Consultation Paper on the Reclassification of the Class 3 Sector (2008-05-15)

Summary

This is a 2008 BMA consultation paper proposing to reclassify the Class 3 insurance sector into three new sub-classes and to introduce a new Special Purpose Insurer (SPI) category. It sets out draft legislative proposals and invites industry comment ahead of a planned commencement of the new regime on 1 April 2009. The proposals target commercial insurers and special purpose business; the BMA states its policy goal is to leave the existing regulatory framework for captives broadly unchanged.

• Class 3 (captives writing unrelated business): Insurers whose unrelated business represents more than the 20% Class 2 threshold but less than 50% of net premiums written and/or loss provisions; existing captive regulatory treatment remains broadly unchanged.
• Class 3A - Small Commercial Insurers: Unrelated business at or expected to exceed 50% of net premiums written and/or loss provisions, with unrelated business net premiums not exceeding $50,000,000.
• Class 3B - Large Commercial Insurers: Unrelated business at or expected to exceed 50% of net premiums written and/or loss provisions, with unrelated business net premiums exceeding $50,000,000; expected to face enhanced risk-based solvency requirements (Phase II, from Q1 2009).
• Special Purpose Insurer (SPI): New category for insurers conducting a single securitization or transformer-type transaction, fully collateralized, with a limited number of sophisticated participants; proposed $1.00 share capital and a solvency margin requiring assets to exceed liabilities at all times.
• Re-registration requirement: Existing Class 3 licence holders with 50% or more unrelated business net premium written and/or loss provisions would need to apply for re-registration into Class 3A or Class 3B; those below 50% remain in the redefined Class 3 category without re-registering.
• Additional reporting: Class 3A and Class 3B insurers would be required to submit a Schedule of Ceded Reinsurance under Regulation 14A of the Insurance Returns and Solvency Regulations 1980; no new reporting or solvency requirements are proposed for Class 3 captives writing some unrelated business.
• Threshold breach notice: Class 3A insurers that unexpectedly exceed the $50,000,000 unrelated business premium threshold would be required to notify the BMA under Section 8A and file a written report (circumstances, unaudited interim statutory financial statements, and a general business solvency certificate), or apply under Section 56 for a waiver.

As a consultation paper, this document is not yet in force; it invites comments on the proposed approach and draft legislation, with a stated response deadline of 11 June 2008 and an intended commencement of the new regime on 1 April 2009, subject to the outcome of the consultation.

Key obligations

• Comments on the proposals should be submitted in writing to Shelby Weldon (sweldon@bma.bm) no later than 11th June 2008.
• Existing Class 3 licence holders with 50% or more unrelated business net premium written and/or net loss and loss expense provisions would be required to apply for re-registration into Class 3A or Class 3B.
• Class 3A and Class 3B insurers would be required to submit a Schedule of Ceded Reinsurance in accordance with Regulation 14A of the Insurance Returns and Solvency Regulations 1980.
• A Class 3A insurer that exceeds or is projected to exceed the $50,000,000 unrelated business net premium threshold would be required to notify the BMA under Section 8A and file a written report including particulars of the circumstances, unaudited interim statutory financial statements, and a general business solvency certificate, or apply under Section 56 for a waiver.

Applies to

Class 3 insurers, Class 3A insurers (proposed), Class 3B insurers (proposed), Special Purpose Insurers (proposed), captive insurers, rent-a-captives, segregated accounts companies, commercial insurers

Deadlines

• 11th June 2008: Deadline for submitting written comments on the consultation proposals to Shelby Weldon at the BMA.
• 1st April 2009: Intended commencement date for new legislation, amended regulations and guidance notes reflecting the proposed reclassification, subject to consultation outcome.
• first quarter of 2009: Planned start of Phase II, development of a risk-based capital model for a subset of Class 3 insurers.