Consultation Paper on the Insurance Amendment Act 2014

Summary

This is a Bermuda Monetary Authority consultation paper, issued October 2014, seeking industry feedback on a draft Insurance Amendment Act 2014 that would amend the Insurance Act 1978 and related regulations. It sets out proposed changes to declaration of compliance requirements, material change reporting, capital and solvency intervention powers, corporate governance criteria, and several housekeeping fixes to accounting and returns regulations. As a consultation on a draft bill, none of the proposals are yet in force; the Authority invited comments and the attached bill text proposes a commencement date of 1 January 2015.

• New declaration of compliance (s.15A): Proposes requiring every registered insurer to file, alongside its statutory financial statements, a declaration signed by two directors confirming compliance with Minimum Criteria for Registration, Minimum Margin of Solvency, and (for Class 3A, 3B, 4, C, D, E insurers) the Enhanced Capital Requirement, with civil penalties for late filing.
• Publication of declaration (s.17A): Would allow the Authority to publish the declaration of compliance for insurers captured under section 17A, replacing the earlier proposal for public disclosure via financial statement notes.
• Material changes (ss.30JA, 30JB): Broadens reporting to cover schemes of arrangement affecting licensed persons and the sale/disposal of an insurer, clarifies that outsourcing notification applies if any one function (not only all collectively) is outsourced, and extends the Authority's review period for material change notifications from 14 to 30 days.
• Section 31B scope: Extends restrictions currently applying only to Class 3B and Class 4 insurers to all commercial insurers (Class 3A, 3B, 4, C, D, E).
• Intervention powers (s.32): Adds a new ground for Authority intervention where there is significant risk an insurer may be unable to meet obligations to policyholders, even absent insolvency risk.
• Modification power (s.56): Extends the Authority's power to modify or exempt requirements to cover actuarial declarations of long-term liabilities under section 27, alongside existing loss reserve specialist opinions.
• Repeal of s.57(1)(a) exemption: Removes the exemption for Friendly Societies and Trade Unions conducting insurance business, bringing them into the Act's licensing regime, with a proposed three month transition period to obtain a licence.
• Corporate governance schedule: Introduces a new Minimum Criteria requirement for insurers to implement corporate governance policies and procedures, including appointment of non-executive directors where the Authority considers appropriate.
• Housekeeping fixes: Corrects a mistitled line in Schedule II Part VI of the Insurance Accounts Regulations 1980 and fixes an incorrect section reference (6(6) to 6) in the Insurance Returns and Solvency Regulations 1980.

The Authority requested comments on these proposals by 31 October 2014. The draft bill itself proposes a commencement date of 1 January 2015, with insurers making their first declaration of compliance submission in 2015 for the 2014 financial year, and a three month transitional period for Friendly Societies and Trade Unions to become licensed.

Key obligations

• Under the proposed s.15A, every registered insurer would have to file a directors-signed declaration of compliance with Minimum Criteria, MSM, and (where applicable) ECR at the same time as its statutory financial return, facing civil penalties for late filing
• Under the proposed amended s.30JA, insurers would need to notify the Authority of material changes including schemes of arrangement affecting licensed persons and any sale or disposal of insurance operations
• Under the proposed amended s.30JA(1)(f), insurers would need to notify the Authority when any one of the compliance or internal audit functions is outsourced, not only when both are outsourced collectively
• Friendly Societies and Trade Unions conducting insurance business would need to obtain a licence under the Insurance Act 1978 within the proposed three month transitional period after the Act's commencement, or apply for one within that period to continue operating pending determination
• Insurers would be required to implement corporate governance policies and procedures under the proposed new Schedule paragraph 1A, and appoint non-executive directors where the Authority considers appropriate
• Interested persons were asked to submit comments on the consultation proposals to policy@bma.bm by 31 October 2014

Applies to

insurers registered under the Insurance Act 1978, Class 1, Class 2, Class 3 insurers, Class 3A, Class 3B, Class 4 insurers (commercial insurers), Class A, Class B, Class C, Class D, Class E insurers, Special Purpose Insurers, Friendly Societies, Trade Unions

Deadlines

• 31st October, 2014: Deadline for industry and interested persons to submit comments on the consultation paper to policy@bma.bm
• 1 January 2015: Proposed commencement date for the Insurance Amendment Act 2014 as drafted in the bill
• 2015 for the 2014 financial year: Proposed timing for insurers' first submission of the new declaration of compliance
• three months from date of commencement of the Act: Proposed transitional period for Friendly Societies and Trade Unions conducting insurance business to obtain a licence under the Insurance Act 1978

Related documents

• This document amends Insurance Act 1978