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

Summary

This Schedule A forms part of the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2018 issued by the Bermuda Monetary Authority. It replaces and substantially expands Schedule I of the principal Rules, which sets out the Bermuda Solvency Capital Requirement (BSCR) formula and methodology used by Class 4 and Class 3B general and long-term insurers to calculate their regulatory capital charge on an Economic Balance Sheet (EBS) basis.

• New BSCR formula: Revokes and replaces paragraph 1 of Schedule I with a revised BSCR formula that introduces a correlation-based approach (BSCRCorr) and a transitional factor applied to the correlation adjustment.
• Transitional phase-in: Sets a Transitional Factor of 33% for financial years beginning on or after 1 January 2019, 66% for financial years beginning on or after 1 January 2020, and 100% for financial years beginning on or after 1 January 2021.
• Table 2 amendment: Amends the capital charge factor for Other tangible assets net of segregated accounts to 20.0%.
• New paragraphs 13 to 32: Inserts detailed methodology for calculating the Basic BSCR, market risk module, P&C risk module, credit risk module, operational risk charge, regulatory capital requirement for regulated non-insurance financial operating entities, and loss-absorbing capacity adjustments for technical provisions and deferred taxes, including correlation matrices and capital charge factor tables (e.g. Table 1A for fixed income asset classes).

The Schedule is a technical, formula-driven amendment rather than a general policy statement; it is brought into operation on 1 January 2019 and its transitional factors phase in the new correlation methodology over three financial years.

Key obligations

• Class 4 and Class 3B insurers must calculate their BSCR using the revised formula in paragraph 1 of Schedule I, including the new correlation adjustment (BSCRCorr) and applicable Transitional Factor.
• Insurers must apply the Transitional Factor of 33% for financial years beginning on or after 1 January 2019, 66% for financial years beginning on or after 1 January 2020, and 100% for financial years beginning on or after 1 January 2021.
• Insurers must use the updated capital charge factor of 20.0% for other tangible assets net of segregated accounts in Table 2.
• Insurers must calculate the Basic BSCR, market risk, P&C risk, credit risk, operational risk, regulatory capital requirement for non-insurance financial operating entities, and loss-absorbing capacity adjustments in accordance with the newly inserted paragraphs 13 to 32 and associated tables.

Applies to

Class 4 insurers, Class 3B insurers

Deadlines

• 1 January 2019: Schedule A brought into operation; Transitional Factor of 33% applies for financial years beginning on or after this date.
• 1 January 2020: Transitional Factor increases to 66% for financial years beginning on or after this date.
• 1 January 2021: Transitional Factor reaches 100% for financial years beginning on or after this date.