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

Summary

This is a draft set of amendment rules issued by the Bermuda Monetary Authority that would amend the Insurance (Prudential Standards) (Class C, Class D and Class E Solvency Requirement) Rules 2011. The amendments revise the Bermuda Solvency Capital Requirement (BSCR) formulas and economic balance sheet valuation schedules applicable to Class C, Class D and Class E insurers, and introduce two new schedules covering permitted adjustments and economic balance sheet valuation principles.

• Schedule I replaced: Revokes and replaces Schedule I (Bermuda Solvency Capital Requirement for Class D and Class E BSCR) with an updated BSCR formula, including a transitional factor phasing in from 10% for financial years beginning on or after 1 January 2019 to 100% for financial years beginning on or after 1 January 2028.
• Schedule XIII replaced: Revokes and replaces Schedule XIII (Class C BSCR) with an updated formula and capital charge tables.
• Schedule XIV replaced: Revokes and replaces Schedule XIV (Class C Statutory Economic Balance Sheet).
• New Schedules XXV and XXVI inserted: Adds Schedule XXV (Schedule of Adjustments), allowing a designated insurer to apply to the Authority under section 6D(7) of the Insurance Act 1978 for adjustments, and Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles).
• Cross-reference updates: Amends paragraph 6 and Schedules VII, VIII, VIIIA, XV, XX, XXA, XXI and XXIA to reflect the new Schedule references (XXV, XXVI) and replace prior references to Schedule XIV with Schedule XXVI.
• Transitional arrangements: Sets out a sixteen-year transitional arrangement for long-term business written on or before 31 December 2015 under the Standard Approach, phasing technical provisions linearly between 2015 reserve valuation and Economic Balance Sheet Valuation Principles through year-end submissions from 2016 to 2023, with insurance groups required to detail allocations used for risk margin transition adjustments.

The document remains marked DRAFT throughout and has not been made into final law; it is a consultation version. Compliance officers at affected Bermuda insurers should treat the specific capital charge factors, formulas and transitional percentages as proposed pending finalisation by the Authority.

Key obligations

• Class C, Class D and Class E insurers must calculate their Bermuda Solvency Capital Requirement (BSCR) using the revised formulas and capital charge tables set out in the replaced Schedule I (Class D/E) and Schedule XIII (Class C).
• Designated insurers seeking adjustments to solvency calculations must apply to the Authority under section 6D(7) of the Insurance Act 1978 in accordance with new Schedule XXV.
• Insurers with long-term business written on or before 31 December 2015 under the Standard Approach must apply the sixteen-year linear transitional arrangement to technical provisions as set out in paragraph 37.
• Insurance groups unable to directly attribute risk margin to pre- and post-2015 business must allocate a process to determine the risk margin and, when applying for transitional adjustments, provide details of the business and any allocations or approximations used.
• Insurers must apply the prescribed transitional factor percentages (10% to 100%) to the BSCR calculation according to the relevant financial year.

Applies to

Class C insurers, Class D insurers, Class E insurers, designated insurers, insurance groups

Deadlines

• financial year beginning on or after 1 January 2019: Transitional factor of 10% applies to the BSCR calculation.
• financial year beginning on or after 1 January 2020: Transitional factor of 20% applies.
• financial year beginning on or after 1 January 2021: Transitional factor of 30% applies.
• financial year beginning on or after 1 January 2022: Transitional factor of 40% applies.
• financial year beginning on or after 1 January 2023: Transitional factor of 50% applies.
• financial year beginning on or after 1 January 2024: Transitional factor of 60% applies.
• financial year beginning on or after 1 January 2025: Transitional factor of 70% applies.
• financial year beginning on or after 1 January 2026: Transitional factor of 80% applies.
• financial year beginning on or after 1 January 2027: Transitional factor of 90% applies.
• financial year beginning on or after 1 January 2028: Transitional factor of 100% applies (full phase-in).
• business written on or before 31 December 2015: Scope cutoff for the sixteen-year transitional arrangement for long-term business technical provisions.
• year-end submissions for 2016 through 2023: Years over which the linear interpolation of technical provisions under the transitional arrangement is applied.

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