Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rules 2024

Summary

These amendment rules revise the Bermuda Monetary Authority's Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Rules 2008, which set out the Bermuda Solvency Capital Requirement (BSCR) and Economic Balance Sheet (EBS) framework for Class 4 and Class 3B insurers. The amendments update definitions, replace and insert several schedules, and revise the technical methodology used to calculate solvency capital and valuation of assets and liabilities.

• Definitions: Paragraph 2 is amended to update the definitions of EBS Valuation basis and interest rate risk, add an abbreviation for Tail Value-at-Risk (TVaR), and insert new definitions for natural catastrophe risk and man-made catastrophe risk.
• Adjustments mechanism: A new subparagraph (4) is added to paragraph 3 allowing an insurer to apply to the Authority for adjustments in accordance with new Schedule XXV (Schedule of Adjustments).
• Schedule I replaced: Schedule I (Bermuda Solvency Capital Requirement) is revoked and replaced with a new BSCR formula and updated capital charge factor tables covering fixed income, equity, interest rate, currency, concentration, premium, reserve, credit, catastrophe and operational risk charges.
• New Schedule XA: A new Schedule XA, Schedule of Man-Made Catastrophes, is inserted after Schedule X.
• Schedule XIV replaced: Schedule XIV, the Class 4 and Class 3B Statutory Economic Balance Sheet, is revoked and replaced with an updated version.
• Schedule XV replaced: Schedule XV, the Loss Reserve Specialist's Opinion, is revoked and replaced with a new version.
• Cross-reference updates: Schedules XI, XX, XXA, XXI and XXIA are amended to replace references to the former Schedule XIV with references to the new Schedule XXVI.
• New Schedules XXV and XXVI: Schedule XXV (Schedule of Adjustments) and Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles) are inserted after Schedule XXIV, setting out the adjustments process and the EBS valuation principles insurers must apply, including risk margin calculation using the cost-of-capital approach and rules on technical provisions valued as a whole.

The amendment rules came into operation on 31 March 2024. The full text of the amended and inserted schedules is published on the Authority's website as required by section 6A(8) of the Insurance Act 1978.

Key obligations

• Class 4 and Class 3B insurers must calculate their Bermuda Solvency Capital Requirement using the new formula and capital charge factors set out in the replaced Schedule I.
• Insurers must value assets and liabilities on the Economic Balance Sheet valuation basis in accordance with the new Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles).
• Insurers must prepare their Statutory Economic Balance Sheet using the replaced Schedule XIV.
• Insurers must obtain and submit a Loss Reserve Specialist's Opinion in the form of the replaced Schedule XV.
• Insurers must account for man-made catastrophe risk using the new Schedule XA (Schedule of Man-Made Catastrophes) when calculating catastrophe risk charges.
• An insurer wishing to make adjustments to its solvency calculation must apply to the Authority in accordance with the new Schedule XXV (Schedule of Adjustments).
• Insurers must calculate the risk margin component of technical provisions using the cost-of-capital approach prescribed in Schedule XXVI, applying the Authority's prescribed cost-of-capital rate and risk-free discount rates.
• Insurers must assess and, where applicable, value certain insurance obligations 'as a whole' using replicable financial instrument market values, in accordance with the criteria set out in the new valuation principles.

Applies to

Class 4 insurers, Class 3B insurers

Deadlines

• 31 March 2024: Commencement date on which these amendment rules come into operation and the revised BSCR and EBS requirements take effect.

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)