Magazine article Risk Management

Insurance Act Changes Sweep Bermuda's Shore

Magazine article Risk Management

Insurance Act Changes Sweep Bermuda's Shore

Article excerpt

In March 29, 1995, the Insurance Amendment Act 1995 was signed into law in Bermuda. The Act, briefly summarized below, is intended to improve regulation of Bermuda-domiciled insurance companies.

Classes of Insurers

The Act requires Bermuda-domiciled insurers to apply to the Registrar of Companies for registration in several categories based on size and type of business.

Class 1 Insurers. A company must register as a class 1 insurer if (a) it is wholly owned by one person and only writes risks of that person or (b) the insurer is an affiliate of a group that only writes risks of the group or its own shareholders. The term "group" includes, for example, two corporations if one controls the other or if both are controlled by the same persons, and an "affiliate" is a member of a group. Single parent captives writing all related business would qualify as a class 1 insurer.

Class 2 Insurers. A company must register as a class 2 insurer if it is wholly owned by at least two unrelated persons (i.e., persons that are not members of the same group) and if at least 80 percent of the risks written (computed on the basis of net premiums) are risks of its owners or any affiliates of its owners. Consequently, group captives generally will qualify as class 2 insurers. Furthermore, an insurer that would qualify as a class 1 insurer but for the fact that it writes unrelated business must be registered as a class 2 insurer if at least 80 percent of the risks written (computed on the basis of net premiums) will consist of related business (i.e., business of the sole owner or its affiliates). Accordingly, a single parent captive writing up to 20 percent of its net premium as unrelated business generally will qualify as a class 2 insurer.

Class 3 Insurers. Any insurer that writes general business and is not described as a class 1, class 2 or class 4 insurer must register as a class 3 insurer.

Class 4 Insurers. An insurer that, at the time of its application, or before it commences operations as an insurance company, has total statutory capital and surplus of at least $100 million and intends to engage in the property catastrophe or excess liability reinsurance business must register as a class 4 insurer.

It is interesting to note that recent U.S. case law has allowed related parties to deduct premiums paid to a captive if the captive writes more then 30 percent of unrelated business computed on a gross basis. However, the Bermuda statute utilizes a 20 percent of net premium standard in determining an insurer's appropriate classification.

Financial Statements and Returns

A CLASS 2 INSURER that is not a long-term insurer must file a copy of its statutory financial statements and its financial return with the registrar within the six-month period following the close of the financial year to which the statements relate. A class 3, class 4 or long-term insurer must file a copy of its statutory financial statements and its financial return with the registrar within the four-month period following the close of the financial year to which the statements relate. A class 1 insurer that is not a long-term insurer is not required to file statutory financial statements with the registrar; however, it must file financial returns with the registrar within four months following the close of the taxable year to which the financial return relates. Failure to file statutory financial statements or returns will result in the imposition of monetary penalties. Furthermore, a class 4 insurer that fails to file by the due date may be investigated by an inspector appointed by Bermuda's Finance Minister.

Actuarial Services by Loss Reserve Specialists

The financial return of a class 3 or class 4 insurer must be accompanied each year by the opinion of a loss reserve specialist with respect to the insurer's reserves for losses and loss expenses. This opinion is required every three years (beginning with the financial return relating to the financial year following the insurer's registration) in the case of a class 2 insurer. …

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