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

Summary

These are the detailed reporting schedules and completion instructions that form part of the Bermuda Monetary Authority's Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2018. They set out the standardised templates insurers must use to report assets, liabilities, investments and derivatives for the purpose of calculating the Bermuda Solvency Capital Requirement (BSCR), together with detailed instructions on how each line and category must be classified.

• Fixed income and equity classification: Schedules IIB and IIC require insurers to categorise quoted and unquoted bonds, mortgage-backed securities, bond mutual funds and equity holdings (strategic, listed, preferred stock, infrastructure, real estate, derivatives) by BSCR rating band (0 to 8).
• Rating methodology: Instructions specify use of the latest AM Best, S&P, Moody's or Fitch ratings, application of the most conservative rating where agencies differ, assignment of BSCR rating 8 to unrated securities, and BSCR rating 0 for certain sovereign and government-guaranteed debt.
• Funds held under reinsurance/retrocession: Schedule IIC requires reporting of funds held by ceding reinsurers and funds held under retrocession (cross-referenced to Form 4EBS lines), classified using the same fixed income and equity criteria.
• Segregated accounts and other schedules: Additional schedules (including IID) require reporting of segregated account company assets and liabilities by BSCR rating.
• Interest rate risk (Schedule XXII): Insurers must report all interest rate sensitive assets and liabilities by currency, including fixed income assets, hybrid instruments, deposits, loans, reinsurance receivables, derivatives and look-through exposures for funds and segregated accounts, split by before-shock and after-shock (interest rate up and down shock) values.
• Credit derivatives and counterparty risk: Spread up/spread down shocks and counterparty default risk for over-the-counter derivatives must be calculated and reported by BSCR rating, using prescribed shock percentages and basis point figures set out in the schedules.

The schedules are technical statutory return templates rather than free-standing obligations in themselves; they operationalise the underlying BSCR rules by prescribing exactly how insurers must categorise, rate and disclose investment, liability and derivative exposures when calculating their regulatory capital position.

Key obligations

• Insurers must classify fixed income investments (bonds, mortgage-backed securities, bond mutual funds) by BSCR rating band using the latest AM Best, S&P, Moody's or Fitch ratings.
• Where a security receives different ratings from different agencies, insurers must use the most conservative rating assigned.
• Unrated securities must be assigned a BSCR rating of 8.
• Sovereign debt issued by a country in its own currency and rated AA- or better must be classified as BSCR rating 0; other sovereign bonds must be classified similarly to corporate bonds.
• Debt issued or explicitly guaranteed by a government (excluding government-issued mortgage-backed securities) must be assigned BSCR rating 0.
• Insurers must classify equity investments into long/short exposures and further into strategic holdings, duration-based holdings, listed equity securities, preferred stocks, other equities, letters of credit, intangible assets, pension benefit surplus, infrastructure, derivatives and real estate categories.
• Insurers must apply the look-through approach for collective investment vehicles and fund-packaged investments in accordance with Authority-prescribed criteria.
• Insurers must report funds held by ceding reinsurers and funds held under retrocession, cross-referenced to specified lines of Form 4EBS.
• Insurers must report all interest rate sensitive assets and liabilities by currency and by before-shock/after-shock values for both up-shock and down-shock scenarios in Schedule XXII.
• Insurers must calculate and report spread up and spread down risk for credit derivatives and counterparty default risk for over-the-counter derivatives using the prescribed shock rates by BSCR rating.

Applies to

Class C insurers, Class D insurers, Class E insurers