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Bermuda: Law of Offshore

Insurance Law

Bermudan insurance was regulated by the Minister of Finance and the Registrar of Companies under the Insurance Act 1978, the Insurance Amendment Act 1996 and the Companies Act 1981. Supervisory responsibility was transferred to the Bermuda Monetary Authority under the Insurance Amendment Act, 2004. The legislation provides greater flexibility than that of most other jurisdictions, partly accounting for Bermuda's success as an insurance centre. An annual audit is required, together with a solvency certificate. Annual licence fees vary depending on the class of insurer.

There are four classes under which insurers can register:

  • Class 1: Single-parent captives which don't write external business; minimum solvency requirement BMD120,000;
  • Class 2: Multi-owner captives underwriting the risks of their owners, or single-parent or multi-owner captives writing not more than 20% of external business; minimum solvency requirement BMD250,000;
  • Class 3: Insurers and reinsurers not included in the other three classes, including reinsurers writing 3rd party business, finite reinsurers, etc; minimum solvency requirement of BMD1m;
  • Class 4: insurers and reinsurers writing direct excess liability and/or property catastrophe reinsurance risks; minimum solvency requirement of BMD100m.

There are additional rules dealing with minimum levels of statutory and authorised capital, distinguishing between general and long-term (life) business. The solvency and liquidity requirements under the Insurance Act are found in the Insurance Returns and Solvency Regulations 1980. These require general business insurers to maintain at all times a minimum margin of solvency.

Insurers must file annual financial statements and statutory returns with the Registrar of Companies, audited by an approved auditor. They are subject to various other reporting and fiduciary requirements.

In December, 2004, the Bermuda House of Assembly approved the Segregated Accounts Companies Amendment Act. Under the Act, Bermuda segregated accounts companies are available to insurance firms, collective investment schemes and other special purpose vehicles that serve an investment purpose.

The purpose of the Bill is to amend section 18 of the principal Act which clarifies the ownership status of the assets within a segregated account and rectifies the reference to the Exchange Control Act 1972. This means those persons who are licensed to conduct long term insurance business will now be able to take advantage of the general provisions under the Principal Act.

A segregated account is an account which contains assets and liabilities that are legally separate from the assets and liabilities of a company's ordinary account, which is otherwise known as its ‘general account.’

Deputy Premier Paula Cox observed that: "The intended effect of the division between the general account is to protect the assets of one account from the liabilities of the other accounts."

Since the Segregated Accounts Act was initially enacted in 2000, over 160 firms had registered as segregated accounts companies, contributing more than BMD58,000 in revenue to the government annually, explained Mrs Cox.

During 2004, detailed consultations were conducted with the insurance sector on a first set of related amendments to the supervisory arrangements. These included the enactment of the Insurance Amendment Act 2004 (the Amendment Act), the preparation of a series of detailed policy Guidance Notes and the development of a formal supervisory model to be applied by the Authority. By the end of the year, preparatory work on much of this first phase was complete, enabling the first round of amendments to be implemented early in 2005.

One of the key provisions of the Amendment Act was to create a mechanism for the Authority to develop and publish guidance notes on different aspects of the standards and requirements of the Insurance Act.

Alongside the preparation of the Amendment Act itself, the Authority embarked on in-depth consultations with industry partners and the accountancy and legal professions on the drafting of detailed Guidance Notes on aspects of the supervisory framework under the Insurance Act. These covered key matters such as the role of auditors, insurance managers and principal representatives. A first series comprising 15 specific Guidance Notes was finalised and published shortly after the end of the year, when detailed timetables for their progressive implementation during 2005 were also published. 

The Amendment Act, which formally commenced on 10 December 2004, also included a number of other important changes. In many respects, these changes served to provide statutory backing for a number of requirements and standards that the Authority had already applied to the licensed sector. In particular, it required:

  • Notification of any change in particulars of an approved principal representative, insurance manager or approved auditor or change of location of the principal office;
  • Requirement for a principal representative to notify the Authority immediately in certain circumstances – for example, if he reaches the view there is a likelihood of the insurer for which he acts becoming insolvent;
  • Clarification of the approval process of the loss reserve specialist by the Authority and of the Authority’s power to revoke an approval;
  • Clarification of the approval and appointment process for auditors on the basis of fit and proper criteria as well as a provision enabling the
    Authority to appoint an auditor where one has not been appointed, and to set the remuneration;
  • Modification of the auditor independence standard in the Insurance Act to make it consistent with the standards in Bermuda’s other financial
    services statutes; and
  • Introduction of an obligation for an auditor to notify the Authority in the event of his resignation or removal, or if he makes a material modification
    to a report on an insurer’s statutory financial statements.

In April, 2009, the Bermuda Monetary Authority (BMA) published three market communications that propose specific initiatives designed to further enhance Bermuda’s regulatory framework for the insurance sector. These documents are: a report entitled ‘Bermuda’s Insurance Solvency Framework – The Roadmap to Mutual Recognition’; a discussion paper on Groups Supervision; and a consultation paper on guidance for Special Purpose Insurers.

Matthew Elderfield, CEO of the Authority said: “The series of documents published on March 31 show that Bermuda is continuing to develop a leading international regulatory framework for insurance. Coming shortly after EU agreement on the Solvency II directive, our initiatives demonstrate that the Bermuda regulatory framework is keeping pace with international developments and that Bermuda is on-track for regulatory equivalence with Europe. This means Bermuda-based firms are in a position to operate globally without regulatory barriers, due to the high standards that are being put in place.”

“The authority is working towards an important objective of achieving mutual recognition (or regulatory equivalence) for Bermuda’s regulatory framework in key international markets, with a particular emphasis on insurance regulation,” underlined Elderfield

‘Bermuda’s Insurance Solvency Framework – The Roadmap to Mutual Recognition’ details the authority’s work plan toward this goal.

“We have already made significant progress towards the goal of enhancing our regime and ensuring regulatory equivalence with our key trading partners, however considerable work remains to be done. Our Roadmap provides details of the initiatives the authority will undertake over the next couple of years to complete our work,” commented Elderfield.

The authority is also proposing to implement group-wide supervision for insurance groups operating within Bermuda.

The discussion paper - Implementing Group-wide Supervision - released on March 31, 2009 for industry comment, highlights the critical issues the authority would be considering for inclusion in its proposals, such as determining the lead supervisor for a group, the calculation of group solvency, the treatment of intra-group transactions, eligible capital, reporting requirements, group corporate governance and risk management. The scope of group-wide supervision will apply to Class 4 and Class 3B re/insurers.

“Our discussion paper provides the authority’s contribution to the growing debate on group supervision,” Elderfield said. Adding: “Recent market events have highlighted the importance of assessing risk at a group level. The authority already has a program of supervisory colleges in place and is now setting out its proposals to require Bermuda’s large commercial insurance firms to be subject to group supervision.”

The consultation paper on guidance for Special Purpose Insurers (SPI) also published on March 31 is designed to provide clarity as to the minimum prudential requirements for the new SPI class that was introduced in legislation in 2008, noted the BMA.

“The authority recognizes the importance of ensuring that the regulatory framework in Bermuda allows market innovation by being sufficiently flexible and responsive to new developments, subject to appropriate minimum prudential standards. The SPI guidance sets out our thinking for the ground rules for market participants planning to use side cars, cat bonds and other special purpose vehicles.”

“The guidance, once adopted, will assist market participants in putting forward applications for SPI structures such as side cars and cat bonds that demonstrate compliance with the authority’s standards,” concluded Elderfield.



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