This article highlights recent amendments to the Bermuda Insurance Act 1978 and the Insurance Amendment Act 2006 – it is not intended to a substitute for legal advice or a legal opinion. It is intended to merely provide a brief overview and give general information.

The Insurance Amendment Act 2006 (the “Amendment Act”) came into force on July 24th 2006 and introduces a number of amendments to the Insurance Act 1978 (“Insurance Act”).

The main thrust of the Amendment Act is to enhance the regulatory framework in Bermuda for the supervision of insurers, insurance managers and insurance intermediaries (“registered persons”) having regard to established international standards, including those of the International Association of Insurance Supervisors and the International Monetary Fund. The Amendment Act also clarifies certain aspects of the role of the Bermuda Monetary Authority (“BMA”) and provides a framework for appeal tribunals in cases concerning BMA decisions.

Enforcement:
The BMA has been granted a wide range of new enforcement powers under the Amendment Act.

Notifications by shareholder controllers:
The biggest impact of the Amendment Act on insurers and their shareholders relates to the new notification requirements where there is new or increased control of insurers by “shareholder controllers”.

Definitions have been added for the varying degrees of “shareholder controllers.” For privately held companies, where a person wishes to become a ten percent, 20 percent, 30 percent or 50 percent shareholder controller (where that person either holds the relevant percentage of voting shares of the insurer or its parent, or is entitled to exercise or control the exercise of the relevant percentage of voting power at any general meeting of the insurer or its parent) that person must notify the BMA of its intent to become such a controller and must receive notice of the BMA’s no objection to the new or increased shareholding prior to becoming a ten percent, 30 percent, 33 percent or 50 percent shareholder controller.

The BMA may serve a notice of objection to the new or increased control where it believes that the shareholder controller is not a fit and proper person to be a controller, the interests of clients or potential clients of the insurer would be threatened or that the minimum criteria for registration may not be fulfilled. Notice of such objection must be made within 45 days of the initial notification to the BMA. If the BMA has no objection to the shareholder controller, it is anticipated that they will confirm their no objection prior to the 45 day deadline.

Prior to serving a notice of objection, the BMA must service a “preliminary notice” stating that the BMA is considering serving the notice of objection, to allow the person in question to make written representations to the BMA, which must be done so within 28 days.

For public companies (ie. Those whose shares or parent company’s shares are traded on a stock exchange), there is only a requirement to notify the BMA in writing within 45 days after a person has become a ten percent, 20 percent, 33 percent or 50 percent shareholder controller. There is no requirement to receive “no objection” from the BMA.

Criminal sanctions for contraventions by shareholder controllers of these notification requirements are included in the Amendment Act. Where a person becomes a controller without their knowledge, he will not be guilty of an offence provided he gives the BMA notice within 30 days of becoming aware of that fact.

Controllers:
In addition to the concept of “shareholder controllers”, the Amendment Act includes a definition of “controllers”, which includes, in addition to shareholder controllers, managing directors and chief executives of the registered person (or its parent). The definition also includes (a) persons in accordance with those directions or instructions the directors of the registered person (or its parent) or shareholder controllers are accustomed to act; and (b) persons who are able to exercise significant influence over the management of the registered person (or its parent) by virtue of holding shares in or being able to exercise voting power at any general meeting.

Provision is made for the BMA to object to existing controllers if it appears to the BMA that a controller is no longer a fit and proper person to be such a controller.

In addition, the BMA have the power to impose restrictions on the shares of any person who has become a controller or continues to be a controller despite having received a notice of objection. In such circumstances, the BMA may direct that the shares held by the controller by subject to certain restrictions, for example, that any purported transfer of the shares be void, or that no voting rights be exercisable nor dividends be payable on the shares. The BMA may also apply to the Supreme Court to order the sale of the shares.

Finally, registered person are now required to notify the BMA of any persons who have become controllers or have ceased to be controllers of the registered person. This notification must occur within 45 days from the date on which the registered person became aware of the relevant facts.

Investigations:
The BMA can launch investigations into suspected breaches of the Insurance Act by unregistered persons. Such persons may be required to provide documentation or information to the BMA and can be required to attend a meeting with the BMA to respond to questions regarding the contravention. Further, authorised officers of the BMA have been given the power to enter premises in order to carry out their powers of investigation.

When there is a suspicion that an investigation should be launched, the person under investigation would not comply with the BMA’s requests for information or that documents pertaining to the investigation could be removed, tampered with or destroyed, the BMA now has power to apply to a magistrate for a warrant authorising entry into premises by the police to search for documents and question people. Offences for obstructing investigations conducted by the BMA are set out in the Amendment Act.

Supervision:
The Amendment Act sets out the functions and duties of the BMA, which is required generally to supervise registered persons with the object of protecting the interests of the clients (and potential clients) of those persons. The Amendment Act further provides that the BMA keep under review the operation of the Insurance Act and relevant developments in the field of insurance, as well as publish an annual report on its activities. The BMA will also be required to publish a statement of principles setting out its modus operandi in relation to exercising its powers under the Insurance Act.

Registration:
The Amendment Act provides that the BMA, when considering whether to register an insurer, insurance manager or insurance intermediary, must be satisfied that such a person fulfils the minimum criteria for registration, set out in a new schedule to the Insurance Act (“the Schedule”). Pursuant to the criteria, every person who is, or is to be, a controller or officer of a registered person under the Insurance Act must be a “fit and proper person to hold the particular position which he holds or is to hold.” The Schedule sets out the factors which will determine whether a person satisfies the criteria. These include various provision essentially requiring the business of registered persons to be conducted in a prudent manner and with integrity and the professional skills appropriate to the nature and scare of the activities of the person.

Enhanced power of intervention and cancellation:
The Amendment Act gives the BMA increased powers to intervene in the affairs of a registered person by issuing directions to it in cases where it is not satisfied that the minimum criteria are being fulfilled or where a person has become or remains a controller in contravention of the Insurance Act. The BMA is also given the power to issue a direction to a registered person to remove a controller or officer and to cancel the registration of a registered person on non-fulfillment of the minimum criteria.

Introduction of Appeal Tribunals:
The provisions of the Insurance Act which dealt with appeals to the Supreme Court against cancellation orders have been repealed and replaced by provisions for appeal to an appeal tribunal established as a result of the Amendment Act. A decision of the BMA to cancel the registration of a registered person or requiring the removal of controllers or officers of a registered person can be appealed to the appeal tribunal. The members of the appeal tribunal will be appointed by the Bermuda Minister of Finance. The tribunal has the ability to either confirm or reverse the decision which is the subject of the appeal and, in instances where the decision relates to the cancellation of a registration, may also direct the BMA to impose conditions or issue directions instead. It should be noted that appeals to the Supreme Court against decisions of the tribunal on points of law may also be made.

This Special item appeared in issue 109 of JTW News - October 2006

Author: Christopher Garrod - Conyers Dill & Pearman