Consultation Paper on Policyholder Protection with Draft Bill (June 2017)

Summary

This is a Bermuda Monetary Authority consultation paper, with an attached draft Insurance Amendment Act 2017, proposing a formal policyholder protection mechanism for Bermuda's insurance market. It follows a 2014 discussion paper and sets out a revised proposal to give policyholders' claims a high priority ahead of general creditors and the Bermuda Government if a Bermuda insurer is wound up or liquidated.

Rather than amending the general Companies Act 1981 waterfall, the Authority proposes inserting a new section 36A into the Insurance Act 1978 creating an insurer-specific liquidation waterfall. This would apply prospectively to insurance and reinsurance contracts (long-term and general business, retail and commercial, domestic and overseas policyholders) entered into or renewed on or after the date the enabling legislation is passed.

• Proposed priority order (highest first): employer pension contributions under the Contributory Pensions Act 1970 (for the prior twelve months); employee wages/salary (four months) and accrued holiday pay; then policyholders' claims (excluding prepaid premiums); then prepaid premium claims; then Government taxes and municipal rates; then Workmen's Compensation claims.
• Scope: Covers both general business and long-term insurance and reinsurance contracts, including the savings/investment component of long-term policies, and applies to both resident and non-resident policyholders.
• Long-term business fund: Funds held under section 24 of the Insurance Act (e.g. the long-term business fund) would remain ring-fenced to satisfy only the insurance obligations of policies within that fund.
• Secured/unsecured creditor rights preserved: The new waterfall would not affect existing rules on the rights of secured and unsecured creditors in an insolvent liquidation under section 235 of the Companies Act.
• Draft Bill mechanics: The draft Insurance Amendment Act 2017 would insert new section 36A into the Insurance Act 1978, dis-applying section 236(1) of the Companies Act 1981 for insurer wind-ups, and would amend section 40(2)(b) to reference the new section 36A; the Bill would come into operation on assent.

As a consultation paper, this document does not itself impose binding requirements on insurers; it invites industry and stakeholder feedback on the proposed statutory changes before any bill is introduced to the legislature.

Key obligations

• Interested persons and industry stakeholders wishing to comment on the proposals must submit comments to policy@bma.bm no later than 14 July 2017.
• Once enacted, the draft Bill would require that in any winding up of an insurer, payments be made in the new statutory priority order (pensions, employee wages/holiday pay, policyholder claims, prepaid premiums, Government taxes/rates, then workers' compensation) instead of the general Companies Act 1981 section 236(1) order.

Applies to

Bermuda insurers, reinsurers, policyholders (long-term and general business, retail and commercial, domestic and overseas), employees of insurers

Deadlines

• 14th July 2017: Deadline for industry and interested persons to submit comments on the consultation proposals to policy@bma.bm.
• on assent: The draft Insurance Amendment Act 2017 would come into operation on assent, per Clause 4 of the draft Bill.

Related documents

• This document amends Insurance Act 1978