Bermuda Regulatory Environment
The principal statute governing company law in Bermuda is the Companies Act 1981. The Companies Act requires every company to have a registered office in Bermuda and keep proper records of account to enable the Directors to lay before the company, in a general meeting, financial statements prepared in accordance with generally accepted accounting principles. The Companies Act governs the authority of Directors and Officers and the distribution of surplus and reduction of capital, in addition to winding-up provisions.
With the growth in the number of insurance companies, both the insurance industry and the Bermuda Government recognized the need for regulation to protect the public interest and the reputation of Bermuda as a major insurance center. The Bermuda Insurance Act 1978 and related regulations (the "Insurance Act") resulted from the cooperation of these parties and is centered on the premise that the insurance industry should be largely self regulating. Accordingly, the Act established the Insurance Advisory Committee, which is drawn from the business and professional community, to advise the Minister of Finance on matters pertaining to the Insurance Act, and its various sub committees who review all applications for new registrations and recommend actions to take towards companies with solvency problems.
The Insurance Act has a British flavor in that it places responsibility on the company's Directors and Principal Representative for compliance with the Insurance Act. The Principal Representative is a corporation or individual resident in Bermuda who will represent the company to the Government, and is normally the Management Company appointed to maintain its affairs. The Insurance Act is generally considered to offer relative freedom to insurers and designed to minimize unnecessary restrictions and Government involvement for companies that are not considered to have a problem in meeting their commitments to the policyholders.
Major requirements of the Insurance Act (for a non life insurer):
- A company must be registered under the Insurance Act before it can carry on business in Bermuda.
- Every company must appoint and maintain a Principal Representative in Bermuda and appoint an Auditor who must report on the Annual Financial Statements and Statutory Financial Return.
- The minimum capital required for a property and casualty company varies depending on the class of license involved. For a Class 1 (single parent, risks of parent and affiliates only) the minimum is $120,000 and, in addition, the company must maintain a minimum level of capital and surplus as follows: 20% of net retained annual premium for the first $6 million of premium and 10% of net retained premium for amounts in excess of $6 million, or 10% of net loss reserves, whichever is the larger.
- An insurer must maintain "relevant", or liquid, assets equal to at least 75% of its liabilities. Examples of assets that would not be regarded as "relevant" under this section include unquoted investments, real estate, and investments in and loans to subsidiaries and affiliates.
- A Statutory Financial Return must be prepared annually, which consists of Statutory Financial Statements (except for Class 1 companies) and statements signed by two Directors, the Auditor and Principal Representative that the company has complied with all sections of the Insurance Act. This return is filed with the Bermuda Monetary Authority, but is not available for public review.
- A Company whose gross premiums from Professional Liability insurance constitutes more than 30% of the gross premiums written is required to appoint a Loss Reserve Specialist who must annually certify the adequacy of the Company's loss reserves.
- A Company which "discounts" loss reserves is required to provide details of the methodology and rationale for discounting and an actuarial opinion on the reasonableness of such discounts, on an annual basis.
- Click here to see Appendix I for further details of licenses and requirements.
Bermuda insurance subsidiaries apply for "Exempted Company" status. An exempt company is one which is not subjected to the 60% Bermuda ownership requirement and may be 100% beneficially owned by foreign interests. It may trade with other exempt companies and can conduct overseas business from Bermuda but is prohibited from competing against local companies for domestic business.
The Exempted Undertakings Tax Protection Act of 1966 guarantees freedom from any Bermuda tax computed on a company's profits or income until March 31, 2035, a date which is regularly rolled forward. In addition, exempted companies are considered non resident for exchange control purposes and are permitted to invest overseas, in any currency without restriction or taxation.
Every Exempted Company is required to have at least one director and a secretary. To satisfy the residency requirement, the secretary or one of the directors must be ordinarily resident in Bermuda. Alternatively, a company may satisfy the residency requirement by appointing either an individual or a company to act as its resident representative in Bermuda. For Insurance Companies, our view is that a company should appoint more than one Director to comply with the Insurance Code of Conduct's Corporate Governance requirements. We also recommend that for practical reasons two of the Directors should be in Bermuda. These individuals would usually be representatives from your chosen law firm and management company, a service we are capable of providing at no additional charge.