Insurance (Prudential Standards) (Class 3A Solvency Requirement) Amendment Rules 2018 - Schedule A

Summary

This Schedule amends Schedule I of the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011, changing how Bermuda-registered Class 3A insurers must calculate their Bermuda Solvency Capital Requirement (BSCR) on an Economic Balance Sheet basis. It replaces the existing BSCR formula, updates a capital charge factor in Table 2, and inserts an extensive new set of paragraphs (13 to 32) setting out a revised, correlation-based BSCR methodology.

• New BSCR formula: Paragraph 1 is revoked and replaced with a new Class 3A BSCR formula incorporating fixed income, equity, interest rate/liquidity, currency, concentration, premium, reserve, credit, catastrophe, operational and capital adjustment risk charges.
• Transitional phase-in: A transitional factor applies to the correlation-adjusted BSCR: 33 percent for financial years beginning on or after 1 January 2019, 66 percent for financial years beginning on or after 1 January 2020, and 100 percent for financial years beginning on or after 1 January 2021.
• Table 2 amendment: The capital charge factor for 'Other tangible assets net of segregated accounts' is amended to 20.0 percent.
• New methodology (paragraphs 13-32): Introduces a Basic BSCR risk module structure (market, P&C, credit risk modules with prescribed correlation matrices), revised fixed income and credit derivative risk charge calculations with detailed capital charge factor tables, an operational risk charge based on a risk management framework scoring table, the regulatory capital requirement for regulated non-insurance financial operating entities, and adjustments for the loss-absorbing capacity of technical provisions and deferred taxes.

Class 3A insurers must apply this revised BSCR calculation methodology, including the phased-in correlation factor, when determining their solvency requirement and preparing economic balance sheet filings from the 2019 financial year onward.

Key obligations

• Class 3A insurers must calculate their BSCR using the new formula and methodology set out in amended Schedule I from the financial year beginning on or after 1 January 2019.
• Class 3A insurers must apply the prescribed transitional factor to the correlation-adjusted BSCR (33 percent for FY2019, 66 percent for FY2020, 100 percent for FY2021 and thereafter).
• Class 3A insurers must use the updated 20.0 percent capital charge factor for other tangible assets net of segregated accounts when computing the fixed income/equity investment risk charge.
• Class 3A insurers must determine the operational risk charge, regulatory capital requirement for regulated non-insurance financial operating entities, and adjustments for loss-absorbing capacity of technical provisions and deferred taxes in accordance with the newly inserted paragraphs 13 to 32.

Applies to

Class 3A insurers

Deadlines

• 1 January 2019: Schedule A (the amended BSCR formula and methodology) comes into operation and applies from this date.
• financial year beginning on or after 1 January 2019: Transitional factor of 33 percent applies to the correlation-adjusted BSCR.
• financial year beginning on or after 1 January 2020: Transitional factor increases to 66 percent.
• financial year beginning on or after 1 January 2021: Transitional factor reaches 100 percent.