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Bermuda
Introduction
- Discovered
in 1609, “The Island”, as it is known to its 60,000 residents,
is the oldest self-governing colony in the British Commonwealth and
is approximately 660 miles to the east of North Carolina.
- Today Bermuda
is the third largest insurance market in the world with a capital base
in excess of $50 billion and is the undisputed captive capital of the
world.
- Bermuda is
now referred to as “The Insurance Laboratory of the World”
Why
Bermuda?
- Political
and economic stability – Bermuda’s political and economic
structures are built on stable foundations. Bermudians enjoy one of
the highest standards of living in the world.
- Taxation
– Bermuda has no taxation on profits, dividends or income, nor
are there any capital gains or gift taxes. The only form of taxation
imposed on insurance and reinsurance companies is annual registration
and licensing fees.
- Regulation
– There is an effective, yet flexible, regulatory environment.
- Currency
– Foreign-owned companies are not subject to any form of currency
or monetary control. Local currency is the Bermuda Dollar, which is
pegged at par to the US Dollar, which itself circulates widely.
- Communication
– Communication facilities to and from the island are excellent.
Fiber optic and digital technology services are available, as are video
conferencing and internet services.
- Professional
services – There are excellent professional services on the Island,
including banks, audit and accounting firms, law firms and insurance
managers such as Cedar Management Limited.
- Insurance
expertise – Bermuda offers a high caliber of insurance expertise
and technical knowledge.
- An island
paradise – Bermuda has the charm of a premier tourist resort that
provides excellent hotels and restaurants, top class recreation and
entertainment facilities and an attractive sub-tropical climate.
Regulation
- The
Bermuda Monetary Authority, and specifically the Supervisor of Insurance,
are responsible for regulation of the insurance industry under the auspices
of The Insurance Act 1978 and various amendments (“The Act”).
The Act is designed to provide an early warning about insurance companies
that have potential solvency problems and to give the authorities statutory
powers to restrict operations or shut companies down.
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Four classes of license
Bermuda insurance companies are registered under one of four distinct
classes. The level of regulatory attention varies according to the
class.
Class 1 – Single parent captives writing related risks only.
Class 2 – Multi-owned captives and single parent captives writing
not more than 20% unrelated risks. Agency captives also fall into
this category.
Class
3 – Companies that do not fall into the other three categories.
Class
4 – Companies with a statutory capital and surplus of at least
$100 million that conduct any excess liability or property catastrophe
reinsurance business.
- Minimum
Capital and Surplus Requirements
Insurance
companies are required to maintain a minimum paid up capital ranging
from US$120,000 for Class 1 insurers to US$100 million for Class
4 insurers. Minimum solvency margins are also required and are calculated
at the greater of three amounts: a fixed amount ranging from US$120,000
for Class 1 insurers to US$100 million for Class 4 insurers, a percentage
of net premiums written, or a percentage of loss reserves including
IBNR.
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Liquidity Requirements
An insurer of general business is required to maintain “relevant
assets” equal to at least 75% of “relevant liabilities”.
Relevant assets are generally most assets except investments in
affiliates, non-insurance advances to affiliates, unquoted equity
investments and real estate.
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Local Residency Requirements
All insurance companies must have two Bermuda resident individuals
who serve in one of three ways:
As directors.
One as a director and one as a secretary.
One as a secretary and one as a resident representative.
A registered office must be maintained in Bermuda.
A Principal Representative must be appointed who is responsible
for maintaining the statutory accounting records and filing annual
statutory returns.
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Auditors
Every insurance company is required to appoint an independent approved
firm of auditors who will report on the statutory financial statements
and financial return.
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Loss Reserve Specialist
Insurers with a Class 2, 3 or 4 license must appoint a loss reserve
specialist who must be approved by the Supervisor of Insurance.
Signed loss opinions must be filed either annually or tri-annually
depending on the class of license.
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Annual Filings
All insurers must file a Statutory Financial Return with the Supervisor
of Insurance. The Return includes a General Business Solvency Certificate
and a Declaration of Statutory Rations, both of which must be signed
by the Principal Representative and two Directors. The Return may
also include Statutory Financial Statements and Loss Reserve Opinions
depending on the class of license. Filing deadlines are six months
for Classes 1 and 2 and four months for Classes 3 and 4.
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Long-term Business
Special provisions exist for insurers carrying on long-term business.
These include segregation of long-term business from general business
with separate accounting for related assets and liabilities, appointment
of approved actuary, annual filing of actuarial certificates and
dividend restrictions.
Formation
of an Insurance Company in Bermuda
- The
formation of an insurance company in Bermuda briefly comprises:
Making an application for consent to incorporate the company.
Application reviewed by the Insurers’ Admission Committee.
Application must include a detailed business plan which should
set out among other things: the type of business being written,
limits, attachment points, retentions, reinsurance arrangements,
ownership structure including intermediate and beneficial owners
of the company.
Application must also include pro-forma financial statements for
a period of at least five years.
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Incorporating the Company under The Companies Act.
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Organizing the Company.
Statutory meetings of the shareholders/directors to:
Allotment of share capital.
Presentation and adoption of bye-laws.
Appointment of directors and officers, auditors, bankers, insurance
manager and Principal Representative.
Establish bank signing authorities, financial year end and location
of registered office.
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