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

Summary

These amendment rules revise the Bermuda Solvency Capital Requirement (BSCR) formula used by Class 3A insurers under the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules. They insert a new, more detailed BSCR calculation methodology, including correlation matrices for combining risk charges, updated capital charge tables for fixed income, equity, interest rate, currency and concentration risk, and a phased transition schedule for applying the new formula.

• New BSCR formula: Replaces the prior Basic BSCR calculation with a formula combining market, credit and insurance (P&C) risk charges via a correlation matrix, plus operational risk, regulatory capital adjustment for non-insurance financial operating entities, and other capital adjustments.
• Transition factor: A phase-in multiplier (Transition Factor) is applied to the new BSCR: 33 percent for financial years beginning on or after 1 January 2018, 66 percent for financial years beginning on or after 1 January 2019, and 100 percent for financial years beginning on or after 1 January 2020.
• Updated capital charge tables: New or revised tables prescribe capital charge factors for fixed income investments (bonds, mortgage-backed securities, mortgage loans, cash), equity investments (strategic holdings, listed and unlisted equities, preferred stock, real estate), interest rate/liquidity risk, and currency risk by currency type.
• Reporting schedules: Introduces or amends supporting schedules (e.g. Schedule XIX, Schedule XXA, Schedule XXIA) requiring insurers to report currency exposures covering at least 95 percent of economic balance sheet liabilities and to disclose their 10 largest counterparty exposures with asset type, rating and value.

The rules are technical and formula-driven, intended to be read alongside the underlying Class 3A Solvency Requirement Rules and associated statutory reporting forms (e.g. Form 1EBS, Schedules IIB/IIC, XIX, XXA, XXIA).

Key obligations

• Class 3A insurers must calculate their Basic BSCR risk module charge using the new correlation matrix formula combining market, credit and P&C insurance risk charges.
• Class 3A insurers must apply the prescribed Transition Factor to the BSCR calculation according to their financial year (33 percent from FY beginning on or after 1 January 2018, 66 percent from FY beginning on or after 1 January 2019, 100 percent from FY beginning on or after 1 January 2020).
• Insurers must apply the updated capital charge factors in Tables 1A, 2A/2B, 3A and 4A when calculating fixed income, equity, interest rate/liquidity and currency risk charges.
• Insurers must report currencies representing at least 95 percent of economic balance sheet liabilities on Schedule XXA.
• Insurers must disclose their 10 largest single-counterparty exposures, including related/connected counterparties, on Schedule XXIA with asset type, sub-type, BSCR rating and asset value.
• Amounts under the relevant schedules must be reported on an EBS Valuation basis and, where specified, on an unconsolidated basis.

Applies to

Class 3A insurers, regulated non-insurance financial operating entities (via regulatory capital adjustment)

Deadlines

• financial year beginning on or after 1 January 2018: Transition Factor of 33 percent applies to the BSCR calculation.
• financial year beginning on or after 1 January 2019: Transition Factor of 66 percent applies to the BSCR calculation.
• financial year beginning on or after 1 January 2020: Transition Factor of 100 percent applies to the BSCR calculation.