Notice - Insurance Amendment (No. 2) Act 2012 (draft Bill) (2012-06-19)

Summary

This is a BMA consultation notice attaching a draft Bill, the Insurance Amendment (No. 2) Act 2012, which proposes amendments to the Insurance Act 1978 and related regulations. The changes primarily extend enhanced regulatory requirements (already applicable to Classes 4, 3B, 3A and E insurers) to Class C and Class D insurers, in furtherance of Bermuda's Solvency II implementation. The Authority invited industry comments on the draft Bill by 27 June 2012.

• Definitions: Inserts or amends definitions of actuary, approved actuary, loss reserve specialist, group actuary and non-insurance business, and removes the five-year minimum term restriction from the long-term business definition.
• Class C and D scope expansion: Extends enhanced regulatory requirements under sections 4EF, 6, 17A, 26 and 27B (previously applying to Classes 4, 3B, 3A and E) to Class C and Class D insurers.
• Non-insurance business separation: New section 19 prohibits Class 4, 3B, 3A, E, D and C insurers from engaging in non-insurance business except where ancillary, with a transitional period allowing existing mixed business to continue until 1 January 2017.
• Approved actuary requirement: Revised section 26 requires every Class A, B, C, D and E insurer to appoint an Authority-approved actuary to assess adequacy of long-term insurance reserves, and provides for approval of a group actuary.
• Material change approvals: Section 30JA is expanded to add further categories of material change to licensed business (e.g. acquiring controlling interests in non-insurance business, outsourcing key functions, expanding into new lines) that require prior Authority approval.
• Solvency margin breach notification: Section 31A is amended to require insurers to notify the Authority forthwith (rather than within 30 days) upon becoming aware of a solvency margin breach, and to file a remediation action plan within 14 days of notification, subject to Authority approval and possible required modification.
• Section 31AA amendments: Clarifies applicability of enhanced capital requirement provisions and requires filing of a long-term business solvency certificate with unaudited interim statutory financial statements where an insurer fails to comply with enhanced capital requirements.
• Prudential rules and exemptions: Section 6A/6C amendments allow the BMA to modify (not just exempt from) prudential standards, require a Rule to be published for at least 180 days before coming into operation, and allow revocation of exemptions/modifications with a 28 day representation period for affected insurers.
• Consequential regulatory amendments: Cross-reference corrections are proposed to the Insurance Returns and Solvency Regulations 1980 and Insurance Accounts Regulations 1980.

As a consultation notice on a draft Bill, this document does not itself impose binding obligations; it describes proposed changes for industry comment. If enacted, however, it would create new ongoing obligations for affected insurers, summarized below.

Key obligations

• Industry stakeholders were invited to submit comments on the draft Bill to policy@bma.bm by 27 June 2012
• Once enacted, Class A, B, C, D and E insurers would be required to appoint an Authority-approved actuary to assess adequacy of long-term insurance reserves
• Once enacted, Class 4, 3B, 3A, E, D and C insurers would be prohibited from engaging in non-insurance business except where ancillary to their insurance business, with mixed-business insurers required to reorganize by 1 January 2017
• Once enacted, insurers would be required to notify the Authority forthwith upon becoming aware of a breach of the minimum margin of solvency, and file a remediation action plan within 14 days of that notification
• Once enacted, insurers would need Authority approval before undertaking specified material changes to their business, including acquiring controlling interests in non-insurance business, outsourcing key control functions, or expanding into a material new line of business
• Once enacted, insurers failing to comply with enhanced capital requirements would be required to file a long-term business solvency certificate with unaudited interim statutory financial statements

Applies to

Class 4 insurers, Class 3B insurers, Class 3A insurers, Class E insurers, Class C insurers, Class D insurers, Class A insurers, Class B insurers, insurance managers, insurance brokers, insurance agents, designated insurers, insurance groups

Deadlines

• 27th June 2012: Deadline for industry to submit comments on the draft Bill to policy@bma.bm
• 1 January 2017: Transitional deadline by which insurers conducting both insurance and non-insurance business at 31 December 2012 must reorganize to separate such business
• within 14 days: Proposed timeframe under amended section 31A for an insurer to furnish the Authority with a remediation action plan after notifying a solvency margin breach
• 28 days: Period within which an insurer or designated insurer served with a notice of proposed revocation of an exemption/modification under section 6C may make written representations to the Authority
• 180 days: Minimum period a draft prudential Rule must be published before it can come into operation under amended section 6A

Related documents

• This document amends Insurance Act 1978