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

Summary

These amendment rules revise the Bermuda Solvency Capital Requirement (BSCR) framework applicable to Class C, Class D and Class E insurers under the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules. They replace the BSCR formula and introduce a phased transitional adjustment factor, and add detailed calculation methodologies, correlation matrices and capital charge tables for market, credit, long-term insurance, currency and concentration risk modules.

• BSCR formula replaced: Paragraph 1's BSCR formula is repealed and replaced with a new formula incorporating a correlation-adjusted BSCR (CorrBSCR) and a Transition Factor.
• Transitional phase-in: A new Transition Factor applies at 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.
• New calculation paragraphs inserted: Paragraphs 17 onward are added, setting out the Basic BSCR risk module charge, market risk module, long-term insurance risk module, fixed income, equity, interest rate/liquidity, currency and concentration risk charges, each with correlation matrices and capital charge factor tables (e.g. Table 1A, Table 2B, Table 3A, Table 4A).
• Reporting schedules updated: New or amended schedules (e.g. Schedule XXA on currency exposure and Schedule XXIA on concentration risk) require insurers to report currency and counterparty exposure data, including the ten largest single-counterparty exposures, on an EBS Valuation and unconsolidated basis.
• Diversification and hedging adjustments: Rules specify how diversification adjustments for cash and cash equivalents (up to a maximum of 40%) and currency hedging arrangements may adjust risk charge calculations.

The amendments are technical and formulaic in nature, changing how affected insurers must compute their regulatory capital requirement rather than introducing new licensing or notification obligations. Insurers subject to these Rules must apply the revised BSCR formula, including the phased Transition Factor, in their EBS-based solvency calculations from the specified financial years.

Key obligations

• Class C, Class D and Class E insurers must calculate their BSCR using the new formula in paragraph 17, applying the Transition Factor at 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.
• Insurers must calculate and report fixed income, equity, interest rate/liquidity, currency and concentration risk charges using the prescribed capital charge factor tables and correlation matrices on an EBS Valuation basis.
• Insurers must disclose their ten largest exposures to single counterparty risk (including related/connected counterparties) by asset type, sub-type, BSCR rating and asset value in Schedule XXIA.
• Insurers must report currency exposures representing at least 95% of their economic balance sheet liabilities in Schedule XXA, reflecting any currency hedging arrangements meeting the Authority's requirements.
• Insurers applying a diversification adjustment to cash and cash equivalents must calculate it as 40% multiplied by one minus the ratio of the largest single-counterparty cash balance to total cash balances, capped at 40%.

Applies to

Class C insurers, Class D insurers, Class E insurers

Deadlines

• financial year beginning on or after 1 January 2018: Transition Factor for the BSCR formula set at 33%
• financial year beginning on or after 1 January 2019: Transition Factor for the BSCR formula set at 66%
• financial year beginning on or after 1 January 2020: Transition Factor for the BSCR formula set at 100%

Related documents

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