Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Amendment Rules 2024

Summary

These Amendment Rules (BR 18/2024) update the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011, which set out how Bermuda's Class C, Class D and Class E (re)insurers calculate their Bermuda Solvency Capital Requirement (BSCR) and value their Economic Balance Sheet (EBS). The amendments revise several defined terms, replace multiple technical schedules used in the capital calculation, and add new schedules covering lapse risk, long-term expense risk, permitted adjustments, and EBS valuation principles.

• Definitions: Paragraph 2 is amended to redefine EBS Valuation basis, remove the old definition of interest risk, and add new definitions for expense risk, interest rate risk, lapse risk, and group disability, health and life insurance.
• Adjustments mechanism: A new paragraph 3(6) lets an insurer apply to the Authority for adjustments in accordance with new Schedule XXV (Schedule of Adjustments).
• Replaced schedules: Schedule I (BSCR for Class D and Class E), Schedule VIII (Long-Term Variable Annuity Guarantees Data and Reconciliation), Schedule XIII (BSCR for Class C), Schedule XIV (Class D and Class E Statutory Economic Balance Sheet) and Schedule XV (Approved Actuary's Opinion) are all revoked and replaced with updated versions.
• New schedules inserted: Schedule VIIA (Schedule of Lapse Risk), Schedule VIIB (Schedule of Long-Term Expense Risk), Schedule XXV (Schedule of Adjustments) and Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles) are added to the principal Rules.
• Cross-reference updates: Schedules XX, XXA, XXI and XXIA are amended to point to the new Schedule XXVI (replacing former references to Schedule XIV) for EBS valuation principles.

The full text of the replaced and new schedules (including the detailed BSCR formulas, capital charge tables, and EBS valuation principles) is published separately by the Authority on its website rather than reproduced in full in the amending instrument itself. Long-term business written on or before 31 December 2015 remains subject to a 16-year linear transitional phase-in between 2015 reserve valuation principles and the new Economic Balance Sheet valuation principles.

Key obligations

• Class D and Class E insurers must calculate their BSCR using the new formula and capital charge tables in the replaced Schedule I.
• Class C insurers must calculate their BSCR using the new formula and tables in the replaced Schedule XIII.
• Class D and Class E insurers must prepare their Statutory Economic Balance Sheet in accordance with the replaced Schedule XIV and the new EBS Valuation Principles in Schedule XXVI.
• Insurers must incorporate lapse risk and long-term expense risk charges into their capital calculations using new Schedules VIIA and VIIB.
• Insurers must complete and submit the Approved Actuary's Opinion in the form set out in the replaced Schedule XV.
• Insurers must report Long-Term Variable Annuity Guarantees Data and Reconciliation in accordance with the replaced Schedule VIII.
• Insurers relying on transitional arrangements for pre-2016 long-term business must allocate and document the risk margin methodology and may apply under section 6D(7) of the Insurance Act for transitional adjustments.
• An insurer wishing to apply adjustments under new paragraph 3(6) must apply to the Authority in accordance with Schedule XXV.

Applies to

Class C insurers, Class D insurers, Class E insurers

Deadlines

• 31 March 2024: Commencement date on which these Amendment Rules come into operation.
• 16 years, for long-term business written on or before 31 December 2015: Transitional period allowing linear phase-in from 2015 reserve valuation principles to the new Economic Balance Sheet valuation principles.

Related documents

• This document is made under Insurance Act 1978
• This document amends Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011