The BMA does not apply a Solvency II-type regime to captives and therefore the supervisory regime for captives is less onerous than that applicable to commercial insurers. The BMA operates a three-tiered captive insurance classification system. Class 1 captives are single-parent companies writing only the exposures of their parents or affiliates.
Class 3 captives are companies which have the ability to write over 20 per cent, but less than 50 per cent, of gross written premium in unrelated risk. Formerly the preserve of the Fortune and FTSE companies, captives now provide benefits to organisations of all sizes and industries and are used to underwrite a variety of insurance lines, ideally those with relatively predictable claim rates. The major sources of the risks assumed by Bermuda captives are North America 67 per cent and Europe 21 per cent.
Just under half the Bermuda market is composed of owners from four sectors: financial institutions; shipping transport and storage; automotive, manufacturing and retail; and healthcare. Of new formations in , 50 per cent were for the automotive, manufacturing and retail sector. Premium share of the Bermuda captive market is dominated by captives focused on financial institutions 46 per cent and shipping 12 per cent.
The largest lines of property insurance underwritten by Bermuda captives are property and casualty catastrophe 43 per cent ; warranty and residual value 21 per cent ; property damage and business interruption 15 per cent ; and marine 13 per cent. The primary casualty lines are general liability, workers' compensation and employers' liability, and motor.
Bermuda captives invest most heavily in bonds 73 per cent , of which 80 per cent are rated A or better by ratings agencies. Investment in equities is around 17 per cent. The Segregated Accounts Companies Act , the SAC Act establishes a registration regime whereby a Bermuda company may register as a segregated accounts company, thereby establishing, operating and maintaining a company with segregated accounts.
Segregated account structures are often used in "rent-a-captive" structures. These structures allow for a variety of risk- financing solutions in which the sponsor such as a captive manager establishes and licenses a captive insurance company and "rents" the core capital, licence and corporate capacity of the vehicle to programme participants.
The use of a segregated account can be substantially less expensive as it avoids the attendant administrative and capital costs associated with a pure captive. This structure is attractive to smaller corporations which might otherwise find establishing their own captive too expensive.
ISAC structures provide a statutory and common law basis for the segregation of assets and liabilities and offer a contractual relationship between incorporated cells and with the ISAC itself. In contrast to segregated account company structures, each incorporated cell, or ISA, has a separate and distinct legal personality, which provides protection relative to creditors, particularly those domiciled in jurisdictions where the concept of segregated accounts is not yet recognised.
Given that each ISA is a company within the meaning of the Companies Act , and therefore has separate legal personality at the ISA level, it is anticipated that it will be easier to obtain a credit rating for the structure, which is attractive for some Bermuda captives. Another interesting development has been the introduction of legislation designed to promote innovation in the sector. Recent changes to the Insurance Act have established a regulatory testing environment or 'sandbox' where innovators may obtain restricted licences allowing them to test new technologies and products.
This allows new products, services or delivery mechanisms to be scrutinised by the BMA before being licensed as fully operational. The hope is that this will attract new fintech focused start-ups to Bermuda. On the regulatory front, Bermuda, like other major offshore jurisdictions, has introduced an Economic Substance Act and Economic Substance Regulations, operative from 31 December , to address European Union concerns with respect to offshore structures attracting profits without any real economic activity in the jurisdiction.
However, it is recognised that the insurance industry is already subject to substance requirements in Bermuda by virtue of the sector's existing regulatory requirements. To the extent that a captive company is carrying on insurance as a 'relevant activity' under the Act, it will be deemed to meet economic substance requirements in respect of that activity through compliance with existing insurance regulations.
Such companies will have to file an annual economic substance declaration, but by confirming compliance with their respective regulatory requirements, completion of that declaration should be fairly straightforward. The Bermuda Government has actively nurtured its captive market for more than 50 years and remains responsive to changes in the insurance market and to new ideas and techniques in both insurance and the broader commercial circles.
In part two of this three-part series shining a spotlight on captive insurance companies, Executiv Fund Services. Capital Markets. Private Client. Regulatory Compliance. Legal Services. Bermuda captive market: Moving from maturity to innovation and growth. Back 06 July Embracing innovation The advent of Insurtech in the global re insurance industry has not gone unnoticed in Bermuda, and the Bermuda Monetary Authority BMA has actively sought to fold this modernisation into its insurance legislation.
Supporting captive success Our team provide a full suite of administration and fiduciary services to the ILS and captive market from our Bermuda, Cayman and BVI offices, ensuring that all structures remain compliant with applicable regulations in each jurisdiction. Why choose Bermuda for your captive? Read more. Key benefits of establishing a captive insurance company In part one of this three-part series shining a spotlight on the role of captive insurance compani Our people.
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