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Market spotlight

Trends and prospects

What are the current trends in and future prospects for the insurance and reinsurance markets in your jurisdiction?

The Bermuda (re)insurance market has been subject to:

  • a prolonged period of extremely low interest rates;
  • an influx of alternative capital;
  • a lack of catastrophes; and
  • merger and acquisition activity, partly due to the soft market.

However, the catastrophes of 2017 have led to a hardening of the market and a depletion of capital that will likely be restored through alternative insurance-linked securities and special purpose entities. The use of captive insurance is likely to rise through new entrants and existing companies increasing their use of (re)insurers.

Commercial (re)insurers will likely look to become leaner and more efficient. This will lead to the biggest shift in the (re)insurance market in 2018 – the embracing of insurtech by the industry. Ultimately, 2018 will be the year of digital transformation as the market shifts towards the digital age and looks increasingly towards automation, the internet of things, the use of blockchain and artificial intelligence (eg, chatbots) in order to service its customer base and keep up with innovation. (Re)insurers will have to invest in this technology and either build it internally or buy it (eg, through a dedicated insurtech start-up). This has already started to happen and will only continue.

Regulatory framework

Legislation

What is the primary legislation governing the (re)insurance industry in your jurisdiction?

The Insurance Act 1978 and the Companies Act 1981 are the primary legislation governing (re)insurance in Bermuda.

Regulators

Which government bodies regulate the (re)insurance industry in your jurisdiction and what is the extent of their powers?

The Bermuda Monetary Authority (BMA) is the primary (re)insurance regulator. It has the powers of intervention to give directions that it considers necessary for safeguarding the interests and potential clients of registered (re)insurers, if it appears that:

  • the business of a registered person is conducted so that there is a significant risk of:
    • the (re)insurer becoming insolvent; or
    • the (re)insurer being unable to meet its obligations to policyholders;
  • a registered person is in breach of the Insurance Act or a condition imposed on its registration;
  • the minimum criteria has not been or may not be fulfilled in respect of a registered person;
  • a person has become a controller of the (re)insurer in contravention of Section 30D of the Insurance Act or has become or continues to be a controller after being served with notice of objection pursuant to Section 30F or 30H of the Insurance Act; or
  • the registered (re)insurer is in breach of the enhanced capital requirement applicable to it.

Ownership and organisational requirements

Ownership of (re)insurers

Are there any restrictions on ownership of or investment in (re)insurers in your jurisdiction, including any limits on foreign ownership/investment?

There are no restrictions on ownership of or investment in (re)insurers that are incorporated as exempted companies; however, there are restrictions on incorporating as a local company. A foreign entity cannot wholly own a locally incorporated company. A locally incorporated company must be owned by, and its board comprise of, a minimum of 60% Bermudians, unless the company holds a Section 114(b) licence pursuant to the Companies Act.

However, all entities that wish to own securities in a Bermuda vehicle must be pre-approved by the Bermuda Monetary Authority (BMA).

What regulations, procedures and eligibility criteria govern the transfer of control of/acquisition of a stake in a (re)insurer?

The issue or transfer of equity securities in a (re)insurer requires specific permission from the BMA. ‘Equity securities’ are shares in a company that entitle the shareholder to vote or appoint at least one director.

An application must be made either to notify the BMA or to obtain the BMA’s prior approval for the transfer or issue of shares in the (re)insurer depending on the circumstances.

Notification is required when:

  • there is no change in the beneficial owner;
  • the transfer is between companies belonging to the same group; or
  • the issue or transfer is to an existing shareholder who will continue to hold less than 10% of the total shares or no person holding between 10% and 20% of the total shares will acquire over 20% as a result of the issue or transfer.

BMA approval is required when:

  • the transfer is to a new shareholder; or
  • the shareholder will acquire more than 50% of the equity securities in the (re)insurer as a result of the transfer.

Provided that the shares in a (re)insurer parent company are traded on a stock exchange recognised by the BMA, the Insurance Act also requires that where a person becomes a 10%, 20%, 33% or 50% shareholder controller of the (re)insurer, he or she must serve written notice on the BMA within 45 days.

The shareholder controller thresholds are:

  • 10% shareholder controller – holding between 10% and 20% of shares;
  • 20% shareholder controller – holding between 20% and 33% of shares;
  • 33% shareholder controller – holding between 33% and 50% of shares; and
  • 50% shareholder controller – holding 50% or more shares.

Where shares in a (re)insurer or its parent company are not traded on a stock exchange recognised by the BMA, no person can become a 10%, 20%, 33% or 50% shareholder controller unless he or she has served a written notice on the BMA stating his or her intention to become a controller. The BMA has a period of 45 days beginning with the date of service of such notice in which to respond in writing on whether it objects to the person becoming a controller of the (re)insurer.

