Insurance (Prudential Standards) (Class 3A Solvency Requirement) Amendment Rules 2024

Summary

These Rules amend the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011, which set out the Bermuda Solvency Capital Requirement (BSCR) and Economic Balance Sheet (EBS) framework applicable to Class 3A insurers in Bermuda. The amendments update definitions, revise the BSCR formula and several supporting schedules, and introduce new schedules covering man-made catastrophe risk, permitted adjustments, and EBS valuation principles.

• Definitions: Revises the definition of EBS Valuation basis, removes the Form 2A definition, and adds new definitions for interest rate risk, man-made catastrophe risk and natural catastrophe risk.
• Adjustments mechanism: Allows a Class 3A insurer to apply to the Authority for adjustments to its capital calculation in accordance with new Schedule XXV.
• Schedule I replaced: Revokes and replaces the Bermuda Solvency Capital Requirement Class 3A schedule with a revised BSCR formula and updated capital charge tables for fixed income, equity, interest rate/liquidity, currency and other risk components.
• New Schedule XA: Inserts a new Schedule of Man-Made Catastrophes.
• Schedules XIV and XV replaced: Revokes and replaces the Class 3A Statutory Economic Balance Sheet schedule and the Loss Reserve Specialist's Opinion schedule.
• Cross-reference updates: Amends Schedules XX, XXA, XXI and XXIA to replace references to Schedule XIV with references to new Schedule XXVI.
• New Schedules XXV and XXVI: Inserts a Schedule of Adjustments (XXV) and a Schedule of Economic Balance Sheet Valuation Principles (XXVI), including detailed methodology for technical provisions, risk margin calculation using a cost-of-capital approach, and replication of insurance obligations using financial instruments.

The amended and inserted schedules are published separately on the BMA's website as permitted under section 6A(8) of the Insurance Act 1978. The Rules came into operation on 31 March 2024.

Key obligations

• Class 3A insurers must calculate their Bermuda Solvency Capital Requirement (BSCR) using the revised formula and capital charge tables set out in the new Schedule I.
• Class 3A insurers must value their Economic Balance Sheet in accordance with the new Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles), including the prescribed risk margin calculation using the cost-of-capital approach.
• An insurer seeking adjustments to its capital calculation must apply to the Authority in accordance with the provisions of new Schedule XXV.
• Insurers must prepare the Class 3A Statutory Economic Balance Sheet and Loss Reserve Specialist's Opinion using the revised Schedule XIV and Schedule XV formats respectively.
• Where cash flows can be reliably replicated using financial instruments with observable market value, insurers must value the related technical provisions at the market value of those instruments and follow the unbundling and assessment requirements set out in the new schedule.

Applies to

Class 3A insurers

Deadlines

• 31 March 2024: Commencement date on which these Amendment Rules come into operation.

Related documents

• This document is made under Insurance Act 1978
• This document amends Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011