Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Amendment Rules 2018 - Schedule A

Summary

This instrument amends Schedule I (the Group BSCR calculation) of the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011. It replaces the core Group Basic Solvency Capital Requirement (BSCR) formula, changes a capital charge factor in Table 2, and inserts detailed new paragraphs 21 to 49 setting out correlation matrices, risk charge formulas, and adjustments used to calculate group solvency capital. The Schedule was brought into operation on 1 January 2019.

• BSCR formula replaced: Paragraph 1 of Schedule I is revoked and replaced with a new Group BSCR formula combining fixed income, equity, interest rate, currency, concentration, premium, reserve, credit, catastrophe and long-term insurance risk charges, operational risk, and capital adjustments, subject to a transitional factor.
• Transitional factor: A transitional factor phases group capital requirements in over a transitional period T (between 3 and 10 years, fixed once set) based on the relative proportions of long-term and property and casualty (P&C) risk, starting for financial years beginning on or after 1 January 2019.
• Table 2 capital charge change: The capital charge factor for Other tangible assets net of segregated accounts is changed to 20.0%.
• New paragraphs 21 to 49 inserted: New provisions establish the corrected BSCR (BSCRCorr) formula, Basic BSCR module with correlation matrices (Tables A to D), market, P&C, long-term, credit and operational risk module calculations, capital charge factors for fixed income assets and credit derivatives, regulatory capital treatment of regulated non-insurance financial operating entities, capital requirements for unregulated entities, and adjustments for loss-absorbing capacity of technical provisions and deferred taxes.
• Unregulated entity capital charges: Capital charges of 0 percent apply to unregulated entities providing ancillary services to group members, 15 percent to unregulated non-financial operating entities, and 50 percent to unregulated financial operating entities.

The document is a technical rules schedule with formulas and tables rather than narrative obligations, but it directly governs how insurance groups must calculate their statutory group solvency capital requirement going forward.

Key obligations

• Insurance groups must calculate their Group BSCR using the new formula in revised paragraph 1 of Schedule I, on an EBS valuation basis.
• Insurance groups must apply the prescribed transitional factor, phasing group capital requirements from 1/T up to 100 percent over a transitional period T (3 to 10 years) determined by the group's relative long-term and P&C risk proportions, for financial years beginning on or after 1 January 2019.
• Insurance groups must apply the revised 20.0% capital charge factor for other tangible assets net of segregated accounts in Table 2.
• Insurance groups must calculate the Basic BSCR, market, P&C, long-term, credit and operational risk module charges using the correlation matrices and formulas in new paragraphs 21 to 45.
• Insurance groups must determine regulatory capital requirements for regulated non-insurance financial operating entities in accordance with Schedule XIA and paragraphs 46 to 47.
• Insurance groups must determine capital requirements for unregulated entities under their control using the specified capital charges (0%, 15%, 50%) per Schedule XIB and paragraph 47.
• Insurance groups must calculate adjustments for the loss-absorbing capacity of technical provisions (paragraph 48) and deferred taxes (paragraph 49) when determining the group solvency capital requirement.

Applies to

insurance groups

Deadlines

• 1 January 2019: Schedule A (the amendments to Schedule I) is brought into operation on this date.
• financial year beginning on or after 1 January 2019: The transitional factor for the Group BSCR begins phasing in from this financial year, increasing in equal steps to 100 percent by the end of the transitional period T.