Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011 (BR 73 / 2011)

Summary

These Rules, made by the Bermuda Monetary Authority under the Insurance Act 1978, set out the enhanced capital requirement (ECR) regime for Class 3A insurers. They prescribe the Bermuda Solvency Capital Requirement for Small and Medium-Sized Entities (BSCR-SME) model, allow use of an approved internal capital model as an alternative, and require insurers to maintain statutory economic capital and surplus at or above the calculated ECR.

• ECR calculation: A Class 3A insurer's ECR must be calculated at the end of each relevant (financial) year using either the BSCR-SME model or an approved internal capital model, and must never be less than the minimum solvency margin under section 6 of the Act.
• Phase-in of ECR: The full ECR requirement was phased in over three years: 50 percent for financial year 2011, 75 percent for 2012, and 100 percent from 2013 onward.
• Internal capital model approval: Insurers may apply for Authority approval of an internal capital model; the Authority assesses appropriateness, integration into risk management, and control adequacy, may impose conditions, and can revoke approval if conditions are breached or the model becomes unsuitable, with a 28 day representation period for insurers following an adverse or revocation notice.
• Capital and solvency return: Every insurer must file a capital and solvency return (including the BSCR-SME model output and prescribed schedules, plus any approved internal capital model output) with the Authority on or before its filing date, together with a loss reserve specialist's opinion, and must retain a copy at its principal office for five years.
• Declaration requirement: Each capital and solvency return must be accompanied by a declaration signed by two directors and the insurer's principal representative confirming it fairly represents the insurer's financial condition.
• Schedules: Extensive technical schedules (Schedules I through XXIV) set out the detailed BSCR-SME formulas, risk charge tables, and reporting forms, including economic balance sheet (Form 1EBS), interest rate sensitivity reporting, and a sanctions/suspicious activity compliance questionnaire.

The Rules came into operation on 31 December 2011 and have been amended multiple times since (through 2019) to update definitions, filing requirements, and schedules, including transitional factors for BSCR changes effective 2019 to 2021.

Key obligations

• Every Class 3A insurer must calculate its ECR at the end of each relevant year using the BSCR-SME model or an approved internal capital model, ensuring it is not less than the minimum solvency margin under section 6 of the Act
• Every Class 3A insurer must maintain available statutory economic capital and surplus equal to or exceeding its ECR
• Every Class 3A insurer must furnish the Authority with a capital and solvency return on or before its filing date, comprising the BSCR-SME model electronic return and prescribed schedules, and where applicable a printed copy of an approved internal capital model
• Every Class 3A insurer must file, at the same time as its capital and solvency return, an opinion of its loss reserve specialist addressing technical provisions calculated under Schedule XV
• Every Class 3A insurer must keep a copy of its capital and solvency return at its principal office for five years from its filing date and produce it to the Authority on request by a specified date
• Every capital and solvency return must be accompanied by a declaration signed by two directors and the insurer's principal representative attesting that the return fairly represents the insurer's financial condition
• An insurer seeking to use an internal capital model in place of the BSCR-SME model must apply to the Authority for approval and comply with any conditions imposed
• An insurer served with a notice of non-approval or proposed revocation of an internal capital model may make written representations to the Authority within 28 days of the notice

Applies to

Class 3A insurers

Deadlines

• 31 December 2011: Commencement date of these Rules
• financial year ending 2011: ECR phased in at 50 percent of the amount determined by Schedule I or an approved internal capital model
• financial year ending 2012: ECR phased in at 75 percent of the amount determined by Schedule I or an approved internal capital model
• financial year ending 2013 and beyond: ECR applies at full amount determined by Schedule I or an approved internal capital model
• on or before its filing date: Insurer must furnish the Authority with its capital and solvency return and accompanying loss reserve specialist opinion
• 28 days from the date of notice: Period within which an insurer may make written representations to the Authority following a notice of non-approval or proposed revocation of an internal capital model
• five years beginning with its filing date: Period an insurer must retain a copy of its capital and solvency return at its principal office

Related documents

• This document is made under Insurance Act 1978
• This document amends Insurance Accounts Regulations 1980