Consultation Paper - Revisions To The Insurance Code of Conduct (2021-12)

Summary

This is a consultation paper issued by the Bermuda Monetary Authority proposing amendments to its Insurance Code of Conduct, which sets governance, risk management and conduct standards for insurers registered under the Insurance Act 1978. The paper explains the substance of the proposed changes and attaches a redlined version of the amended Code as an appendix. It invites industry comment before the Authority finalises and publishes the revised Code.

• Definitions: Clarifies the definition of Limited Purpose Insurer to include the newer classes Collateralized Insurer and Class Innovative Insurer General Business (IIGB).
• Corporate governance: Proposes that the board include an appropriate number of independent, non executive directors, with added guidance for subsidiaries of wider groups; requires fitness and propriety assessment of the board, its committees and chief and senior executives no less than every three years; clarifies that the principal representative must be Bermuda resident and, if an insurance manager, must maintain its head office in Bermuda.
• Risk culture: Requires the board to adopt and promote a sound risk culture and to put in place a governance mechanism to measure and monitor its effectiveness.
• Reinsurance and risk transfer: Requires insurers to demonstrate the economic impact of risk mitigation techniques from reinsurance contracts and to maintain appropriate documentation on reinsurance and other risk mitigation arrangements.
• Sustainability risk: Adds Sustainability Risk (including ESG considerations) as a material risk that must be captured in the insurer's risk management policies and strategies.
• Business continuity: Requires a business continuity and disaster recovery plan covering all key business processes and critical functions, with regular testing of its effectiveness.
• Outsourcing: Strengthens due diligence and risk evaluation requirements before entering outsourcing arrangements and requires a contingency plan if the service provider cannot deliver the outsourced activity.

The Authority states the revised Code will take effect immediately upon publication, with a transition period to be recommended and communicated separately to allow insurers to come into compliance. Comments on the proposals, focused on Sections 1 to 7 of the Code, were requested by 31 January 2022.

Key obligations

• Interested parties must submit comments on the proposed Code revisions to riskanalytics@bma.bm by 31 January 2022
• Once the revised Code takes effect, insurers must include an appropriate number of independent non-executive directors on the board
• Once the revised Code takes effect, insurers must assess the fitness and propriety of the board, its committees, and chief and senior executives no less than every three years
• Once the revised Code takes effect, the principal representative must be Bermuda resident (or, if an insurance manager, maintain its head office in Bermuda)
• Once the revised Code takes effect, insurers must maintain a business continuity and disaster recovery plan covering key business processes and critical functions, tested regularly
• Once the revised Code takes effect, insurers must maintain documentation on reinsurance contracts and other risk mitigation techniques demonstrating economic impact
• Once the revised Code takes effect, insurers must conduct due diligence and risk evaluation before outsourcing and maintain a contingency plan for service provider failure
• Once the revised Code takes effect, insurers must incorporate Sustainability Risk into their risk management policies and procedures

Applies to

insurers, reinsurers, limited purpose insurers, Class 1 insurers, Class 2 insurers, Class 3 insurers, Class Innovative Insurer General Business (IIGB), Special Purpose Insurer, Collateralized Insurer, Class A insurers, Class B insurers, insurance managers

Deadlines

• 31 January 2022: Deadline for the insurance industry and other interested persons to submit comments on the proposed Code amendments to riskanalytics@bma.bm
• immediately upon publication: The revised Insurance Code of Conduct will come into effect immediately when published, with a transition period to be separately recommended and communicated to insurers