Organisational requirements

Must (re)insurers adopt a certain legal structure in order to operate? If no mandatory company organisation applies, what are the common structures used?

The Insurance Act requires the legal structure of a (re)insurer to be a ‘body corporate’ (ie, a company). There are no particular restrictions on the corporate form, which can include:

  • a company limited by shares;
  • a company limited by guarantee;
  • a mutual company; and
  • a segregated accounts company.

(Re)insurers are generally incorporated as exempted companies and will apply for the appropriate licence from the BMA depending on their type. The relevant share capital requirement depends on the class of (re)insurer. Every (re)insurer will have a board of directors and the number of directors will be determined by the class.

The Insurance Act also distinguishes between long-term business, special purpose business and general business.

‘Long-term business’ consists of insurance contracts covering life, annuity, accident and disability risks, and other types of contract which do not include ‘excepted long-term business’ (as defined in the Insurance Act).

‘Special purpose business’ includes insurance business under which an insurer fully funds its liabilities to the insured through the proceeds of a debt issuance, cash, time deposits or other financing mechanisms approved by the BMA. For a (re)insurer to be registered as a special purpose insurer, it must write special purpose business only.

‘General business’ comprises any insurance business which is not long-term or special purpose business and includes accident and disability policies in effect for under five years.

The Insurance Act does not distinguish between insurers and reinsurers. Companies are registered (licensed) under the act as insurers, although in some circumstances a condition to registration may be imposed to the effect that the company may carry on reinsurance business only. The Insurance Act distinguishes between:

  • ‘captive’ insurers as those that predominantly insure the risks of their affiliates (eg, Classes 1, 2, 3, A and B insurers); and
  • ‘commercial’ insurers as those that predominantly insure third-party risks (eg, Classes 3A, 3B, 4, C, D and E insurers).

The Insurance Act uses the defined term ‘insurance business’ to include (re)insurance. Classes 4 and E insurers undergo the most rigorous regulatory oversight of any class of general business insurer. In recent years, the regulatory and supervisory regime pertaining to Class 4 insurers has been bolstered, particularly in the areas of capital adequacy, governance, own risk and solvency assessment, and increased public disclosure and transparency.

Do any particular corporate governance requirements apply to (re)insurers, including any eligibility criteria for directors and officers?

(Re)insurers must comply with the Insurance Code of Conduct which prescribes the duties, standards, procedures and sound business principles necessary to ensure the implementation of sound corporate governance, risk management and internal controls. The BMA will assess a (re)insurer’s compliance with the code in a proportionate manner relative to the nature, scale and complexity of its business. Failure to comply with the code will be a factor taken into account by the BMA when determining whether a (re)insurer is conducting its business in a sound and prudent manner under the Insurance Act.

Commercial (re)insurers are subject to some head office requirements. Classes 3A, 3B, 4, C, D and E (re)insurers must maintain their head office in Bermuda. In determining whether a (re)insurer satisfies this requirement, the BMA will consider, among other things:

  • where the underwriting, risk management and operational decision making of the (re)insurer occurs;
  • whether the senior executives who are responsible for, and involved in, decision making relating to the insurance business of the (re)insurer are located in Bermuda; and
  • where meetings of the (re)insurer’s board of directors occur.

The BMA may also have regard to:

  • the location where management of the (re)insurer meets to effect policy decisions;
  • the residence of the officers, insurance managers or employees of the (re)insurer; and
  • the residence of one or more directors of the (re)insurer.

As with any company incorporated under Bermuda law, the directors and officers of a (re)insurer must, in exercising their powers and discharging their duties:

  • act honestly and in good faith with a view to the best interests of the company; and
  • exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

All officers must comply with the Companies Act and the by-laws of the company.

Operating requirements

Authorisation procedure

Which (re)insurers must obtain authorisation from the regulator before operating on the market and what is the procedure for doing so?

(Re)insurers must be registered (licensed) under the Insurance Act. All applications are subject to the approval of the Bermuda Monetary Authority (BMA). Broadly speaking, when making a licence application, a captive insurer must submit an acceptable business plan and five-year financial projections, among other things. Commercial insurers must submit a more detailed application, including details regarding the proposed directors and senior management, investment strategy, code of conduct, compliance and pro forma runs of the proposed vehicle’s Bermuda solvency and capital requirement (BSCR) model, as well as information regarding the (re)insurer’s underwriting strategy.

Financial requirements

What are the minimum capital and solvency requirements for (re)insurers operating in your jurisdiction?

