Insurance Amendment Act 2008
INSURANCE AMENDMENT ACT 2008



BERMUDA

2008 : 34

INSURANCE AMENDMENT ACT 2008
Date of Assent: 30 July 2008

Operative Date: 30 July 2008 (Provisions referred to in section 1(2);

Operative Date: 31 December 2008 (Other provisions)

WHEREAS it is expedient to make provision for the Bermuda
Monetary Authority to prescribe prudential standards in relation to an
enhanced capital requirement and a capital and solvency return to be
complied with by registered insurers; to make new provision for classes
of insurers, and for Special Purpose Insurers; to provide for additional
financial statements to be prepared in accordance with Generally
Accepted Accounting Principles by Class 4 insurers; and for connected
and related matters:

Be it enacted by The Queen's Most Excellent Majesty, by and
with the advice and consent of the Senate and the House of Assembly of
Bermuda, and by the authority of the same, as follows:

Short title and commencement
1 (1) This Act may be cited as the Insurance Amendment Act
2008.

(2) Except for sections 3(1)(a), (b), (c), (d)(v) and (d)(vi), 5, 6, 7,
8, 9, 10, 12, 13(b), 14, 15, 17(b), 18, 19(a), 21, 22, 27 and 28, this Act
shall come into operation on 31 December 2008.

Interpretation
2 In this Act the “principal Act” means the Insurance Act 1978.

Section 1 amended
3 (1) Section 1(1) of the principal Act is amended—


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(a) in the definition of ““Class 1”, “Class 2”, “Class 3” and
“Class 4”” by deleting ““and Class 4”” and substituting
“, “Class 3A”, “Class 3B”, “Class 4” and “Special
Purpose Insurer””;

(b) in the definition of “general business” by adding “or
special purpose business” after “long term business”;

(c) in the definition of “long term business” by adding “or
special purpose business” after “excepted long term
business” in the tail piece; and

(d) by inserting the following definitions in their alphabetical
order —

(i) “available statutory capital and surplus” means an
amount equal to the total statutory capital and
surplus including any adjustments thereto made
under section 6D;

(ii) “capital and solvency return” means such return
relating to the insurer’s risk management practices
and to the information used by the insurer to
calculate its enhanced capital requirement as may
be prescribed by or under an Order made under
section 6A;

(iii) “enhanced capital requirement” means additional
capital and surplus requirement imposed by or
under an Order made under section 6A;

(iv) “prudential standards” means such standards of
prudence as would, in the opinion of the Authority,
ensure that the obligations of the insurer in relation
to the security of its policyholders are established at
an appropriate level;

(v) “special purpose business” means insurance
business under which an insurer fully funds its
liabilities to the persons insured through —

(a) the proceeds of any one or more of the
following—

(i) a debt issuance where the repayment rights
of the providers of such debt are
subordinated to the rights of the person
insured; or

(ii) some other financing mechanism approved
by the Authority;

(b) cash; and

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(c) time deposits;

(vi) “Special Purpose Insurer” means an insurer that carries on
special purpose business;”.

(Numbering of subparagraphs (d) (i) – (vi) (definitions) added under the
authority of the Attorney-General to correct cross-references and perfect the
active database under sections 11 (h) and (n) of the Computerization and
Revision of Laws Act 1989)

Section 2A amended
4 Section 2A(1) of the principal Act is amended—

(a) by deleting in paragraph (a) “and the grounds for
cancellation of a registration specified in Part VIII”;

(b) by deleting “and” at the end of paragraph (c); and

(c) by inserting the following paragraphs after paragraph
(d)—

“(e) in exercising its powers to make adjustments to
an insurer’s enhanced capital requirement and
available statutory capital and surplus under
section 6D; and

(f) in exercising its powers under section 32 to issue
directions to a registered person.”.

Section 4 amended
5 (1) Section 4(1) of the principal Act is amended —

(a) in paragraph (a) by inserting after “Class 3” the words “,
Class 3A, Class 3B, ”;

(b) in paragraph (c) by inserting after “Class 3” the words “,
Class 3A, Class 3B, ”;

(c) by adding the following paragraph after paragraph (c)—

“(d) as a Special Purpose Insurer.”.

