Bermuda Amends Insurance Regulatory Regime
Tuesday July 26 2011 | 02:31 AM

The Bermuda Monetary Authority (BMA) intends to allow Class 3A insurers to use pre-approved internal capital models for solvency reporting purposes, in an attempt to further strengthen the jurisdiction's regulatory framework.

This would extend existing provisions to determine capital requirements established in 2009 for Class 4 and Class 3B insurers, which will allow the BMA to assess these companies through either a standard capital model via the Bermuda Solvency Capital Requirement (BSCR) or a pre-approved internal capital 
model.

The planned extension to Class 3A insurers is contained in a piece of draft legislation entitled the Insurance (Prudential Standards) (Class 3A Solvency Requirement) Rules 2011 (“The 3A Prudential Rules”). The 3A Prudential Rules stipulate that, provided certain conditions are met, Class 3A insurers can 
apply to use internal capital models in the place of the standard BSCR-Small to Medium-Sized Entities (SME) model. Class 3A insurers would also be required to submit copies of their capital and solvency return before a specified filing date. Class 3A insurers are defined as small commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written, and where the unrelated business net premiums are less than USD50m.

Jeremy Cox, the Authority’s CEO said “This extension of pre-approved internal capital models to Class 3A insurers is part of the BMA’s strategy to apply a proportionate, risk-based reporting regime appropriately throughout the industry. This extension strategy, as well as the Authority’s publishing of these draft pieces of legislation for consultation, is a good example of our commitment to ensuring that Bermuda’s regulatory framework remains practical for the entire industry,”

Cox added. “Having built the framework, we are now ensuring that our team has sufficient resources and the necessary skills to apply a rigorous review of internal capital model applications.”

A second piece of draft legislation: the Insurance (Prudential Standards) (Class 4 and Class 3B Solvency Requirement) Amendment Rule 2011 seeks to amend filing requirements for registered Class 4 (insurers and reinsurers capitalised at a minimum of BMD100m underwriting direct excess liability and/or property catastrophe reinsurance risk) and Class 3B insurers and clarifies certain provisions regarding annual regulatory reporting. The Rule also gives the Authority power to revoke its granted approval for an internal capital model if that model is deemed no longer suitable for the purposes of establishing an enhanced capital requirement. In addition, where the BMA has not been appointed group wide supervisor, the Rule makes provision for registered Class 4 and Class 3B insurers to submit quarterly financial returns to the Authority.