28 July 2010
Published in: Regulation - supervision
Bermuda highlights Solvency II equivalence steps
The latest steps taken by Bermuda to attain equivalence with Solvency II have been summarized by the Bermuda Monetary Authority in its latest regulatory update, issued yesterday.
The BMA issued two consultation papers that outline the authority's proposals on establishing a Bermuda-specific ORSA (own risk and solvency assessment) regime and enhancing disclosure requirements for Bermuda's largest (re)insurers.
The authority also issued for industry feedback a draft order detailing the disclosure requirements that will come into effect for class 4 and class 3B (re)insurers on 31 December 2010.
The BMA said "the papers and the order are key milestones in the authority's work plan to enhance its supervisory regime for Bermuda (re)insurers ahead of a third-country assessment of its framework under Europe's Solvency II directive." Bermuda received some encouragement on this front two weeks ago from the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). (IERM, 15 July 2010, Regulation/supervision, "Bermuda boosted by CEIOPS equivalence paper").
The authority proposes introducing a regime that requires commercial insurers to perform an assessment of their own risk and solvency requirements, which it refers to as a commercial insurer's solvency self-assessment or CISSA. Under the insurance code of conduct, which came into effect on 1 July 2010, all insurers are required to conduct a solvency self-assessment.
However, the proposed CISSA, which is comparable to Solvency II's ORSA requirement, has been adapted to the specific needs of the Bermuda commercial insurance market. The CISSA will allow the authority to obtain a (re)insurer's view of the capital resources required to achieve its business objectives and to assess the company's governance, risk management and controls surrounding this process.
The authority is also going to phase in "additional qualitative and quantitative public and regulatory disclosure requirements."
The authority has completed market consultation on its eligible capital proposals and is drafting enabling legislation under which the BMA will seek to establish rules in relation to capital that is identified as being eligible to satisfy commercial insurers' available statutory capital and surplus requirements. Eligible capital requirements will seek to categorize capital instruments in a tiered structure based on the characteristics of those instruments, then assign limits for each tier.
The BMA is conducting a pilot of its internal capital models (ICM) framework with select class 4 companies. The ICM pilot enables the authority to test its review process, allowing for refinements to be made to the framework as required.
The ICM assessment includes evaluating the adequacy of the design, statistical quality and calibration of the models submitted by (re)insurers and the governance structure, controls and documentation surrounding them.
The assessment will also be heavily focused on determining the extent to which the models are used effectively and fully integrated into the strategic decisions, underwriting and risk mitigation strategies of the participating firms.