(2) Section 4(6) of the principal Act is amended —

(a) in paragraph (a) by inserting after “Class 3” the words
“, Class 3A, Class 3B, ”;

(b) in paragraph (b) by inserting after “Class 3” the words
“, Class 3A, Class 3B, ”;

(c) in paragraph (c) by inserting after “Class 3” the words “,
Class 3A, Class 3B, ”.

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Section 4A amended
6 Section 4A(1) of the principal Act is amended by inserting after
“Class 3” the words “, Class 3A, Class 3B,”.

Section 4D amended
7 Section 4D of the principal Act is amended by deleting “or Class
4” and substituting “, Class 3A, Class 3B, Class 4 insurer or Special
Purpose Insurer”.

Sections 4DA and 4DB added
8 The principal Act is amended by inserting the following sections
after section 4D —

“Class 3A insurer
4DA (1) This section applies to a body corporate that intends to
carry on insurance business in circumstances where ––

(a) 50% or more of the net premiums written; or

(b) 50% or more of the loss and loss expense
provisions;

represent unrelated business.

(2) A body corporate to which this section applies is
registrable as a Class 3A insurer if its total net premiums written
from unrelated business are less than $50,000,000.

Class 3B insurer
4DB (1) This section applies to a body corporate that intends to
carry on insurance business in circumstances where ––

(a) 50% or more of the net premiums written; or

(b) 50% or more of the loss and loss expense
provisions;

represent unrelated business.

(2) A body corporate to which this section applies is
registrable as a Class 3B insurer if its total net premiums written
from unrelated business are $50,000,000 or more.”.

Section 4F amended
9 Section 4F (1) of the principal Act is amended by inserting the
following definitions in their alphabetical order —

“loss and loss expense provisions” means amounts calculated in
relation to a body corporate by the application of the
principles set out in the Insurance Accounts Regulations

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1980 for the calculation of those amounts in relation to an
insurer;

“unrelated business” means insurance business consisting of
insuring risks of persons who are not shareholders in, or
affiliates of, the insurer;”.

Section 5 amended
10 (1) Section 5 of the principal Act is amended by inserting the
following subsection after subsection (1) —

“(2) In considering whether to register a body as a Special
Purpose Insurer, the Authority shall, in addition to the matters
set out in subsection (1), have regard to the following matters —

(a) whether the insurer is solely insuring or
reinsuring one or more risks or group of risks with
one or more policyholders; and

(b) the sophistication of the policyholders or the
sophistication of the parties to a debt issuance or
other funding mechanism.”.

Sections 6A, 6B, 6C and 6D added
11 The principal Act is amended by inserting the following sections
after section 6 –

“Prudential standards
6A (1) The Authority may by Order prescribe prudential
standards in relation to —

(a) enhanced capital requirement; and

(b) capital and solvency returns;

that must be complied with by registered insurers.

(2) The Authority may in such Order prescribe standards
that impose different requirements to be complied with —

(a) by different classes of registered insurers;

(b) in different situations; or

(c) in respect of different activities.

(3) An Order may provide for the Authority to exercise
powers and discretion in relation to prudential standards,
including power to approve, impose, adjust or exclude specific
prudential standards in relation to the following—

(a) a particular registered insurer; and

(b) a specified class of registered insurers.

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(4) An Order may provide for summary offences in relation
to the making of false or misleading statements or returns, and
may provide for a penalty not exceeding $50,000 for an offence.

(5) Subject to subsection (6), an Order made under this
section shall not come into operation —

(a) in the case of a first Order made after
commencement of this section, until a period of
not less than 120 days has elapsed from the date
of publication of a draft Order pursuant to section
6B;

(b) in the case of subsequent Orders, until a period of
not less than 180 days has elapsed from the date
of publication of a draft Order pursuant to section
6B.

(6) Notwithstanding subsection (5), an Order made under
this section may come into operation on such earlier date after it
is made, as the Authority may determine, if the Authority
considers that it is in the interests of policyholders for the Order
to come into operation at such time.

(7) Sections 6, 7 and 8 of the Statutory Instruments Act
1977 shall not apply to Orders made under this section.

Consultation
6B (1) If the Authority proposes to make an Order under
section 6A, it must publish a draft of the Order in the way
appearing to it to be best calculated to bring it to the attention of
the public.

