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. The adjustments were originally
scheduled to be field-tested in 2017 with a view to their
implementation for year-end filings for financial years beginning
on or after 1 January 2017. They will now be introduced for
year-end filings for financial years beginning on or after 1
January 2018. There will then be a three-year grade-in
The BMA considers that the adjustments are necessary to bring
the BSCR into line with international standards. The adjustments
include the following:
A revised scale of risk charges for equity holdings
distinguishing 'strategic holdings',
'duration-based' holdings (for certain investments held by
long-term insurers), infrastructure holdings and interests in
entities listed in OECD countries, the European Economic
Area, Hong Kong, Singapore and
A measure of P&C premium risk based on premium earned
rather than net written premium.
Moving future premium receivables from the liability side of
the balance sheet to the asset side of the balance sheet and
reinstating a credit risk capital charge on premium receivables of
Revising the calculation of the reinsurance credit risk capital
charge, so that the charge is determined by reference to the
premium risk for ceded premiums rather than by reference to
reinsurance balances payable plus collateral. (The effect of this
change is to impose a credit risk capital charge on reinsurance
proceeds falling due in the future, rather than just on current
Increases in the operational risk capital charges, which apply
capital charges for deviations from optimal compliance with, for
example, insurance code of conduct standards.
The latter adjustment will no doubt incentivize insurers to
increase the level of their compliance with the Insurance Code of
Conduct. Potential shortfalls can be best identified by undertaking
compliance gap analyses.
There may be further adjustments to the BSCR in coming years
depending on the outcome of the review of European Solvency II, the
United Kingdom Treasury Select Committee Inquiry into Solvency II,
and the draft Insurance Capital Standard prepared by the
International Association of Insurance Supervisors. European
insurers have vocally complained that Solvency II fails to take
account of the fact that many investments held by insurers are held
to maturity rather than traded. U.K. insurers are aggrieved that
the PRA's interpretation of Solvency II imposes an unduly
onerous risk margin in calculating technical provisions which have
adversely affected their competitiveness (while also driving the
cession of reinsurance premium from the U.K. to, among other
domiciles, Bermuda). The results of these exercises may be
available by the time that the grade-in of the BSCR adjustments is
over in 2020 and, if they are, any consequential changes to the
BSCR can be made at the time the proposed adjustments are fully
The BMA anticipates publishing another consultation paper with
additional changes in the second quarter of 2017 with the ultimate
goal of further increasing the risk sensitivity of the BSCR
standard formula and better reflecting how insurers manage risks.
Areas likely to be included are: interest rate risk, risk
mitigation techniques, use of management actions and use of
look-through for equity risk charge. This will be keenly
anticipated and no doubt reviewed with considerable interest. The
BSCR standard formula is not particularly prescriptive about risk
mitigation techniques (such as outwards reinsurance), in contrast
to European Solvency II, for example. This may be about to
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The MFSA has issued new guidelines on Product Oversight and Governance arrangements by insurance undertakings and insurance distributors as required by the Insurance Distribution Directive ("IDD") to be implemented by manufacturers of insurance products.
Despite the notable uncertainty concerning the United Kingdom and Gibraltar's future trading relationship with the European Union, there are a number of upcoming developments which the Gibraltar insurance industry and its stakeholders should be monitoring.
In less than ten months, the Insurance Distribution Directive (‘IDD') will be repealing the current Insurance Mediation Directive regulating the activities of insurance undertakings, insurance intermediaries and insurance ancillary intermediaries.
In the not-so-distant past, offshore financial centres ("OFCs") were perceived as having a very light touch
when it came to taking enforcement action against regulated entities and individuals.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).