Insurance Amendment Act 2008

Summary

This is a draft bill that would substantially amend the Insurance Act 1978 to give the Bermuda Monetary Authority power to impose an enhanced capital requirement (ECR) and require capital and solvency returns from registered insurers, and to create new insurer classes. It also adds new financial reporting, notification and remediation obligations, particularly for Class 4 insurers and insurers that breach the ECR.

• New insurer classes: Creates Class 3A insurers (unrelated business premiums under $50 million) and Class 3B insurers ($50 million or more), and a new category of Special Purpose Insurer that fully funds its liabilities through subordinated debt, other approved financing, cash or time deposits.
• Prudential standards and ECR: Empowers the Authority to make an Order prescribing prudential standards for enhanced capital requirements and capital and solvency returns, with different requirements for different classes; false or misleading statements in returns can attract a fine of up to $50,000.
• Consultation on Orders: Before making an Order under the new prudential standards power, the Authority must publish a draft Order with an explanation and allow representations, and first and subsequent Orders cannot take effect until fixed minimum periods have elapsed unless the Authority determines an earlier date is in policyholders' interests.
• Authority's power to adjust capital figures: Gives the Authority power to adjust an insurer's ECR and available statutory capital and surplus where the insurer's risk profile deviates significantly from assumptions, subject to notice, a right to make representations, and a delayed effective date; a corresponding right of appeal is created.
• Additional GAAP financial statements: Requires every Class 4 insurer to prepare and file audited additional financial statements under GAAP or IFRS, in addition to statutory financial statements, and provides for their publication by the Authority.
• Event driven filings and remediation: Introduces new notification and filing duties triggered by a significant loss risking ECR non-compliance, a material change in a Class 4 insurer's business, exceeding the Class 3A unrelated business limit, or actual failure to meet the ECR (including a dividend restriction until rectified).
• Offences and inspections: Extends existing offence provisions for failure to file required statements or returns to the new Class 3A, Class 3B, Special Purpose Insurer and capital and solvency return categories, and requires the Authority to appoint an inspector if a Class 4 insurer fails to file required statements or returns within three months of its filing date.
• Transitional reclassification: Requires existing Class 3 insurers that qualify as Class 3A or Class 3B to apply to the Authority for reclassification before 31 December 2008, on pain of possible cancellation of registration if they fail to do so.

As a bill, this document is not yet in force; it sets out proposed obligations that would only take effect if and when enacted, with most provisions commencing on 31 December 2008 except for a specified list of sections.

Key obligations

• Class 4 insurers must prepare audited additional GAAP or IFRS financial statements and file them with the Authority within four months of financial year end (extendable up to seven months on application).
• An insurer that suffers a significant loss likely to cause ECR non-compliance must, within 45 days of notifying the Authority, furnish a capital and solvency return using post-loss data.
• A Class 4 insurer experiencing a material change in the nature of its business must, within 30 days of notifying the Authority, furnish unaudited interim statutory financial statements and a general business solvency certificate.
• An insurer that fails to comply with its enhanced capital requirement must, within 14 days of becoming aware, file a written report on the failure and its rectification plan.
• An insurer that fails to comply with its enhanced capital requirement must, within 45 days of becoming aware, furnish unaudited interim statutory financial statements, a loss reserve specialist opinion, and is precluded from declaring dividends until the failure is rectified.
• A Class 3A insurer that exceeds the unrelated business limit under section 4DA(2) must notify the Authority and apply for a direction under section 56 to continue carrying on business in that class.
• Registered insurers must comply with prudential standards (enhanced capital requirement and capital and solvency returns) prescribed by Order under the new section 6A, on pain of summary offence liability.
• Existing Class 3 insurers that qualify must apply to the Authority for reclassification as Class 3A or Class 3B before 31 December 2008 or risk cancellation of registration.
• The Authority must publish a draft Order under section 6A with an explanatory note and allow not less than 28 days for public representations before making the Order.
• An insurer served with notice of a proposed adjustment to its ECR or available statutory capital and surplus may make written representations to the Authority within 28 days of the notice.

Applies to

registered insurers, Class 1 insurers, Class 2 insurers, Class 3 insurers, Class 3A insurers, Class 3B insurers, Class 4 insurers, Special Purpose Insurers, principal representatives of insurers, auditors of insurers

Deadlines

• 31 December 2008: General commencement date for the Act, except for the specified list of sections in section 1(2).
• 31 December 2008: Deadline for qualifying Class 3 insurers to apply to the Authority to be reclassified as Class 3A or Class 3B insurers.
• 120 days from publication of a draft Order: Minimum period before a first Order under section 6A (prudential standards) can come into operation.
• 180 days from publication of a draft Order: Minimum period before subsequent Orders under section 6A can come into operation.
• not less than 28 days from publication of a draft Order: Minimum period allowed for public representations on a proposed Order under section 6A.
• 28 days from the date of notice: Period within which an insurer may make written representations after being notified of a proposed adjustment to its ECR/available statutory capital and surplus under section 6D.
• not less than 90 days from notification: Minimum period before an adjustment to an insurer's ECR or available statutory capital and surplus under section 6D takes effect.
• 45 days of notifying the Authority: Deadline for the principal representative to furnish a capital and solvency return using post-loss data after a significant loss event.
• 30 days of notifying the Authority: Deadline for the principal representative to furnish unaudited interim statutory financial statements and a solvency certificate after a material change in a Class 4 insurer's business.
• within four months of financial year end (up to seven months if extended): Deadline for Class 4 insurers to file audited additional GAAP/IFRS financial statements.
• 14 days of becoming aware of ECR failure: Deadline to file a written report on an ECR compliance failure.
• 45 days of becoming aware of ECR failure: Deadline to furnish interim financial statements and a loss reserve specialist opinion after an ECR compliance failure.
• within three months of filing date: Period after which the Authority must appoint an inspector if a Class 4 insurer fails to file required statutory or additional financial statements or returns.

Related documents

• This document amends Bermuda Monetary Authority Act 1969
• This document amends Insurance Act 1978