(2) The draft must be accompanied by —

(a) an explanation of the purpose of the proposed
Order; and

(b) a notice that representation about the proposals
may be made to the Authority within a specified
time being not less than 28 days from the date of
publication.

(3) Before making the proposed Order the Authority must
have regard to any representations made to it in accordance with
subsection (2).

Authority may exempt insurers from standards
6C (1) The Authority, on the application of an insurer, may
exempt it from the requirement to comply with any prudential
standard applicable to it by or under an Order made under
section 6A.

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(2) In granting an exemption under this section, the
Authority may impose such conditions on the exemption as it
considers appropriate.

(3) The Authority shall not grant an exemption unless it is
satisfied that it is appropriate to do so having regard to the
obligations of the applicant insurer towards its policyholders.

Authority may make adjustment to enhanced capital
requirement and available statutory capital and surplus
6D (1) Without prejudice to its powers under section 32 (1) to
give directions, the Authority may in the circumstances
mentioned in subsection (6) make such adjustments to an
insurer’s enhanced capital requirement and available statutory
capital and surplus as it considers appropriate.

(2) Before making any adjustments, the Authority shall
serve notice on the insurer of its intention to make adjustments
giving its reasons therefor.

(3) An insurer served with a notice under subsection (2)
may, within a period of 28 days from the date of the notice, make
written representations to the Authority; and where such
representations are made, the Authority shall take them into
account in deciding whether to make the proposed adjustments.

(4) The Authority shall notify an insurer of any
adjustments that it has made.

(5) An adjustment made by the Authority under
subsection (1) shall not have effect until a period of not less than
90 days (or such longer period as the Authority may determine)
has elapsed from the date of its notification to the insurer.

(6) The circumstances referred to in subsection (1) are
such circumstances as would cause the Authority to conclude
that the risk profile of the insurer deviates significantly from —

(a) the assumptions underlying the enhanced capital
requirement applicable to it; or

(b) the insurer’s assessment of its risk management
policies and practices in calculating the enhanced
capital requirement applicable to it.

(7) The Authority may on the application of an insurer
make adjustments to the insurer’s enhanced capital requirement
or available statutory capital and surplus, and any adjustment
so made shall take effect on such date as the Authority may
determine.”.

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Section 7 amended
12 Section 7 (1) of the principal Act is amended —

(a) in paragraphs (a) and (c) by deleting “or Class 3” where it
appears in the paragraphs, and substituting in each
case “, Class 3, Class 3A or Class 3B”;

(b) by substituting a semi-colon for the full stop at the end
of paragraph (e) and by inserting the following paragraph
after paragraph (e) —

“(f) as a Special Purpose Insurer is $1.”.

Section 8A amended
13 Section 8A of the principal Act is amended —

(a) in subsection (2) by substituting a semi-colon for the full
stop at the end of paragraph (e), and by inserting the
following paragraphs after paragraph (e)—

“(f) a significant loss that is reasonably likely to
cause the insurer to be unable to comply with the
enhanced capital requirement applicable to it;

(g) in relation to a Class 4 insurer, a material change
in the nature of its insurance business; or”;

(h) in relation to a Class 3A insurer, where the limit
on unrelated business imposed by section 4DA
(2) is exceeded.”;

(b) by inserting the following subsections after subsection
(2) —

“(2a) Within 45 days of notifying the Authority of an
event referred to in subsection (2)(f), the principal
representative shall furnish the Authority with a capital
and solvency return reflecting an enhanced capital
requirement prepared using post-loss data.;

(2b) Within 30 days of notifying the Authority of an
event referred to in subsection (2)(g), the principal
representative shall furnish the Authority with
unaudited interim statutory financial statements in
relation to such period as the Authority may require,
together with a general business solvency certificate in
respect of those statements.”.

Section 8B amended
14 Section 8B (1) of the principal Act is amended by inserting after
“Class 3”, the words “Class 3A, Class 3B,”.

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Section 17 amended
15 Section 17 of the principal Act is amended —

(a) in subsection (3) by repealing “(together with the notes to
those statements)” and substituting “(together with the
notes to those statements and the auditor’s report
thereon)”; and

(b) in subsection (4)(b) by inserting after “Class 3” the words
,“Class 3A, Class 3B, Special Purpose Insurer,”.

