Insurance (Prudential Standards) (Insurance Class 4 and 3B Solvency Requirement) Amendment Rules 2024

Summary

This is a draft set of amendment rules issued by the Bermuda Monetary Authority that would update the Insurance (Prudential Standards) (Insurance Class 4 and 3B Solvency Requirement) Rules 2008. It revises the Bermuda Solvency Capital Requirement (BSCR) methodology and related schedules used by Class 4 and Class 3B (re)insurers to calculate regulatory capital and technical provisions under the Economic Balance Sheet framework.

• Paragraph amendments: Inserts a new paragraph allowing an insurer to apply to the Authority under section 6D(7) of the Insurance Act 1978 to make adjustments per new Schedule XXV, and updates cross-references in paragraph 6 to include Schedules XXIV, XXV and XXVI.
• Schedule I replaced: Revokes and replaces Schedule I (Bermuda Solvency Capital Requirement), which sets out the detailed BSCR formula and capital charge factors for fixed income, equity, currency, concentration, premium, reserve, credit, catastrophe and operational risk.
• Schedule V replaced: Revokes and replaces Schedule V (Schedule of Risk Management).
• Schedule XIV replaced: Revokes and replaces Schedule XIV (Class 4 and Class 3B Statutory Economic Balance Sheet).
• Cross-reference updates: Amends Schedules XI, XV, XX, XXA, XXI and XXIA by substituting references to Schedule XIV with Schedule XXVI.
• New schedules inserted: Adds new Schedule XXV (Schedule of Adjustments) and Schedule XXVI (Schedule of Economic Balance Sheet Valuation Principles), which include detailed methodology for risk margin calculation and valuation of technical provisions.

The document is marked as a draft (each page is watermarked DRAFT) and the commencement clause and signature date are left blank, indicating it has not yet been finalised or brought into force. If adopted, it would require affected insurers to apply the revised BSCR formula, updated capital charge tables, risk margin calculation methodology, and Economic Balance Sheet valuation principles set out in the new and replaced Schedules.

Key obligations

• Once in force, Class 4 and Class 3B insurers would be required to calculate their Bermuda Solvency Capital Requirement using the revised formula and capital charge factors in the replaced Schedule I
• Insurers seeking capital adjustments would need to apply to the Authority under section 6D(7) of the Insurance Act 1978 in accordance with new Schedule XXV
• Insurers would be required to calculate risk margin for their entire portfolio of insurance obligations using the prescribed Cost-of-Capital formula, annually until obligations are settled, and to use the Authority's prescribed cost-of-capital rate and risk-free discount rates
• Insurers would need to assess and document whether future cash flows from insurance obligations can be reliably replicated by traded financial instruments before valuing technical provisions on that basis
• Insurers would need to update risk management reporting per the replaced Schedule V and statutory economic balance sheet reporting per the replaced Schedule XIV

Applies to

Class 4 insurers, Class 3B insurers

Related documents

• This document is made under Insurance Act 1978