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 LICENSING

 

The BMA has a dedicated licensing and authorisations team that reviews all proposals to set up new businesses. In addition to internal staff review, applications are subject to independent review and decision by a committee of senior Authority staff. Applications are closely vetted for the fitness, propriety and underwriting experience of the management, the plausibility of the proposed business plan and the level of capitalisation relative to the proposed risk profile, amongst other factors.

As required by the Act, the Authority maintains a register giving details of each licensed insurer. This is available for inspection by members of the public in the Public Files at the Registrar of Companies.

Application of the Act

a) Timeliness of Reporting

An important element of companies’ statutory responsibility relates to their obligation to file an annual audited financial return with the Authority. Actuarial certification of loss reserves are required annually for Class 3 and Class 4 companies, and triennially for Class 2 companies.

b) Solvency Margin Maintenance

The Authority requires insurers to maintain strict minimum solvency margins, which vary according to the class of the insurers, (which is in turn determined by the nature and risk of the business to be conducted). For example, Class 4 companies, representing entities writing property/catastrophe or excess liability coverage, have a minimum solvency margin of the greater of $100 million, 15% of net loss reserves and a sliding scale of percentage of net premiums. The Authority is in the process of introducing a risk-capital measure for Class 4 companies, and establishing a regulatory review process which will enable companies to use in-house models to determine capital needs.

It is noteworthy that, in spite of the scale of Bermuda’s insurance sector, the incidence of insolvency remains very low. This reflects the conservative approach taken to new incorporations and the proactive nature of the Authority to intervene at the early stages when potential solvency problems appear.

c) Statement of Principles

The Authority has published a Statement of Principles (‘the Principles’), which has been made pursuant to section 2A of the Insurance Act 1978 (‘the Act’). The Principles relate to the Authority’s decisions on whether to register an entity, to cancel the registration of a registered entity, to impose conditions upon a registration, or to give certain directions to a registered entity. These Principles are of general application and seek to take account of the wide diversity of registered entities that may be licensed under the Act, as well as relevant institutional and market developments.

The Multi-License System

Bermuda has a multi-license system of regulation which categorises general insurance companies into six classes, long-term insurance companies into five classes, a class for Special Purpose Insurers and provides for composite companies.
 
CLASS 1:
A single-parent captive insurance company underwriting only the risks of the owners of the insurance company and affiliates of the owners.
 
Class 1 insurers are required to maintain minimum capital and surplus of $120,000.
 
CLASS 2:
Multi-owner captives which are defined as insurance companies owned by unrelated entities, provided that the captive underwrites only the risks of the owners and affiliates of the owners and/or risks related to or arising out of the business or operations of the owners and affiliates.
 
A Class 2 license will also apply to single-parent and multi-owner captives writing no more than 20 percent of net premiums from risks which are not related to, or arising out of, the business or operations of their owners and affiliates.
 
Class 2 insurers are required to maintain minimum capital and surplus of $250,000.
 
CLASS 3:
Applies to insurers and reinsurers not included in Class 1, 2, 3A, 3B, or 4. This includes structured reinsurers’ writing third party business; insurers writing direct policies with third party individuals; single-parent, group, association, agency or joint venture captives where more than 20 percent of net premiums written is from risks which are unrelated to the business of the owners.
 
Captive Insurers underwriting more than 20% and less than 50% unrelated business.
 
Class 3 insurers are required to maintain minimum capital and surplus of $1 million.  
 
CLASS 3A:
Small commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written or net loss and loss expense provisions and where the unrelated business net premiums are less than $50 million.
 
Class 3A insurers are required to maintain minimum capital and surplus of $1 million.

CLASS 3B:

Large commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written or net loss and loss expense provisions and where the unrelated business net premiums are more than $50 million.
 
Class 3B insurers are required to maintain capital and surplus of $1 million.
 
CLASS 4:
Insurers and reinsurers underwriting direct excess liability insurance and/or property catastrophe reinsurance risks.
 
Class 4 insurers are required to maintain minimum capital and surplus of $100 million.
 
SPECIAL PURPOSE INSURERS:
In order for a company to receive consideration for registration as an SPI, it would have to meet the following criteria:
 
      - The insurer is carrying on insurance business in the area of insurance- 
         linked securitisations;
      - The insurer is established to enter into a single transaction or a single 
         set of transactions;
      - The insurer’s obligations are fully collateralised; and
      - Transactions are carried out with a limited number of sophisticated
         participants.
 
LONG-TERM - CLASS A:
A single-parent long-term captive insurance company underwriting only the long-term business risks of the owners of the insurance company and affiliates of the owners.
 
Class A insurers are required to maintain minimum capital and surplus of $120,000.
 
LONG-TERM - CLASS B:
Multi-owner long-term captives which are defined as long-term insurance companies owned by unrelated entities, provided that the captive underwrites only the long-term business risks of the owners and affiliates of the owners and/or risks related to or arising out of the business or operations of their owners and affiliates.
 
A Class B license will also apply to single-parent and multi-owner long-term captives writing no more than 20 percent of net premiums from risks which are not related to, or arising out of, the business or operations of their owners and affiliates.
 
Class B insurers are required to maintain minimum capital and surplus of $250,000.
 
LONG-TERM - CLASS C:
Long-term insurers and reinsurers with total assets of less than $250 million; and not registrable as a Class A or Class B insurer.
 
Class C insurers are required to maintain minimum capital and surplus of $500,000.
 
LONG-TERM - CLASS D:
Long-term insurers and reinsurers with total assets of $250 million or more, but less than $500 million; and not registrable as a Class A or Class B insurer.
Class D insurers are required to maintain minimum capital and surplus of $4,000,000.
 
LONG-TERM - CLASS E:
Long-term insurers and reinsurers with total assets of more than $500 million; and not registrable as a Class A or Class B insurer.
 

A copy of the Insurance Statement of Principles is available in the Document Centre under Policy & Guidance/Insurance.