Response to Industry Comments - Insurance Amendment (No. 2) Act 2012 (2012-06-28)

Summary

This is the Bermuda Monetary Authority's formal response to industry comments received on the June 2012 consultation draft of the Insurance Amendment (No. 2) Act 2012, which amends the Insurance Act 1978. It works through the main areas of stakeholder feedback, explains which suggestions the Authority accepted or rejected, and sets out the resulting changes to specific clauses before the Bill's passage through Parliament.

• Group actuary approval: A new Section 27G is adopted requiring a designated insurer to ensure its group appoints an actuary approved by the Authority to assess the adequacy of group insurance reserves, with prior submission of the actuary's particulars for Authority approval and a fit and proper test.
• Non insurance business: Confirms non-insurance activities (excluding an insurer's own investments, derivatives, insurance-linked securities and other risk transfer) must be conducted through a separate subsidiary or affiliate, not directly by a Bermuda commercial insurer; a five-year transition period to 1 January 2017 applies to non-insurance business conducted as of 31 December 2012.
• Material change notifications: Outsourcing of all or a material part of an insurer's underwriting activity, and transfer (other than by reinsurance) of all or substantially all of a line of business, will require prior notification to the Authority; these new requirements apply prospectively to new arrangements only.
• General business definition: Long term insurers will be permitted to write accident and disability contracts of any duration, with a cross reference to Section 1(4) of the Act; extension to short term disability contracts is deferred to a future consultation.
• Effective date and phase in: The Authority declines to delay the amendments to January 2014 (except for the internal audit function requirement, to be addressed separately in the Insurance Code of Conduct) and will not apply further blanket phase in for Class C and D insurers beyond existing proportional reporting phase ins.

The letter is a consultation response rather than a standalone binding instrument, but it confirms specific obligations that will take effect once the amendments are enacted, including the group actuary approval regime and the non-insurance business restructuring transition period.

Key obligations

• A designated insurer must ensure that the group of which it is a member appoints an actuary approved by the Authority to assess the adequacy of the group's insurance reserves (new Section 27G(1))
• An insurer must submit particulars of a proposed group actuary to the Authority for approval before making the appointment (new Section 27G(2))
• Insurers must restructure non-insurance business activities conducted as of 31 December 2012 to comply with the separate subsidiary/affiliate requirement by 1 January 2017
• Insurers must notify the Authority in advance of outsourcing all or a material part of their underwriting activity
• Insurers must notify the Authority in advance of any transfer, other than by way of reinsurance, of all or substantially all of a line of business

Applies to

commercial insurers, insurance groups, Class A insurers, Class B insurers, Class C insurers, Class D insurers, Class E insurers, long-term insurers

Deadlines

• 31 December 2012: Non-insurance business conducted as of this date is subject to the transition period allowing restructuring.
• 1 January 2017: End of the five-year transition period by which non-insurance business must be conducted through a separate subsidiary or affiliate rather than directly by the insurer.