Insurance Guidance Note #3: Fit and Proper Criteria and Approval Process for Loss Reserve Specialists (March 2005)

Summary

This Bermuda Monetary Authority guidance note sets out the eligibility criteria and approval process for Loss Reserve Specialists, the individuals who opine on the adequacy of an insurer's loss and loss expense provisions in its statutory financial statements. It applies to all insurers registered under the Insurance Act that carry on general business, and to Loss Reserve Specialists approved by the Authority.

• Insurer duties: Before appointing a candidate, the insurer must assess whether the person is fit and proper (integrity, competency, resources, qualifications, experience) commensurate with the nature, scale and complexity of its business.
• Ongoing monitoring: If an insurer becomes aware its Loss Reserve Specialist is no longer fit and proper, it must take timely steps to replace them.
• Information to the Authority: Insurers must provide information on request to demonstrate that a candidate or incumbent meets the eligibility and fit and proper criteria.
• Specialist's own duties: A candidate must be satisfied the work is within their professional expertise and that they have no conflicts of interest; if employed by or consulting to the insurer, this relationship must be disclosed to the Authority and confirmed in a Letter of Undertaking.
• Fit and proper benchmark: A person is generally considered fit and proper if a member in good standing of a recognised actuarial body, meets that body's qualification requirements to sign statutory loss reserve opinions, and has relevant loss reserve experience.
• Exclusions: A person will not be approved as Loss Reserve Specialist if they are the CEO, COO, CFO, a director, a person with underwriting authority, or otherwise has a role creating a conflict of interest.
• Approval process: The Authority requires a resume, membership certificates/evidence, a Letter of Undertaking, and (if applicable) written explanations and a resignation letter regarding any change of specialist, before approving an appointment and issuing a certificate of approval, which may be restricted to certain lines of business or limited to three years or less if criteria are not fully met.

For matters other than changes introduced by the Insurance Amendment Act 2004 (with which insurers must comply immediately), the Authority expected compliance with this guidance as soon as possible and in any event by 31 December 2005, or a later date agreed with the Authority.

Key obligations

• Insurers must assess whether a candidate Loss Reserve Specialist is fit and proper before appointment, considering integrity, competency, resources, qualifications and experience.
• Insurers must promptly replace a Loss Reserve Specialist who is found to no longer be fit and proper.
• Insurers must provide information to the Authority on request demonstrating that a candidate or incumbent Loss Reserve Specialist meets the eligibility and fit and proper criteria.
• A Loss Reserve Specialist who is an employee or consultant of the insurer must disclose that relationship to the Authority and confirm absence of conflicts of interest in a Letter of Undertaking.
• Insurers seeking to appoint a candidate who does not meet the standard criteria should hold preliminary discussions with the Authority beforehand.
• Insurers must submit a resume, membership/certification evidence, a Letter of Undertaking, and (where applicable) explanations for any change of Loss Reserve Specialist and a resignation letter, as part of the approval application.
• Insurers must comply immediately with changes arising from the Insurance Amendment Act 2004, and otherwise come into compliance with this guidance by 31 December 2005 or a later date agreed with the Authority.

Applies to

insurers registered under the Insurance Act carrying on general business, Loss Reserve Specialists approved by the Authority

Deadlines

• 31st December 2005: Deadline for insurers to come into compliance with matters in this Guidance Note other than changes from the Insurance Amendment Act 2004, unless a later date is agreed with the Authority.
• immediate: Insurers must take immediate steps to comply with changes in legislation contained in the Insurance Amendment Act 2004 referenced in this Guidance.
• not more than 3 years: Any discretionary approval of a Loss Reserve Specialist not meeting the standard criteria, or a certificate of approval where criteria are not fully met, will be limited to a term of 3 years or less.