Guidance Notes for Reclassification in accordance with the Insurance Amendment Act 2008

Summary

This is BMA guidance explaining how existing Class 3 (re)insurers should determine whether to reclassify as Class 3A, Class 3B, remain Class 3, or qualify as a Special Purpose Insurer following the Insurance Amendment Act 2008. It sets out the application process, required documents, and interpretive tests (such as the 50% unrelated business test and the $50 million premium threshold) used to determine the correct class.

• Who must apply: All existing Class 3 (re)insurers that qualify for reclassification as Class 3A or Class 3B must submit a reclassification application; those that do not qualify and wish to remain Class 3 must still submit a Form T-1 with a brief explanation, without paying an application fee.
• Application package: Applications must include the original Certificate of Registration, an updated business plan (per Appendix 1), most recent audited statutory financial statements, management accounts as at 30 June 2008 or more recent, and the applicable fee ($500 for Class 3A, $1,000 for Class 3B).
• Classification tests: Reclassification depends on the percentage of unrelated net premiums written and/or unrelated loss and loss expense provisions (the 50% test) and, for large commercial business, whether unrelated premiums exceed $50 million (determining Class 3A versus Class 3B).
• Connected business: Insurers wishing to treat certain business as connected (and thus excluded from the unrelated business calculation) must submit a detailed rationale and obtain a connected business certificate from the Authority.
• Special categories: Segregated Accounts Companies/Rent-a-Captives, certain permit companies with Section 56 modified-return approval, and fully collateralized Sidecars may remain registered as Class 3 for now, pending future regulatory review in 2009/2010.
• Non-compliance consequence: A Class 3 (re)insurer that qualifies for reclassification but fails to apply by the deadline may have its registration cancelled by the Authority under Section 27(4) of the Insurance Amendment Act 2008.

The guidance also confirms that existing regulatory approvals (such as Section 56 directions and asset approvals) remain in force after reclassification, subject to Authority review, and that financial information supporting applications must be based on audited Bermuda statutory financial statements rather than GAAP accounts.

Key obligations

• Qualifying Class 3 (re)insurers seeking reclassification as Class 3A or Class 3B must submit a reclassification application by 31 December 2008.
• Class 3 (re)insurers that do not qualify for reclassification but wish to remain Class 3 must submit Form T-1 with a brief explanation of why they should remain Class 3 (no fee required).
• Reclassification applications must include the original Certificate of Registration, an updated business plan (per Appendix 1 content requirements), the most recent audited statutory financial statements, management accounts as at 30 June 2008 or later, and the applicable application fee ($500 for Class 3A, $1,000 for Class 3B).
• Insurers wishing certain business lines to be treated as connected business must submit a detailed description and rationale and obtain a connected business certificate from the Authority before it can be excluded from the unrelated business calculation.
• Run-off Class 3 insurers meeting the unrelated loss provision threshold must still apply to register as Class 3A.
• A Class 3A insurer that breaches the $50 million unrelated net premium threshold must have its principal representative notify the Authority and apply under section 56 for a direction to remain Class 3A, including particulars of the increase, unaudited interim financial statements, and a solvency certificate.
• Failure to apply for required reclassification by the deadline may result in the Authority cancelling the insurer's registration under Section 27(4) of the Insurance Amendment Act 2008.

Applies to

Class 3 insurers, Class 3A insurers, Class 3B insurers, Special Purpose Insurers, Segregated Accounts Companies, Rent-a-Captives, Permit companies (134 permit), Sidecars, Mutual companies, Run-off (re)insurers

Deadlines

• 31st December 2008: Deadline for qualifying Class 3 (re)insurers to submit reclassification applications as Class 3A or Class 3B (or Form T-1 explanation to remain Class 3).