Consultation Paper on the Insurance Code of Conduct (September 2009)

Summary

This is a consultation paper in which the Bermuda Monetary Authority sets out a proposed Insurance Code of Conduct for insurers and reinsurers registered under the Insurance Act 1978. It invites industry comment on draft governance, risk management, outsourcing and market conduct standards before the Code is finalised.

• Proportionality: The Authority proposes to assess compliance proportionately, based on each insurer's nature, scale and complexity, applying to all sections of the Code.
• Corporate governance: Proposed requirements for the board and chief/senior executives to establish sound governance frameworks, assess fitness and propriety of directors, controllers and officers, and set up oversight committees for risk management, audit, compliance and actuarial functions.
• Risk management: Insurers would need a documented risk management and internal controls framework covering underwriting, investment, market, credit, operational, group, strategic, reputational and legal/litigation risks, with at least annual board review.
• Governance mechanism: Draft provisions on independent functions (risk management, internal audit, actuarial, compliance) and their direct reporting lines to the board.
• Outsourcing: Proposed standards for insurers outsourcing functions, including to insurance managers, requiring clear management agreements and cooperation with the Authority.
• Market discipline and disclosure: Proposed rules on policyholder disclosure, protection of policyholder assets, oversight of authorised intermediaries, advertisement standards, and complaints handling procedures.
• Principal representative: Reiterates existing statutory requirement (Section 8A of the Insurance Act) for every insurer to appoint a Bermuda-resident principal representative and maintain a Bermuda principal office.

Comments on the proposals were requested by 30 November 2009, with the Authority intending to publish a final Code by 31 January 2010. The paper states the Code would be implemented from 1 July 2010, with a transitional period running to 31 December 2010.

Key obligations

• Every insurer must (under the proposed Code) establish and maintain a sound corporate governance framework having regard to international best practice
• The board must ensure the business is effectively directed and managed with integrity, due care and appropriate professional skills, and must establish processes to assess and document fitness and propriety of members, controllers and officers
• The board and chief/senior executives should adopt and document a sound risk management and internal controls framework covering all material risks, reviewed and approved by the board at least annually
• Where an insurance manager is employed, the board must ensure duties, responsibilities and authorities are set out in a management agreement obliging full cooperation with the Authority
• Every insurer must appoint a principal representative resident in Bermuda and maintain a principal office in Bermuda, and make arrangements enabling the principal representative to perform statutory reporting duties under Section 8A of the Insurance Act 1978
• Insurers must ensure authorised intermediaries carrying on business in Bermuda are registered with the Authority and disclose the insurer's name and authorised products to policyholders
• Insurers must have accessible complaints handling procedures and retain records of complaints, responses and actions taken
• Insurers must arrange proper protection (e.g. segregation) of policyholder assets under their control, consistent with contractual terms
• Industry and interested persons wishing to comment on the proposed Code must submit comments to policy@bma.bm by 30 November 2009

Applies to

insurers, reinsurers, captive insurers, insurance managers, principal representatives, authorised intermediaries, approved auditors

Deadlines

• November 30th 2009: Deadline for industry and interested persons to submit comments on the proposed Insurance Code of Conduct to policy@bma.bm
• January 31st 2010: Authority's intended date for publishing the final version of the Code
• July 1st 2010: Proposed commencement/implementation date of the Insurance Code of Conduct
• December 31st 2010: End of the proposed transitional period for implementation of the Code