Section 17A added
16 The principal Act is amended by adding the following section
after section 17 —

“Class 4 insurers: additional financial statements prepared in
accordance with GAAP
17A (1) Every Class 4 insurer shall, in addition to preparing
statutory financial statements under section 15, prepare
financial statements as required by this section (“additional
GAAP financial statements”) in respect of its insurance business
for each financial year.

(2) Such financial statements shall be prepared in
accordance with any one of the following standards or
principles—

(a) International Financial Reporting Standards
(‘IFRS’);

(b) generally accepted accounting principles (‘GAAP’)
that apply in Bermuda, Canada, the United
Kingdom or the United States of America; or

(c) such other GAAP as the Authority may recognise.

(3) Section 16 applies to the appointment and approval of
an auditor of additional GAAP financial statements as it applies
to an approved auditor.

(4) Section 16A applies to an auditor of additional GAAP
financial statements as it applies to an approved auditor.

(5) Every Class 4 insurer shall file with the Authority a
copy of the audited financial statements prepared under this
section (together with the notes to those statements and the
auditor’s report thereon) within a period of four months from the
end of the financial year to which the financial statements relate
or such longer period not exceeding seven months as the
Authority may determine on the application of the insurer.

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(6) The Authority shall cause to be published in such
manner as it considers appropriate a copy of every audited
financial statement filed with it under subsection (5) together
with the notes to those statements and the auditor’s report.

(7) Except at the instance of —

(a) the Class 4 insurer who engaged the auditor to
perform the audit of the financial statements; or

(b) any other person expressly authorised by the
auditor to rely on their work;

no action shall lie against an auditor in respect of any financial
statements filed with the Authority and made available for
inspection or otherwise published pursuant to this section.”.

Section 18A amended
17 Section 18A of the principal Act is amended ⎯

(a) by repealing subsection (1) and substituting the following —

“(1) Where an insurer fails to comply—

(a) with a duty imposed on it under section 17(1),
17(3), 17A(5) or 18(1); or

(b) with a requirement to file a capital and solvency
return imposed by or under an Order made under
section 6A;

it shall be guilty of an offence and liable on summary
conviction to a fine calculated in accordance with
subsection (2).”;

(b) in subsection (2)(b) by deleting “Class 3 insurer” and
substituting “Class 3, Class 3A or Class 3B insurer, or
Special Purpose Insurer ”; and

(c) by repealing subsection (5) and substituting the following —

“(5) The Authority shall appoint an inspector to investigate
the affairs of a Class 4 insurer under section 30, if the insurer
fails within three months of its filing date to file —

(a) statutory financial statements required by section
17(3);

(b) additional GAAP financial statements required by
section 17A(5);

(c) statutory financial returns required by section 18;
or

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(d) capital and solvency returns required by or under
an Order made under section 6A.”.

Section 18B amended
18 Section 18B of the principal Act is amended in subsections (1)
and (2)(a) by inserting after “Class 3” where they appear in the
subsections, the words “, Class 3A, Class 3B,”.

Section 31A amended
19 Section 31A of the principal Act is amended —

(a) in subsection (1), by deleting “A Class 3 or Class 4” and
substituting “A Class 3, Class 3A, Class 3B or Class 4
insurer or Special Purpose Insurer”; and

(b) by repealing subsection (2).

Section 31AA added
20 The principal Act is amended by adding the following section
after section 31A —

“Failure to comply with enhanced capital requirement
31AA (1) An insurer that fails to comply with the enhanced
capital requirement applicable to it shall —

(a) within 14 days of becoming aware of that failure,
or of having reason to believe that such a failure
has occurred, file with the Authority a written
report containing particulars —

(i) of the circumstances leading to the
failure; and

(ii) of the manner and time within which
the insurer intends to rectify the failure;
and

(b) within 45 days of becoming aware of that failure,
or of having reason to believe that such a failure
has occurred, furnish the Authority with —

(i) unaudited interim statutory financial
statements covering such period as the
Authority may require;

(ii) the opinion of a loss reserve specialist in
relation to lines 17 and 18 of those
statements;

(iii) a general business solvency certificate in
respect of those statements; and

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(iv) a capital and solvency return reflecting
an enhanced capital requirement
prepared using post failure data.

(2) Notwithstanding anything to the contrary in any other
enactment, an insurer to whom subsection (1) applies shall not
declare or pay any dividends until the failure is rectified.”.

