Bermuda: The Insurance Amendment Act 2004

Introduction

A bill entitled "The Insurance Amendment Act 2004" (the "Amendment Act") passed its second reading in the Senate on 8 December 2004 and received the assent of the Governor General on 10 December 2004. The operative date from which the Amendment Act comes into force is 10 December 2004. The Amendment Act further amends the provisions of the Insurance Act 1978 (the "Act") beyond those existing revisions implemented pursuant to amending legislation passed most recently in 1995, 1998, 2001 and 2002.

In addition to the introduction of guidance notes, the revisions to the Act principally relate to the continued improvement and refinement of regulatory controls relating, primarily, to (i) reporting timeframes; (ii) the manner of appointment of certain external specialists; (iii) the obligations of those external specialists; and (iv) clarifying requirements concerning the delivery of statutory financial returns.

The Amendment Act provides a framework for the promulgation of guidance notes on various aspects of the operation of insurance business as Bermuda regulators move from a solvency based regulatory approach to a risk based approach to insurance regulation.

The Act is amended by providing for a new Section 2A which gives discretion to the Bermuda Monetary Authority (the "BMA") to give guidance on the application of the Act and regulations made under it (in the form of information and advice) in such manner as the BMA sees fit. Such guidance may relate to the duties, requirements and standards to be complied with by persons registered under the Act or otherwise regulated under it. The guidance may also address the procedures and sound principles to be observed by such persons and by auditors, principal representatives and loss reserve specialists.

The changes implemented by the Amendment Act acknowledge the maturation of the insurance industry in Bermuda and the need for the continuing refinement of regulatory matters. The subtle improvements provided in the Amendment Act allow Bermuda insurers to continue their growth in a fair and even handed regulatory climate while maintaining an envied position on the world stage. With this Amendment Act, Bermuda continues in its place as the jurisdiction of choice in the global insurance and reinsurance industry.

Section 8(3) of the Act is amended by reducing from twenty-one days to fourteen days the amount of time in which written notice must be given to the BMA of the alteration of any information provided by an insurer at the time of its registration concerning the location of its principal office, or, particulars of its principal representative, insurance manager, approved auditor and any other prescribed person.

Section 8A of the Act is amended by eliminating the 30 day window in which a principal representative must report certain views or information to the BMA and requires the principal representative to notify the BMA forthwith and to provide a report in writing within fourteen days of such notification.

A new Section 8B has been added following Section 8 of the Act. Section 8B provides a formal mechanism for the approval of an insurer’s loss reserve specialist. The insurer is now required to submit particulars of such person to the BMA for approval of that person’s appointment as a loss reserve specialists. The BMA has also been given the power of revoking the approval of a loss reserve specialist if it is satisfied the he is no longer a fit and proper person to hold the appointment. Such revocation requires prior notification by the BMA to the insurer and loss reserve specialist of the intention to revoke the appointment.

Section 16 of the Act concerning approved auditors has been replaced with a more clearly delineated process for the appointment and removal of auditors. The Explanatory Memorandum to the Amendment Act explains that an insurer will no longer be able to appoint an auditor unless that auditor is first approved by the BMA as that insurer’s auditor. The replacement Section 16 also sets a new standard for independence of auditors, permits the BMA in specified circumstances to appoint an auditor and set remuneration and requires an insurer to provide written notice to the BMA if it proposes to remove or replace an auditor.

A new Section 16A has been added to the Act immediately following Section 16. Section 16A places certain obligations upon an approved auditor of an insurer to forthwith give written notice to the BMA if (i) he resigns before the expiration of his term; (ii) he becomes aware that he will be replaced as the approved auditor of the insurer; (iii) he intends not to seek reappointment, or (iv) he decides to include a material modification of his report on the insurer’s statutory financial statements and in particular, a material qualification or a denial of his opinion, or the statement of an adverse opinion. As soon as practicable following the giving of the notice, the auditor must furnish the BMA with a written report. Pursuant to Section 16A protection is provided to such an auditor where information is communicated in good faith to the BMA concerning an insurer.

Section 54 of the Act is amended to include the revised Sections 16 and 16B of the Act, as they relate to the appointment and obligations of the auditor of an insurer, and makes it an offence for any person failing to comply with any duty or prohibition imposed upon him by such Sections.

New sections have been added to Section 30 of the Act thereby requiring any person appointed by the BMA as an inspector to investigate the affairs of an insurer to provide reports to the BMA on the progress of his investigation and to provide the BMA and insurer with a copy of his report upon completion of the investigation. The insurer under investigation is required to pay the BMA for all expenses associated with the investigation.

Section 17 of the Act is amended and now requires all insurers, including Class 1 insurers, to file statutory financial statements on an annual basis. Section 18 of the Act is amended and now requires that all insurers file statutory financial returns simultaneously with the filing of financial statements.

Section 15 of the Act is amended by the addition of Subsection (4) which clarifies that the statutory financial statements of an insurer are to be audited annually by the insurer’s approved auditor.

The Amendment Act clarifies the application of Section 4(4) of the Act relating to the powers of the BMA to vary or delete any conditions imposed upon an insurer at the time of its registration by extending the application of Section 4(4) to all insurers.

Section 45 of the Act is amended to provide that husbands of directors also fall within the prohibitions on loans to directors.

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