Rule
Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2018 - Schedule A
Amends Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011View on BMA's website Source document
Summary
This is Schedule A to the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2018, issued by the Bermuda Monetary Authority. It amends Schedule I of the 2011 principal Rules, which sets out the methodology for calculating the Bermuda Solvency Capital Requirement (BSCR) for Class D and Class E (and related Class C) commercial insurers. The amendment replaces the core BSCR formula, updates a capital charge factor, and inserts an extensive new set of paragraphs (17 to 38) prescribing a revised, correlation-matrix-based approach to calculating BSCR components.
- Revised BSCR formula: Paragraph 1 of Schedule I is revoked and replaced with a new formula for establishing the Class D and Class E BSCR on an Economic Balance Sheet (EBS) valuation basis, incorporating a Transitional Factor.
- Transitional phase-in: A Transitional Factor increases the impact of the new correlation-based BSCR (BSCRCorr) methodology gradually: 10% for financial years beginning on or after 1 January 2019, rising by 10 percentage points each year to 100% for financial years beginning on or after 1 January 2028.
- Capital charge factor update: Table 2 is amended so that the capital charge factor for Other tangible assets net of segregated accounts is set at 20.0%.
- New correlation-based methodology: New paragraphs 17 to 38 introduce detailed formulas and correlation matrices (Basic BSCR, market risk module, long-term risk module) for calculating BSCRCorr, Basic BSCR, operational risk charge, the regulatory capital requirement for regulated non-insurance financial operating entities, and adjustments for the loss-absorbing capacity of technical provisions and deferred taxes.
- Non-insurance financial operating entities: Paragraph 36 requires the regulatory capital requirement for regulated non-insurance financial operating entities to be calculated as the insurer's proportionate share of each entity's regulatory capital requirement under the applicable solvency laws of the jurisdiction where that entity is licensed or registered.
The Schedule is highly technical and mathematical in nature, targeted at actuarial and capital modelling functions within affected insurers rather than general compliance staff, but it directly changes how in-scope insurers must compute their regulatory capital requirement.
Key obligations
- Class D and Class E insurers (and Class C insurers subject to Schedule I) must calculate their BSCR using the revised formula in paragraph 1 for financial years beginning on or after 1 January 2019.
- Insurers must apply the prescribed Transitional Factor (10% in 2019 rising in 10% increments annually to 100% in 2028) when calculating BSCRCorr relative to the prior methodology.
- Insurers must use the updated 20.0% capital charge factor for other tangible assets net of segregated accounts when calculating fixed income and related investment risk charges.
- Insurers must calculate Basic BSCR, market risk module, long-term risk module and credit risk module charges using the correlation matrices and formulas set out in new paragraphs 17 to 34.
- Insurers must determine the regulatory capital requirement for regulated non-insurance financial operating entities per Schedule XVI and paragraph 36, based on proportionate share of each entity's regulatory capital requirement.
- Insurers must calculate adjustments for the loss-absorbing capacity of technical provisions (paragraph 37) and deferred taxes (paragraph 38) as part of the BSCRCorr calculation.
Applies to
Class C insurers, Class D insurers, Class E insurers
Deadlines
- 1 January 2019: Schedule A is brought into operation; the revised BSCR formula and transitional factor schedule begin applying to financial years beginning on or after this date.
- financial year beginning on or after 1 January 2019 through 1 January 2028 (annual 10% increments): Transitional Factor phases in from 10% to 100% as insurers move to the full new BSCRCorr methodology.