Information Bulletin - Special Purpose Insurers (2009-10-05)

Summary

This is a 2009 BMA Information Bulletin explaining the newly created Special Purpose Insurer (SPI) licence class introduced by the Insurance Amendment Act 2008. It sets out the Authority's regulatory approach to licensing and supervising SPIs (used for side-cars, catastrophe bonds, ILWs and similar insurance-linked structures) and its expectations of entities ceding risk to Bermuda SPIs.

• Registration: Describes a streamlined, risk-based registration process for SPIs, including the SPI Application Form (SAF) and weekly Admissions and Licensing Committee review.
• Disclosure requirements: Sets out disclosures the SPI must confirm to cedants/insureds and investors, covering sophistication of participants, deal terms, fully funded mechanics, top-up provisions, subordination of debt, contingent-asset quality, and asset composition/valuation.
• Fees and filings: Covers application fees, annual business fees, and ongoing filing and audit requirements for SPIs, including acceptance of unaudited management accounts prepared under IFRS, Bermuda/Canada/UK/US GAAP or another recognised standard.
• Ceding entities: Explains the Authority's expectation that capital relief and risk assessment responsibility shifts to the ceding/insured entity once an SPI is fully funded, and describes information exchange with regulators of entities ceding to Bermuda SPIs.
• Structural guidance: Provides appendices on SPI transaction examples, inherent risks, trigger types, Designated Investment Contracts, exchange listing benefits, FAQs and the related SPI Guidance Note (Guidance Note #20).

The bulletin is guidance rather than binding law, but it operationalises statutory registration criteria under Section 5(2) of the Insurance Act 1978 and sets concrete expectations for SPI applicants, licensed SPIs, and cedants dealing with them.

Key obligations

• SPI applicants must complete and submit a signed SPI Application Form (SAF) confirming details of relevant participants, deal terms, and risk disclosures before registration
• Applicants must confirm all participants meet the 'Sophisticated Participant' definition
• Applicants must disclose to cedants/insureds that (re)insurance recoverables from the SPI are limited to its available assets and that insufficient assets are a risk factor
• Applicants must disclose whether a top-up provision exists and, if so, the conditions, responsible party and time-frame for any required top-up
• Applicants must disclose whether debt/financing provider rights are fully subordinated to (re)insurance creditor claims
• Where multiple (re)insurance contracts exist within one SPI, disclosure must confirm whether each contract independently meets the fully funded requirement
• Applicants funded via contingent assets must demonstrate the issuer's regulatory status and credit/financial strength rating (at least A-) or otherwise demonstrate sound financial quality
• SPIs must pay an application fee and an annual business fee
• SPIs must meet ongoing filing requirements and audit obligations as set out in the bulletin
• Where permitted via a Section 56 request, SPIs providing unaudited management accounts must submit a copy to the Authority as soon as practicable after providing them to participants, and at a minimum within four months of the end of each financial year
• SPIs must notify the Authority of any material change in business
• Absent an approved exemption, SPIs must obtain prior approval before any capital release

Applies to

Special Purpose Insurers (SPIs), cedants/insureds, sponsors, investors/debt-holders, (re)insurance regulators of entities ceding to Bermuda SPIs

Deadlines

• within four months of the end of each financial year: SPI must provide the Authority a copy of management accounts submitted to participants (where unaudited accounts are accepted under a Section 56 request)