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Publications
Bermuda's New Insurance Statute
London and Bermuda Newsletter
Autumn 2008
By:
Mark Chudleigh
On July 23, 2008, the Bermudian government passed the Insurance Amendment Act 2008, making way for a new and refined system for ensuring the solvency of Bermuda insurers. The reforms will assist the Bermuda Monetary Authority (“BMA”) in its efforts to introduce additional safeguards for policyholders and cedants of Bermudian reinsurers and will thus enhance the stability of the Bermuda market. By bringing Bermuda’s solvency rules into line with ongoing European reforms (in the form of so-called Solvency II), the new Act should also protect the competitiveness of Bermuda insurers in the EU as the European reforms come into effect.
It is the nature of the insurance business that risk is assumed return for payment of premium. Although all contracts will command a premium, it is anticipated that only a few will produce losses for the insurer and that the overall premium will be sufficient to cover the overall losses. In simplistic terms, Bermuda’s reforms are designed to ensure that this is achieved or, if it is not, that the insurer has sufficient capital in reserve to make up any shortfall.
Of course, Bermuda has for many years had a system in place for ensuring adequate solvency margins as required by the Insurance Act 1978 and subsidiary regulations. However, the 1978 Act did not allow for recognition that certain classes of business are inherently riskier than others and therefore differing solvency margins will be appropriate. The 2008 Act provides for a more refined “risk-based” approach to assist the BMA in determining appropriate levels of capitalization. The new legislation imposes a new model in the form of the “Bermuda Solvency Capital Requirement” but insurers and reinsurers will be able to use their own in-house model subject to approval by the regulator.
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