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

Summary

This instrument amends the Bermuda Solvency Capital Requirement (BSCR) formula and supporting schedules used by Class 4 and Class 3B insurers to calculate their regulatory capital requirement under the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Rules 2008. It replaces the BSCR formula, introduces a new correlation-based calculation methodology (CorrBSCR), and phases in the revised requirement over three financial years.

• New BSCR formula: Repeals the existing BSCR formula and inserts a revised formula incorporating a Basic BSCR risk module charge, operational risk charge, regulatory capital requirement for regulated non-insurance financial operating entities, and other capital adjustment risk charge, combined via a new correlation matrix (CorrBSCR).
• Transitional phase-in factor: Applies a transitional factor to the new correlation-based BSCR calculation: 33% for financial years beginning on or after 1 January 2018, 66% for financial years beginning on or after 1 January 2019, and 100% for financial years beginning on or after 1 January 2020.
• Revised risk charge tables: Updates capital charge factor tables for fixed income investments, equity investments, interest rate/liquidity risk, and currency risk, including new correlation matrices for market risk, P&C insurance risk, and equity risk.
• Reporting schedule changes: Amends Schedule XXA (currency risk) to require reporting of currencies representing at least 95% of economic balance sheet liabilities, valuation consistent with the Economic Balance Sheet principles, and disclosure of currency hedging arrangements meeting the Authority's requirements.
• Concentration risk disclosure: Introduces or amends Schedule XXIA requiring disclosure of an insurer's 10 largest exposures to single counterparty risk, including related/connected counterparties, by asset type, sub-type, BSCR rating and asset value.
• Valuation basis: Requires amounts across the amended schedules to be reported on an Economic Balance Sheet (EBS) Valuation basis and, in several schedules, on both an EBS Valuation and unconsolidated basis.

The amendments are technical and formula-driven, affecting how affected insurers compute and report their solvency capital requirement rather than imposing new standalone filing obligations beyond existing prudential reporting.

Key obligations

• Class 4 and Class 3B insurers must calculate their BSCR using the revised formula and correlation matrices set out in the amended Rules.
• Insurers must apply the prescribed transitional factor to the new BSCR calculation according to their financial year (33% for FY beginning on or after 1 January 2018, 66% for FY beginning on or after 1 January 2019, 100% for FY beginning on or after 1 January 2020).
• Insurers must report fixed income, equity, interest rate/liquidity and currency risk charges using the updated capital charge factor tables and statement sources specified in the Rules.
• Insurers must report currencies representing at least 95% of their economic balance sheet liabilities in Schedule XXA, valued per the Economic Balance Sheet principles.
• Insurers using currency hedging arrangements must ensure such arrangements meet the Authority's requirements to be classified as such and adjust reported currency asset/liability figures accordingly.
• Insurers must disclose their 10 largest single counterparty exposures (including related/connected counterparties) in Schedule XXIA, with specified asset type, sub-type, BSCR rating and asset value fields.
• Amounts under the amended schedules must be reported on an EBS Valuation basis, and in specified schedules on both an EBS Valuation and unconsolidated basis.

Applies to

Class 4 insurers, Class 3B insurers

Deadlines

• financial year beginning on or after 1 January 2018: Transitional factor for the revised BSCR correlation calculation set at 33%.
• financial year beginning on or after 1 January 2019: Transitional factor for the revised BSCR correlation calculation increases to 66%.
• financial year beginning on or after 1 January 2020: Transitional factor for the revised BSCR correlation calculation reaches full 100% application.