Discussion Paper on Policyholder Protection (June 2014)

Summary

This is a Bermuda Monetary Authority discussion paper exploring options for protecting insurance policyholders if a Bermuda insurer or reinsurer fails, and inviting industry comment before any legislative change is drafted. It surveys international approaches (priority claims, tied or segregated assets, policyholder protection schemes) and sets out the Authority's preferred proposal for Bermuda.

• Core proposal: Adopt a prospective statutory preference giving policyholders' claims priority over general creditors in a Bermuda insurer's liquidation or winding up, applying only to contracts entered into after enabling legislation is passed.
• Legislative change suggested: Amend Section 236 of the Companies Act to set a new payment waterfall: employee wage claims, Bermuda Government tax claims, employee pension and workers' compensation contributions, then Long-Term policyholder claims, General Business outstanding claims, prepaid premium claims, and finally general creditors.
• Options considered but not currently favoured: Earmarked or tied asset pools, segregated (ring fenced) asset accounts, and an industry funded Policyholder Protection Scheme (PPS) offering guaranteed payouts, which the Authority views as potentially unduly burdensome given the low frequency of Bermuda insurer failures.
• Scope questions raised: Whether protection should distinguish retail versus wholesale policyholders, resident versus non resident policyholders, Long-Term versus General Business contracts, pension contracts, and insurers operating as branches in Bermuda.

The paper poses ten specific discussion questions and asks interested persons to submit comments to policy@bma.bm by 5 September 2014. It is a consultative document only; it does not itself create binding rules, and any resulting requirements would follow later legislative or rule changes.

Key obligations

• Interested persons and industry participants wishing to respond must submit comments to the Authority (policy@bma.bm) no later than 5 September 2014.

Applies to

Bermuda-licensed insurers, Bermuda-licensed reinsurers, (re)insurers operating branches in Bermuda, policyholders (retail and wholesale)

Deadlines

• 5th September 2014: Deadline for submitting comments on the Discussion Paper to the Authority at policy@bma.bm.