Legislative amendments tightens supervisory regime for insurers - International Law Office

Introduction
New classification system for insurers carrying on long-term business
Solvency requirements for long-term insurers
Notification of new or increased shareholder control
Change of controller or officer
Material change
Group supervision
Comment

Introduction

The Insurance Amendment (No 3) Act 2010 became operative on December 31 2010. The act enhances the Bermuda Monetary Authority's current insurance regime and makes additional amendments to the Insurance Act 1978. Among other things, it:

• amends the classification of insurers carrying on long-term business;
• clarifies the requirements of shareholder controllers when notifying the authority when there is a change or proposed change to the control of an insurer;(1) and
• widens the powers of the authority in relation to group supervision.

New classification system for insurers carrying on long-term business

The act introduces a classification system for insurers carrying on long-term business and gives legislative effect to the authority's proposals to introduce an enhanced solvency framework for such insurers. The act defines the new classes as follows:

• Class A – the insurer is wholly owned by one person and its business consists only of insuring the risks of that person, or is an affiliate of a group and intends only to insure the risk of any other affiliates of that group or its own shareholders.
• Class B – the insurer is wholly owned by two or more unrelated persons and not less than 80% of the premiums written will be written for the purpose of insuring the risk of any of those persons or of affiliates of any of those persons, or risks arising out of the business of those persons or any affiliates.
• Class C – the insurer has total assets of less than $250 million and is not registrable as a Class A or Class B insurer.
• Class D – the insurer has total assets of $250 million or more, but less than $500 million, and is not registrable as a Class A or Class B insurer.
• Class E – the insurer has total assets of more than $500 million and is not registrable as a Class A or Class B insurer.

Insurers carrying on long-term business have until September 2011 to reclassify under the new regime.

Solvency requirements for long-term insurers

The act introduces new solvency requirements for insurers carrying on long-term business. The authority will not register an insurer in Class A, B, C, D or E unless it is satisfied that the insurer meets the minimum margin of solvency. Those minimums are as follows:

• Class A – greater of $120,000 or 0.5% of assets;
• Class B – greater of $250,000 or 1% of assets;
• Class C – greater of $500,000 or 1.5% of assets;
• Class D – greater of $4 million or 2% of first $250 million of assets plus 1.5% of assets above $250 million; and
• Class E – greater of $8 million or 2% of first $500 million of assets plus 1.5% of assets above $500 million.

Notification of new or increased shareholder control

Under the act, no shareholder or prospective shareholder of a private company may become a 10%, 20%, 33% or 50% shareholder controller of such insurer, unless:

• it notifies the authority of such intentions; and
• either the authority notifies the shareholder or prospective shareholder that it has no objection or the prescribed time elapses without the authority objecting to such change.

Where an insurer's shares, or its parent company's shares, are traded on any stock exchange, the shareholder must notify the authority within 45 days of becoming a 10%, 20%, 33% or 50% shareholder controller of such insurer.

Change of controller or officer

A registered person or a designated insurer (save for Class 1 and Class 2 insurers, special purpose insurers and Class A and Class B insurers) must notify the authority that a person has become, or has ceased to be, a controller of that registered person or designated insurer. Class 1 and Class 2 insurers, special purpose insurers and Class A and Class B insurers shall, at the time of filing annual statements, file with the authority a list of every person who has become or has ceased to be an officer or controller of that person during the financial year to which the financial statements relate.

Material change

A registered person or designated insurer, in certain circumstances, must notify the authority that it proposes to take measures that are likely to be of material significance for the discharge, in relation to the insurer or the insurance group, of the authority's functions under the Insurance Act. Measures that are likely to be of material significance include:

• the transfer or acquisition of insurance business being part of a scheme falling within Section 25 of the Insurance Act or Section 99 of the Companies Act 1981;
• amalgamation with or acquisition of another firm; and
• engaging in non-insurance business and activities related thereto, where such business or related activity is not ancilliary to the insurance business of the insurer.

No insurer shall effect a material change unless:

• it notifies the authority of such intentions; and
• either the authority notifies the insurer that it has no objection to such change or the prescribed time elapses without the authority objecting to such change.

Group supervision

The authority may now include within group supervision any company that is a member of a group, whether on its own initiative or upon the application of the relevant designated insurer, if it is satisfied that:

• the financial operations of the company may have a material impact on the insurance group's operations; and
• the inclusion of the company would be appropriate with respect to the objectives of group supervision.

Comment

The new provisions will result in the continued growth of the island's international business sector, as they provide further evidence of Bermuda's commitment to international best practice standards of insurance and they ensure the protection of policy holders.

For further information on this topic please contact Timothy C Faries or Janita Burke at Appleby by telephone (+1 441 298 3216 or +1 441 298 3536), fax (+1 441 292 8666) or email (tfaries@applebyglobal.com or jburke@applebyglobal.com).

Endnotes

(1) References to 'insurer' and 'insurance' also include 'reinsurer' and 'reinsurance'.