For the 2015 financial year, the BMA required commercial
insurers (Class 3A, Class 3B, Class 4, Class C, Class D and Class
E) to include in their regular statutory filing a trial run
submission of their Economic Balance Sheet (EBS) filing that
included Bermuda Solvency Capital Requirement (BSCR) capital charge
amendments for cash and cash equivalents (90 days' maturity)
credit risk, currency risk, concentration risk, and (for general
business only) geographic diversification. To assist with
completing the EBS trial run, the BMA included in the regular BSCR
model additional forms/schedules for EBS reporting, and a guidance
note for statuary reporting that provided detailed valuation
principles for reporting on an economic valuation basis.
The EBS was first announced by the BMA in 2010, and is the
result of several years' consultation and industry testing. It
takes the commercial insurer's existing GAAP balance sheet and
applies prudential filters to produce an economic valuation of the
assets and liabilities of the insurer that meets international
supervisory standards and minimizes accounting mismatches where
mismatches do not exist in the underlying assets and liabilities.
The prudential filters include the requirement that insurance
technical provisions be valued by reference (except in prescribed
circumstances) to best estimate cash flows adjusted to reflect the
time value of money using a risk free discount rate term structure,
plus a risk margin to reflect the uncertainty inherent in the
underlying cash flows. Additionally, certain intangible assets are
disallowed on the EBS as they are considered too uncertain to form
part of a solvency assessment.
The EBS framework reduces unnecessary duplication in the
insurer's reporting process, by eliminating the pre-existing
requirement for two quite different methods of reporting.
The BMA has announced that, based on the submissions received,
the EBS trial run and BSCR capital changes amendments did not lead
to any participants producing solvency ratios that breached the
insurer's Target Capital Level (120 percent of the Enhanced
Based on the results, the BMA has concluded that the EBS
framework and BSCR changes form a sound basis for regulatory
reporting and no significant amendments to the legislation are
anticipated in 2016 in this regard.
The BMA reports that some insurers requested additional guidance
on the risk margin, technical provision and bound, but not
incepted, business calculations. The BMA expects to provide further
guidance and it seems that this will feature in a reissue of the
2016 'Guidance Note for Statutory Reporting Regime' that
was initially published in February 2016.
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In the light of concerns raised in industry feedback, the Bermuda Monetary Authority (BMA) has decided to postpone the introduction of various adjustments to the Bermuda Solvency Capital Requirement (BSCR) standard formula that were proposed in its November 2016 Consultation Paper.
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