Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2013

Summary

This is a Bermuda Monetary Authority notice finalising the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2013, following industry consultation on rules published in draft on 2 July 2013. It confirms final changes to the Bermuda Solvency Capital Requirement (BSCR) methodology and eligible capital calculation for Class 4 and Class 3B insurers, and republishes Schedules I through X of the principal Rules in full.

• Fixed income investment risk: Clarifies that sovereign-guaranteed bonds issued in the sovereign's own currency and rated AA- or better qualify for a BSCR rating of 0 (excluding mortgage-backed securities); reduces the capital charge for mortgages not in good standing from 35% to 25%.
• Eligible capital schedule: Allows capital requirements linked to policyholder obligations to be offset against excess encumbered assets transferred from Tier 1 to Tier 2, and changes the presentation for calculating the difference between encumbered assets for policyholder obligations and the obligations themselves.
• Other amendments: Various other changes to the Schedules are described as minor housekeeping items arising from internal review or industry consultation feedback.
• Rule text changes: Paragraph 6 of the principal Rules is amended to insert a reference to new Schedule IIA after Schedule II; Schedules I through X of the principal Rules are revoked and replaced in full.
• Stakeholder communication: The Authority has published a separate general stakeholder letter addressing issues raised by the market during consultation.

The amendments were confirmed to take effect on 1 January 2014, as previously proposed, meaning affected insurers needed to apply the revised BSCR and eligible capital calculations from that date onward.

Key obligations

• Class 4 and Class 3B insurers must calculate their Bermuda Solvency Capital Requirement (BSCR) using the revised Schedules I through X, including the reduced 25% capital charge for mortgages not in good standing and the clarified 0% BSCR rating treatment for qualifying sovereign-guaranteed bonds, from 1 January 2014.
• Class 4 and Class 3B insurers must apply the revised eligible capital presentation, including the offset of policyholder obligation capital requirements against excess encumbered assets transferred from Tier 1 to Tier 2, from 1 January 2014.

Applies to

Class 4 insurers, Class 3B insurers

Deadlines

• 1st January 2014: Effective date on which the Amendment Rules 2013 and the revised BSCR and eligible capital Schedules come into operation.

Related documents

• This document is made under Insurance Act 1978
• This document amends Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Rules 2008 (BR 83/2008)