CP on Enhancements to Bermuda's Insurance Regulatory Regime for Commercial Insurers and Groups (April 2015)

Summary

This is a 2015 BMA consultation paper proposing a package of enhancements to the regulatory and supervisory framework for commercial insurers (Class 3A, 3B, 4, C, D and E) and insurance groups in Bermuda. It sets out draft amendments to the Insurance Act 1978, the Insurance Code of Conduct, the Insurance (Eligible Capital) Rules 2012 and the Insurance (Group Supervision) Rules 2011, and invites industry comment before the proposals are finalised and expected to take effect from 2016.

• Shareholding disposals: Shareholder controllers of commercial insurers would need to notify the Authority when reducing holdings across the 10%, 20%, 33% and 50% thresholds - in advance for private companies, within 45 days after the change for public companies.
• Head office in Bermuda: Commercial insurers incorporated in Bermuda would be required to establish and maintain their head office in Bermuda, assessed against factors such as location of underwriting/risk decisions, senior executives, board meetings and directors' residence.
• Outsourcing of senior management: The Code would be amended (paragraphs 17-18) to require enhanced board due diligence and oversight where CEO/senior executive functions are outsourced to an insurance manager, with certain large/higher-risk classes restricted from outsourcing these roles; this change is proposed to take immediate effect upon adoption.
• Financial Condition Report (FCR): Commercial insurers and insurance groups would be required to prepare, file and publish an annual Financial Condition Report covering business/performance, governance, risk profile, solvency valuation, capital management and subsequent events, signed off by the CEO and CRO/CFO.
• Eligible capital and consequential changes: Amendments to the Eligible Capital Rules and Group Rules to align with international standards, plus consequential changes to the Insurance Act and Insurance Returns and Solvency Regulations 1980 tied to the economic balance sheet regime.

As a consultation paper, the document does not itself create binding obligations; it describes proposed legislative and rule changes on which the Authority sought stakeholder feedback, with most substantive changes intended to commence on 1 January 2016.

Key obligations

• Proposed: private-company shareholder controllers of commercial insurers must notify the Authority in writing before disposing of shareholdings across specified thresholds (10%, 20%, 33%, 50%)
• Proposed: public-company shareholder controllers of commercial insurers must notify the Authority in writing no later than 45 days after a disposal reducing holdings across those thresholds
• Proposed: commercial insurers incorporated in Bermuda must establish and maintain their head office in Bermuda
• Proposed: boards outsourcing CEO/senior executive functions to an insurance manager must conduct enhanced due diligence and establish oversight systems; certain classes (3B, 4, E) restricted from outsourcing these roles
• Proposed: commercial insurers and insurance groups must file a Financial Condition Report (FCR) with the Authority on or before their filing date and publish it on their website within 14 days of filing (or provide it within 10 days of a request)
• Proposed: the FCR must be kept at the insurer's (or designated insurer's) head office for at least five years from first filing
• Proposed: an updated FCR must be filed within 14 days and made publicly available within 10 days after a significant event materially affecting previously filed FCR information
• Proposed: the FCR must be reviewed and approved by the board and signed off by the CEO and either the CRO or CFO before filing/publication

Applies to

commercial insurers (Class 3A, Class 3B, Class 4, Class C, Class D, Class E insurers), insurance groups, insurance managers (as outsourced service providers)

Deadlines

• 15th May 2015: Deadline for interested persons to submit comments on the consultation paper and draft legislation to policy@bma.bm
• 1st January 2016: Proposed effective date for shareholding disposal notification requirement and head office establishment requirement
• 2016 financial year-end: Proposed first filing period for the Financial Condition Report (FCR)
• immediate effect upon adoption: Proposed Code amendment on outsourcing of CEO/senior executive positions (paragraphs 17-18) to take effect as soon as adopted
• 45 days after disposal: Notification deadline for public-company shareholder controllers reducing holdings across specified thresholds
• 14 days after filing: Deadline to publish the FCR (or an FCR update) after it is filed with the Authority
• 10 days after request or after event: Deadline to make the FCR (or an update) available upon request, or publicly available after a significant event
• 5 years from first filing date: Minimum retention period for the FCR at the insurer's or designated insurer's head office