Section 31AB added
21 The principal Act is amended by adding the following section
after section 31AA —

“Class 3A: exceeding net premiums written limitation
31AB Where a Class 3A insurer exceeds the net premiums
written limitation imposed on that class by section 4DA(2), the
insurer shall, notwithstanding such excess, be entitled to carry
on insurance business in that class if —

(a) its principal representative notifies the Authority of
an event mentioned in section 8A(2)(h); and

(b) the insurer makes application under section 56 for a
direction that section 4DA(2) would continue to apply
to it notwithstanding the excess; and

(c) the Authority does not require the insurer to be
classified as a Class 3B insurer.”.

Section 31B amended
22 Section 31B(1) of the principal Act is amended by deleting “A
Class 4 insurer” and substituting “A Class 3B insurer and a Class 4
insurer”.

Section 32 amended
23 Section 32(1) of the principal Act is amended —

(a) in paragraph (c) by inserting after “has not been fulfilled,
or” the words “may not be or” and by deleting the word
“or” at the end of that paragraph;

(b) by inserting “or” at the end of paragraph (d) and by
inserting the following paragraph after paragraph (d)—

“(e) a registered insurer is in breach of the enhanced
capital requirement applicable to it;”.

Section 44A amended
24 Section 44A(1) of the principal Act is amended by deleting “or” at
the end of paragraph (a) and inserting it at the end of paragraph (b), and
by inserting the following paragraph after paragraph (b) —

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“(c) making an adjustment to an insurer’s enhanced capital
requirement and available statutory capital and surplus
made under section 6D;”.

Section 54 amended
25 Section 54(2) of the principal Act is amended —

(a) by deleting “section 17(1), (2) and (3)” and substituting
“section 17(2)”; and

(b) by inserting “31A, 31AA, 31B, 31C”, after “30(2),”.

Schedule amended
26 The Schedule to the principal Act (“Minimum criteria” for
“registration”) is amended by inserting the following new paragraph after
paragraph 4(2)—

“(2A) A registered person that is an insurer shall not be
regarded as conducting its business in a prudent manner unless
it maintains, or as the case may be, will maintain sufficient
capital to enable it to meet its insurance obligations given the
size, business mix, complexity and risk-profile of its business.”.

Transitional
27 (1) Every insurer registered under the principal Act as a Class
3 insurer immediately before the commencement of this Act that
qualifies for registration as a Class 3A insurer or Class 3B insurer
respectively under sections 4DA and 4DB of the principal Act as
amended by this Act, shall make application to the Authority before 31
December 2008 for re-classification as a Class 3A, or, as the case may
be, Class 3B insurer under the principal Act as amended by this Act.

(2) An application under subsection (1) shall be in such form as
the Authority may determine, and shall be accompanied with an
application fee —

(a) of $500.00 in the case of a Class 3A insurer; and

(b) of $1,000.00 in the case of a Class 3B insurer.

(3) Subject to subsection (4), an insurer falling within
subsection (1) shall, during the transitional period, continue to be
registered as a Class 3 insurer and be subject to the provisions of the
principal Act applicable to an insurer of that class.

(4) The Authority may cancel the registration of every insurer
falling within subsection (1) that fails to make application for re-
classification before 31 December 2008.

(5) In this section “transitional period” means the period
beginning with the commencement of this section and ending on 31
March 2009.

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Consequential amendment
28 The Fourth Schedule to the Bermuda Monetary Authority Act
1969 is amended —

(a) in paragraph (3) under the heading “Insurance Act 1978”
by —

(i) inserting the following new subparagraphs after
subparagraph (a)(iv) —

“(iva) Class 3A insurers …..$10,000

(ivb) Class 3B insurers …. $10,000”; and

(ii) inserting the following new subparagraph after
subparagraph (a)(vi) —

“(via) Special Purpose Insurers ….$10,000”; and

(b) in paragraph (7) under the heading “Insurance Act 1978”
by —

(i) inserting the following new subparagraphs after
subparagraph (a)(iv) —

“(iva) Class 3A insurers …..$10,000

(ivb) Class 3B insurers …. $10,000”; and

(ii) inserting the following new subparagraph after
subparagraph (a)(vi) —

“(via) Special Purpose Insurers ….$10,000”.