Insurance (Prudential Standards) (Class 4 and 3B Solvency Requirement) Amendment Rules 2018 - Schedule A

Summary

This is Schedule A to the Bermuda Monetary Authority's Insurance (Prudential Standards) (Class 4 and 3B Solvency Requirement) Amendment Rules 2018. It revokes and replaces Schedule I of the principal 2008 Rules, which sets out the formula and methodology for calculating the Bermuda Solvency Capital Requirement (BSCR) on an economic balance sheet (EBS) basis for Class 4 and Class 3B insurers.

The amendment introduces a revised BSCR formula incorporating a correlation adjusted basic BSCR, updated risk charge modules (market, credit, and P&C risk, each with prescribed correlation matrices), new capital charge factor tables for fixed income and other asset classes, an operational risk charge based on a risk management and reporting programme (RMRP) self-assessment, adjustments for regulated non-insurance financial operating entities, and loss absorbing capacity adjustments for technical provisions and deferred taxes. It also phases in the new methodology via a transitional factor.

• New BSCR formula: Establishes the correlation adjusted BSCR (BSCR Corr) combining Basic BSCR, operational risk charge, regulated non-insurance entity capital adjustment, and loss absorbing capacity adjustments for technical provisions and deferred taxes.
• Updated risk charge tables: Revises Table 2 capital charge factors (e.g. other tangible assets net of segregated accounts at 20.0 percent) and inserts new Table 1A and related tables of capital charge factors for fixed income, mortgage, and other asset classes.
• Risk module correlation matrices: Prescribes correlation matrices for the Basic BSCR (market, credit, P&C), market risk module (fixed income, equity, interest, currency, concentration), and P&C risk module (premium, reserve, catastrophe).
• Operational risk self-assessment: Introduces Table 9M scoring methodology requiring insurers to assess their operational risk management/reporting programme against defined implementation stages annually.
• Regulated non-insurance entity adjustment: Requires inclusion of an insurer's proportionate share of regulatory capital requirements of regulated non-insurance financial operating entities per Schedule XVI.
• Deferred tax and technical provisions adjustments: Sets out formulas for the loss absorbing capacity of deferred taxes and technical provisions due to management actions, subject to Authority-prescribed criteria.
• Transitional phase in: Applies a Transitional Factor to the BSCR calculation of 33 percent for financial years beginning on or after 1 January 2019, 66 percent for 2020, and 100 percent for 2021 and after.

Schedule A itself was brought into operation on 1 January 2019 and applies to Class 4 and Class 3B insurers licensed by the Bermuda Monetary Authority, who must apply the revised BSCR calculation methodology, capital charge tables, and correlation factors when determining their solvency capital requirement.

Key obligations

• Class 4 and Class 3B insurers must calculate their BSCR using the revised correlation adjusted formula (BSCR Corr) and underlying risk module charges set out in the amended Schedule I.
• Insurers must apply the prescribed capital charge factor tables (including Table 1A and revised Table 2) to determine fixed income, equity, and other asset class risk charges.
• Insurers must apply the specified correlation matrices (Basic BSCR, market risk, P&C risk) when aggregating risk module charges.
• Insurers must complete an annual self-assessment of their operational risk management and reporting programme (RMRP) using the Table 9M scoring methodology.
• Insurers must include their proportionate share of the regulatory capital requirement of regulated non-insurance financial operating entities per Schedule XVI in the capital adjustment charge.
• Insurers must apply the Transitional Factor to the BSCR calculation according to the applicable financial year (33 percent for 2019, 66 percent for 2020, 100 percent for 2021 onward).

Applies to

Class 4 insurers, Class 3B insurers

Deadlines

• 1 January 2019: Schedule A brought into operation; transitional factor of 33 percent applies for the financial year beginning on or after this date.
• 1 January 2020: Transitional factor increases to 66 percent for the financial year beginning on or after this date.
• 1 January 2021: Transitional factor reaches 100 percent for the financial year beginning on or after this date, meaning the full revised BSCR methodology applies without transitional relief.