a BSCR rating of 0 (except mortgage-backed securities), and reduces the capital charge for mortgages not in good standing from 35% to 25%.
• Eligible capital schedule: Allows capital requirements tied to policyholder obligations to be offset against excess encumbered assets transferred from Tier 1 to Tier 2 capital, and changes the presentation of the calculation of the difference between encumbered assets for policyholder obligations and the obligations themselves.
• Other changes: Additional minor 'housekeeping' amendments were made to the Schedules following internal review and industry consultation feedback; a general stakeholder letter addressing consultation issues was published separately by the Authority.
• Paragraph 6 amendment: Paragraph 6 of the principal Rules is amended to insert a reference to Schedule IIA alongside Schedule II.

The amendments apply to the schedules used by Class 3A insurers to calculate their BSCR-SME and eligible capital, and take effect from 1 January 2014.

Key obligations

• Class 3A insurers must apply the revised Schedules I through XII (as replaced by these Amendment Rules) when calculating their BSCR-SME and eligible capital from 1 January 2014 onward.
• Class 3A insurers must use the updated capital charge factors, including the reduced 25% charge for mortgages not in good standing and the revised treatment of sovereign-guaranteed bonds for BSCR rating 0 classification.
• Class 3A insurers must apply the revised Eligible Capital schedule methodology for offsetting policyholder obligation capital requirements against excess encumbered assets transferred between Tier 1 and Tier 2.

Applies to

Class 3A insurers

Deadlines

• 1st January 2014: Effective date on which all amendments to the Class 3A Solvency Requirement Rules and revised Schedules I through XII come into operation.

Related documents

• This document is made under Insurance Act 1978