- 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”
- 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.
- 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.
- 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.
- 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.
- Local Residency Requirements
All insurance companies must have two Bermuda resident individuals who serve in one of three ways:
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.
Every insurance company is required to appoint an independent approved firm of auditors who will report on the statutory financial statements and financial return.
- 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.
- 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.
- 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.
- Incorporating the Company under The Companies Act.
- 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.
- Register the company as an insurer under the The Act.