All general business (re)insurers’ statutory assets must exceed their statutory liabilities by an amount greater than or equal to a prescribed minimum solvency margin which varies depending on the category of their registration and their net premiums written and loss reserves posted.

General business The minimum solvency margins for general business (re)insurers are as follows:

  • For Class 1 insurers, the greater of:
    • $120,000;
    • 20% of the first $6 million of net premiums written (if in excess of $6 million, the figure is $1.2 million plus 10% of net premiums written in excess of $6 million); or
    • 10% of net discounted aggregate loss and loss expense provisions and other insurance reserves.
  • For Class 2 insurers, the greater of:
    • $250,000;
    • 20% of the first $6 million of net premiums written (if in excess of $6 million, the figure is $1.2 million plus 10% of net premiums written in excess of $6 million); or
    • 10% of net discounted aggregate loss and loss expense provisions and other insurance reserves.
  • For Class 3 insurers, the greater of:
    • $1 million;
    • 20% of the first $6 million of net premiums written (if in excess of $6 million, the figure is $1.2 million plus 15% of net premiums written in excess of $6 million); or
    • 15% of net discounted aggregate loss and loss expense provisions and other insurance reserves.
  • For Classes 3A and 3B insurers, the greater of:
    • $1 million;
    • 20% of the first $6 million of net premiums written (if in excess of $6 million, the figure is $1.2 million plus 15% of net premiums written in excess of $6 million);
    • 15% of net discounted aggregate loss and loss expense provisions and other insurance reserves; or
    • 25% of its enhanced capital requirement (ECR) (described below) as reported at the end of the relevant year.
  • For Class 4 insurers, the greater of:
    • $100 million;
    • 50% of net premiums written (with a credit for ceded (re)insurance not exceeding 25% of gross premiums);
    • 15% of net discounted aggregate loss and loss expense provisions and other insurance reserves; or
    • 25% of its ECR as reported at the end of the relevant year.

Long-term business The minimum solvency margins for long-term business (re)insurers are as follows:

  • For Class A insurers, the greater of $120,000 or 0.5% of assets.
  • For Class B insurers, the greater of $250,000 or 1% of assets.
  • For Class C insurers, the greater of:
    • $500,000;
    • 1.5% assets; or
    • 25% of the ECR as reported at the end of the relevant year.
  • For Class D insurers, the greater of:
    • $4 million;
    • 2% of the first $250 million of assets plus 1.5% of assets above $250 million; or
    • 25% of the ECR as reported at the end of the relevant year.
  • For Class E insurers, the greater of:
    • $8 million;
    • 2% of the first $500 million of assets plus 1.5% of assets above $500 million; or
    • 25% of the ECR as reported at the end of the relevant year.

Special purpose business The minimum solvency margin for a special purpose business (re)insurer requires that the value of the special purpose business assets exceed the special purpose business liabilities by a minimum of $1 at all times. This is on the condition that the (re)insurer writes special purpose business and is restricted from entering into any other business except ancillary agreements to effect its special purpose business.

‘Special purpose business’ is defined under the Insurance Act as insurance business pursuant to which an insurer fully funds its liabilities to the insured through:

  • the proceeds of one or more of:
    • a debt issuance where the repayment rights of the debt providers are subordinated to the rights of the insured; or
    • another financing mechanism approved by the BMA;
  • cash; and
  • time deposits.

The underlying risks of special purpose business may be either life or long-term related risks, or general business risks.

(Re)insurers that fail to meet the minimum solvency margin must, on becoming aware of such failure, immediately notify the BMA and file a written report within 14 days containing particulars of the circumstances that gave rise to the failure and setting out a plan which details the specific actions to be taken and the expected timeframe to rectify the failure.

Do any other financial requirements apply?

Classes 3A, 3B and 4 general business insurers and Classes C, D and E long-term business insurers must maintain available statutory capital and surplus at a level equal to, or in excess of, their ECR. The ECR applicable to qualifying insurers is established through either the appropriate BSCR model standard mathematical models used to determine a (re)insurer’s capital adequacy or a BMA-approved internal capital model.

(Re)insurers that fail to comply with their ECR must, on becoming aware of the failure or having reason to believe that such failure has occurred, immediately notify the BMA and file a written report within 14 days containing particulars of the circumstances that gave rise to the failure and setting out a plan which details the specific actions to be taken and the expected timeframe to rectify the failure.

Further, within 45 days of becoming aware of the failure or of having reason to believe that such a failure has occurred, the (re)insurer must furnish the BMA with:

  • unaudited statutory economic balance sheets and unaudited interim financial statements prepared in accordance with generally accepted accounting principles covering the period required by the BMA;
  • an opinion from its loss reserve specialist in relation to the total general business insurance technical provisions (as set out in the economic balance sheet) where applicable or, in the case of a long-term business (re)insurer, an opinion from its approved actuary relating to the total long-term business insurance technical provisions;
  • a general business solvency certificate in respect of such interim financial statements or a long-term solvency certificate for long-term business (re)insurers; and
  • a capital and solvency return reflecting an ECR prepared using post-failure data where applicable.

