A number of jurisdictions provide for the statutory
protection of direct policyholders in a winding-up of an insurer.
For example, all member states of the European Union (EU) have
domestic legislation implementing the EU Directive on the
Reorganisation and Winding-up of Insurance Undertakings. Bermuda
has not yet followed this trend.
In 2014, the Bermuda Monetary Authority (BMA) consulted on
proposed reform of the priorities of creditors in a winding-up of
an insurer under Bermuda law. The consultation paper proposed a
simple priority in the payment of claims for policyholders of both
long-term and general business insurance and reinsurance contracts.
In particular, it proposed payment of claims according to the
following schedule of priority:
The claims of employees under Section 33(3) of the Employment
The claims of the Bermuda Government for taxes.
The claims of employees for contributions to pension and
workers' compensation schemes.
The claims of long-term policyholders (including pension
contracts and the savings or investment component of long-term
The claims of policyholders with respect to outstanding claims
on general business contracts.
The claims of policyholders with respect to prepaid
The claims of general creditors.
It was also proposed that 'a more clearly defined
segregation of the long-term fund assets' should apply for
insurers carrying on long-term business.
The proposal did not progress materially beyond the consultation
stage at the time. However, the BMA will release a revised
consultation paper later this year, restoring reform to the
It is not clear whether the above waterfall will be altered in
any way in the forthcoming paper. Industry feedback on a number of
specific points was sought in the 2014 paper, such as whether the
order of priority in the proposed waterfall was appropriate,
whether the overseas branch offices of insurers should be treated
differently, and whether the change in approach to a more clearly
defined segregation of the long-term fund assets was sufficient to
protect those assets from other creditors. It is not yet apparent
what feedback was received at the time and how if it all the BMA
proposes to address it by substantive alterations to the
The revised proposal will need to be carefully considered by
Bermuda insurers, as it has practical ramifications for insurers
and their affiliates.
The timing of the publication of the consultation paper is not
yet known, but Sedgwick Chudleigh will issue a Corporate Insurance
Bulletin once the consultation paper is published.
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