The highly anticipated Incorporated Segregated Accounts
Companies Act 2019 (the "ISAC Act") came
into force on 26 November 2019. The ISAC Act introduces a new
corporate vehicle, the Incorporated Segregated Accounts Company
("ISAC"), combining the flexibility of
the traditional segregated accounts company
("SAC") available under the existing
Segregated Accounts Companies Act 2000 (the "SAC
Act") with the advantages of separate legal
personality enjoyed by an incorporated company. The ISAC Act has
been introduced as a standalone piece of legislation, with the goal
of complementing rather than replacing the existing SAC Act, and
thereby offering greater optionality and flexibility to
participants within Bermuda's captive and (re)insurance market
and asset management industry, who have historically utilised and
embraced the segregated account structure.
Registered ISACs will have the capacity and rights of a natural person with separate legal personality, meaning each incorporated segregated account ("ISA") will be able to enter into contracts with other ISAs within the same ISAC family or third parties as well as with the ISAC company itself, providing enhanced diversification and segregation of policyholder or fund assets and liabilities. ISACs will have the option to appoint a separate board for each proposed ISA. Additionally, the limited liability of ISAs provides a robust legal means of protection from creditors and may therefore appeal to more conservative, risk-averse market participants, such as pension trustees in longevity swaps or investors in ILS funds. ISACs will also continue to appeal to managers looking to set up a mini master-feeder fund within the same vehicle. Finally, ISACs may allow corporate groups to be created with lower formation and management costs than stand-alone captive insurers and fund structures.
Notwithstanding the above, we expect the popularity of traditional SACs available under the SAC Act to continue, both for pre-existing users of those vehicles and for new entrants. Despite their unincorporated status, traditional SACs have been tested in the Bermuda Courts before (BNY AIS Nominees v New Stream Capital Fund Ltd  S.C. (Bda) 178 Civ and 374 Civ (27 May 2010)) and have proven to be resilient structures for the segregation of assets and liabilities and protection from creditors while being simple to use and cost effective. We therefore expect ISACs and SACs to be used very much according to client choice and welcome the further flexibility these structures offer clients in Bermuda.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.