Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2018 - Schedule B (Class C)

Summary

This document is Schedule B of the BMA's 2018 amendment rules to the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011, and it applies specifically to Class C insurers. It replaces the methodology for calculating the Class C Bermuda Solvency Capital Requirement (BSCR) on an Economic Balance Sheet (EBS) valuation basis, introducing a new correlation-based BSCR formula (BSCRCorr) alongside the existing formula, plus a multi-year transitional factor.

• New BSCR formula: Revokes and replaces paragraph 1 of Schedule XIII, Part I, setting out a revised formula combining fixed income, equity, interest rate, currency, concentration, credit and long-term insurance risk charges, operational risk and capital adjustment charges, multiplied by a Transitional Factor.
• Transitional factor schedule: Sets a phased weighting for the BSCRCorr adjustment: 10 percent for the financial year beginning on or after 1 January 2019, rising by 10 percentage points each year to 100 percent for the financial year beginning on or after 1 January 2028.
• Table 2 amendment: Updates the capital charge factor for Other tangible assets net of segregated accounts to 20.0 percent.
• New paragraphs 17 to 38 inserted: Adds detailed methodology for calculating BSCRCorr, the Basic BSCR risk module (market, credit, long-term risk correlations with prescribed correlation matrices), operational risk charges, the regulatory capital requirement for regulated non-insurance financial operating entities, and adjustments for loss-absorbing capacity of technical provisions and deferred taxes.
• Commencement: Schedule B was brought into operation on 1 January 2019.

In practice, Class C insurers must recalculate their solvency capital requirement using this revised, more granular BSCR methodology and correlation matrices, applying the specified transitional factor for the relevant financial year through to full implementation in 2028.

Key obligations

• Class C insurers must calculate their BSCR using the revised formula in amended paragraph 1 of Schedule XIII, incorporating the BSCRCorr adjustment and applicable Transitional Factor for the relevant financial year.
• Class C insurers must apply the prescribed Transitional Factor percentages (10 percent for FY beginning on or after 1 January 2019, increasing annually to 100 percent for FY beginning on or after 1 January 2028) when calculating their solvency requirement.
• Class C insurers must use the updated 20.0 percent capital charge factor for 'Other tangible assets - net of segregated accounts' in Table 2 when computing equity investment risk charges.
• Class C insurers must apply the newly inserted paragraphs 17 to 38 methodology, including correlation matrices for market, credit and long-term risk modules, and adjustments for loss-absorbing capacity of technical provisions and deferred taxes, in determining their capital requirement.

Applies to

Class C insurers

Deadlines

• 1 January 2019: Schedule B (the amended Class C BSCR requirements) brought into operation.
• financial year beginning on or after 1 January 2019: Transitional Factor of 10 percent applies to the BSCRCorr adjustment.
• financial year beginning on or after 1 January 2020: Transitional Factor of 20 percent applies.
• financial year beginning on or after 1 January 2021: Transitional Factor of 30 percent applies.
• financial year beginning on or after 1 January 2022: Transitional Factor of 40 percent applies.
• financial year beginning on or after 1 January 2023: Transitional Factor of 50 percent applies.
• financial year beginning on or after 1 January 2024: Transitional Factor of 60 percent applies.
• financial year beginning on or after 1 January 2025: Transitional Factor of 70 percent applies.
• financial year beginning on or after 1 January 2026: Transitional Factor of 80 percent applies.
• financial year beginning on or after 1 January 2027: Transitional Factor of 90 percent applies.
• financial year beginning on or after 1 January 2028: Transitional Factor of 100 percent applies (full implementation).

Related documents

• This document amends Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011