Key takeaways
- The Bermuda Monetary Authority has released a consultation paper introducing mandatory group supervision by the Authority where an insurance group's ultimate parent company is in Bermuda.
- The proposals include the introduction of "designated insurance holding company" to replace the current roles and responsibilities attributed to the "designated insurer."
- A minimum set of powers will be granted to the Authority over designated insurance holding companies.
What are the proposed enhancements to the Insurance Group Supervision Framework in Bermuda?
The Bermuda Monetary Authority ("BMA") published its consultation paper – "Proposed Enhancements to the Insurance Group Supervision Framework" on 4 December 2024 (the "Consultation Paper").
The proposals give the BMA a direct approach to group supervision and the introduction of a minimum set of direct powers to facilitate a more effective and robust supervisory and enforcement mechanism for Bermuda's insurance groups. This includes through:
- ensuring that group supervision is mandatorily triggered by the presence of both a registered insurance entity and its ultimate parent company in Bermuda, where the ultimate parent company also owns insurance entities domiciled outside of Bermuda;
- the removal of the indirect supervisory approach elements currently exercised via the designated insurer;
- enhanced supervisory powers; and
- the introduction of provisions to allow for the designation and registration of insurance holding companies.
This advisory summarises the seven proposals put forward in the Consultation Paper.
Proposal 1: Introduction of Mandatory Group Supervision
Mandatory group supervision will now apply where an insurance group is headed by a Bermuda ultimate parent entity.
Where a group's ultimate parent entity is not in Bermuda, the BMA will continue to have discretion in its determination of whether it is appropriate for the BMA to become the group-wide supervisor.
Proposal 2: Withdrawal of Group Supervisor
The BMA proposes to repeal and replace Section 27D of the Insurance Act 1978 (the "Act") to clarify that the BMA will not withdraw as the group supervisor when there are no changes to the mandatory criteria above for group supervision. Section 27D of the Act will clarify that, in other specific cases, the Authority may take a coordinated decision with the supervisory college to withdraw as the group supervisor, only in specific cases.
Proposal 3: Definition of "Insurance Holding Company"
The BMA proposes to introduce the following definition of 'insurance holding company' to the Insurance Act, "Insurance holding company" means an entity that is a body corporate incorporated, formed or registered in Bermuda (including by way of continuation) that holds participations in one or more companies where at least one of the companies is an insurer."
The BMA will designate a relevant entity that it considers appropriate as the 'insurance holding company' (by way of written notice) and in their determination will have regard to the entity that exercises control over:
a) insurers in the group; and
b) other group members, which may pose a risk to the group's insurance business.
The registered "designated insurance holding company" will now assume and replace the current roles and responsibilities attributed to the "designated insurer" in the current regime, including compliance with the group supervision rules and payment of group annual fees.
The BMA proposes to publish a list on its website of the names of every registered insurance holding company.
Proposal 4: Designated Insurance Holding Company
The BMA proposes to designate a relevant entity that it considers appropriate as the 'insurance holding company' (by way of written notice) being any of (a) the ultimate parent incorporated in Bermuda; (b) the specified insurer of the insurance group as defined in section 27B (9) of the Act; (c) the head of an IAIG (internally active insurance group) under section 27I of the Act; or (d) an intermediate holding company incorporated in Bermuda.
Proposal 5: Registration of a Designated Insurance Holding Company
The BMA proposes that it shall register all designated insurance holding companies for the purposes of group supervision. The registered designated insurance holding company will assume the current roles and responsibilities attributed to the 'designated insurer', including compliance with the group supervision rules and payment of group annual fees.
The BMA proposes to publish a list on its website of the names of every registered insurance holding company.
Proposal 6: Minimum Set of Direct Powers in Relation to Designated Insurance Holding Companies of Insurance Groups
The Consultation Pater outlines the introduction of the following minimum set of powers over designated insurance holding companies, including general supervisory powers:
a) to apply to the courts in Bermuda to issue injunctions restraining specified actions by a designated insurance holding company;
b) to issue penalties against a designated insurance holding company;
c) to designate another insurance holding company or insurer within the group as the designated insurance holding company;
d) to object to an appointment or removal of officers and controllers of the designated insurance holding company if they are not, or no longer fit and proper;
e) to require a designated insurance holding company, in case of any contraventions, to submit a plan detailing the manner, specific actions to be taken and the timeframe within which the designated insurance holding company will bring itself or the relevant member of the insurance group into compliance with the relevant provision of the Act or applicable rules; and
f) to present a petition to the courts in Bermuda for the designated insurance holding company to be wound up.
The BMA will apply the above powers proportionately, relative to the nature, scale and complexity of the insurance group. The designated insurance holding company shall have the right to appeal a decision made by the BMA under such powers.
Proposal 7: Shareholder Controller Changes and Material Changes Involving Designated Insurance Holding Companies
As a result of proposed changes to the group supervision regime, any new or increased control by shareholder controllers of designated insurance holding companies (for private companies) must be notified in writing to the BMA prior to the transaction being affected. The thresholds in consideration will be 10%, 20%, 33%, or 50% shareholder control which is consistent with the current thresholds used for shareholder controllers under the Act.
The Consultation Paper proposes to amend the Act to explicitly require notice to be given to the BMA to effect:
- an amalgamation with or acquisition of another firm;
- an acquisition of controlling interests in an undertaking that is engaged in a non-insurance; and business which offers services and products to persons who are not affiliates of the insurer
- the sale of an insurer
Should the above proposals come into force, existing structures will not be grandfathered, but a one-year transition period will be afforded to allow affected groups and the BMA to prepare for implementing the enhancements.
Feedback on the Consultation Paper received by the BMA will be considered before finalising any recommendations for amendments to the current group supervision framework.
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.
