Insurance Amendment (No 3) Act 2015

Summary

This is a draft Bermuda bill that would amend the Insurance Act 1978 to update Bermuda's insurance regulatory framework in line with Solvency II equivalence commitments. It introduces a new category of prudential standard called 'Insurance Accounts Rules' made by the Bermuda Monetary Authority, and revises reporting, auditor and financial statement requirements, particularly for commercial (re)insurers.

• New definitions and concepts: Adds definitions for 'capital redemption contract', 'funding agreement' and 'Insurance Accounts Rules', and deems capital redemption contracts and funding agreements to be long-term business.
• Statutory financial return via prudential rule: Empowers the Authority to make a prudential rule requiring Class 3A, 3B, 4, C, D and E insurers (commercial insurers) to submit a statutory financial return, moving these classes out of the existing Insurance Returns and Solvency Regulations 1980 and Insurance Accounts Regulations 1980, which will now apply only to captive classes (1, 2, 3, A, B and Special Purpose Insurers).
• Bermuda-based auditor requirement: Inserts new section 16AA requiring every insurer to appoint an auditor based in Bermuda, in addition to the existing requirement for an Authority-approved auditor.
• Alternative financial statements for certain insurers: Allows Class 3A, Class C and Class D insurers to submit condensed general purpose financial statements prepared under the new Insurance Accounts Rules instead of additional GAAP financial statements, with existing auditor appointment/approval and filing rules applying equally to those statements.
• Expanded auditor reporting triggers: Sets out matters of 'material significance' an auditor must report to the Authority (e.g. fraud, going-concern doubt, material misstatements, internal control weaknesses, unresolved GAAP disagreements) and extends qualified/adverse audit opinion triggers to Insurance Accounts Rules events for commercial insurers.
• Revamped statutory return content (Schedule 1): Amends the Insurance Returns and Solvency Regulations 1980 to add new required components to the statutory financial return: an annual statutory declaration (signed by at least two directors and the principal representative), a statement of changes of control, an own risk assessment, an underwriting analysis, and a schedule of segregated accounts, with detailed prescribed content for each.

The bill also makes consequential and housekeeping amendments to sections 32, 41 and 53 of the principal Act to align references to the new rules-based regime. As a bill, it has not yet been enacted; the text as drafted specifies a commencement date of 1 January 2016 applying to financial years beginning on or after that date, but this should be verified against the enacted version if one exists.

Key obligations

• Every insurer must appoint an auditor based in Bermuda, in addition to an Authority-approved auditor (new section 16AA).
• Commercial insurers (Class 3A, 3B, 4, C, D and E) must submit an annual statutory financial return in accordance with a new prudential rule (Insurance Accounts Rules) to be made under section 6A.
• Insurers must submit an annual statutory declaration signed by at least two directors and the principal representative in Bermuda, confirming compliance and going-concern status for twelve months from the balance sheet date.
• Insurers must provide a statement of changes of control covering changes in shareholder controllers, directors and officers since the last statutory financial return.
• Insurers must provide an own risk assessment (ORA) covering the insurance program, affiliate transactions, reinsurance, collateral, employees, loss reserve discounting and investment ratings.
• Insurers must provide an underwriting analysis detailing statutory lines of general business written and geographical location of premiums.
• Approved auditors of commercial insurers must qualify, express an adverse opinion, or deny an opinion in their report where an event specified under the Insurance Accounts Rules occurs, per amended section 32.
• Class 3A, Class C or Class D insurers that opt to submit condensed general purpose financial statements instead of additional GAAP financial statements must do so in accordance with the Insurance Accounts Rules, with existing auditor appointment and filing requirements applying.

Applies to

Class 1 insurers, Class 2 insurers, Class 3 insurers, Class A insurers, Class B insurers, Special Purpose Insurers, Class 3A insurers, Class 3B insurers, Class 4 insurers, Class C insurers, Class D insurers, Class E insurers, approved auditors, insurance managers

Deadlines

• 1 January 2016: Stated commencement date of the Act as drafted, applying to all financial years commencing on or after 1 January 2016.

Related documents

• This document amends Insurance Act 1978
• This document amends Insurance Accounts Regulations 1980
• This document amends Insurance Returns and Solvency Regulations 1980