Bermuda corporate update

Bermuda Monetary Authority proposes refinements to the conduct of business code for insurers

In December 2021, the Bermuda Monetary Authority (BMA) published a number of consultation papers and stakeholder letters with proposals to refine and improve elements of the regulatory regime for insurers.

Stakeholder letter regarding feedback on the conduct of business regime for insurers

The stakeholder letter includes feedback on industry comments on the BMA’s most recent consultation paper on conduct of business reforms. Helpfully, the BMA confirms, among other things, that:

  • The new provisions regulating retail business apply only to domestic retail business.
  • The conflict of interest provision applies only where the insurer actually has a conflict – it is not presumed that there will be a conflict in all cases.
  • The BMA will make further changes based on the feedback and allow a suitable transition period. 

The BMA has also confirmed by email that the effective date of the changes will be postponed beyond 1 January 2022.

Insurance Amendment Act No. 2 2021

In 2018, following extensive industry consultation, Bermuda introduced a policyholder protection regime providing for the priority of policyholders in a winding up of an insurer. Changes in the draft Insurance Amendment Act No. 2 2021, published by the BMA on 15 December 2021, clarify the implementation of the regime insofar as it relates to the payment “waterfall” in a winding up of a dual-license insurer (an insurer holding both a general and long-term license). 

The changes clarify that, if the balance of one business fund (for example, the general business fund) is insufficient to pay preferential or policyholder debts of that fund, and there is a surplus in the other business fund (which would be the long-term fund, in the example) after paying preferential and policyholder creditors of that other (the long-term) fund, the surplus will be used to pay the unpaid preferential and policyholder debts of the first (the general) business fund before paying non-preferential, non-policyholder creditors of the other fund (the long-term fund). This was always intended and is now even more clearly articulated.

Furthermore, amendments make it clearer that, after all preferential and policyholder debts have been paid, any surplus is pooled to pay non-preferential, non-policyholder creditors of both funds.

Other minor technical changes clarify the payment waterfall.

Finally, changes to the definition of “insurance debt” make it clearer that inwards reinsurance claims have priority over debts of general (non-policyholder) creditors. Again, this was always intended and is now even more clearly articulated.

Changes to prudential rules

These changes put on a permanent footing the use of the quarterly filing for commercial insurers that has applied informally during the pandemic. The filing represents a data call, and is due within two months of each quarter end date.