Although not specifically set out in the Insurance Act, the BMA has also established a target capital level for (re)insurers subject to an ECR equal to 120% of its ECR. While qualifying (re)insurers are not required to maintain their statutory capital and surplus at this level, it serves as an early warning tool for the BMA and failure to maintain statutory capital that is at least equal to the target level will likely result in increased BMA regulatory oversight.

Personnel qualifications

Are personnel of (re)insurers subject to any professional qualification requirements?

There are no specific qualification requirements for personnel; however, the BMA has the general discretion to ensure that officers of (re)insurers are fit and proper. This includes directors, chief executives or any senior executives performing duties of underwriting, actuarial, risk management, compliance, internal audit, finance or investment matters.

Business plan

What rules and requirements govern the business plans of (re)insurers?

The business plan should include a brief overview of the (re)insurer and full details on the proposed underwriting activities. It should include attachments such as:

  • a pre-incorporation information form;
  • five-year financial projections with assumptions;
  • loss analysis;
  • an annual 10K or 10Q report on the parent company;
  • graphs on the programme showing layers; and
  • additional information for product liability, professional liability and medical malpractice.

Risk management

What risk management systems and procedures must (re)insurers adopt?

(Re)insurers must comply with the Insurance Code of Conduct which prescribes the duties, standards, procedures and sound business principles necessary to ensure the implementation of sound corporate governance, risk management and internal controls. The BMA will assess a (re)insurer’s compliance with the code in a proportionate manner relative to the nature, scale and complexity of its business. Failure to comply with the code will be a factor taken into account by the BMA when determining whether a (re)insurer conducts its business in a sound and prudent manner under the Insurance Act. This may result in the BMA exercising its powers of intervention and investigation, and will be a factor in calculating the operational risk charge under the (re)insurer’s BSCR or approved internal model (where applicable).

Reporting and disclosure

What ongoing regulatory reporting and disclosure requirements apply to (re)insurers?

Registered (re)insurers must give notice to the BMA of certain measures that are likely to be of material significance to the discharge of the BMA’s functions under the Insurance Act.

For these purposes, material changes include:

  • the transfer or acquisition of insurance business as part of a scheme falling under Section 25 of the Insurance Act or Section 99 of the Companies Act;
  • an amalgamation with or acquisition of another firm;
  • engagement in unrelated retail business;
  • the acquisition of a controlling interest in an undertaking that is engaged in non-insurance business which offers services and products to persons who are not affiliates of the (re)insurer;
  • the outsourcing of all or a substantial amount of a (re)insurer’s actuarial, risk management, compliance or internal audit functions;
  • the outsourcing of all or a material part of a (re)insurer’s underwriting activity;
  • the transfer of all or a substantial part of a line of business other than by way of (re)insurance;
  • expansion into a material new line of business;
  • the sale of a (re)insurer; and
  • the outsourcing of an officer role.

Other requirements

Do any other operating requirements apply in your jurisdiction?

There are a number of general ongoing operating requirements that apply to exempted companies licensed as (re)insurers. These include items such as:

  • A Bermuda company must have a registered office in Bermuda, the address of which is registered with the registrar of companies. In general, the share register, register of directors and officers, and records of the company must be kept at the registered office.
  • A company must keep proper records of account with respect to its business activities for a five-year period from the date on which they were prepared at the registered office or such other place as the directors think fit.
  • Exempted companies must have at least one director and one secretary. The secretary of an exempted company may be an individual or a company. The director of an exempted company may be an individual or any type of legal person (including any company or association or body of persons, whether corporate or unincorporated).
  • To satisfy the residency requirement contained in the Companies Act, the secretary or at least one director of a company must be resident in Bermuda. The company may satisfy this requirement by appointing either an individual or a company to act as its resident representative in Bermuda.
  • A Bermuda company may have a sole director or a full board, as desired. Management of the company is the responsibility of its directors. The directors transact business at director meetings. Notice of all meetings must be given to all directors; however, only a quorum of the directors needs to be present in order for business to be validly transacted. Notice may be given by telephone, electronic record or otherwise.
  • A company must hold an annual general meeting in each calendar year, unless this requirement is waived by resolution of the members (see below). A shareholder may appoint any person as proxy to attend the general meetings of the company. The law does not require that the meetings of the directors or members take place in Bermuda.
  • The requirement to hold annual general meetings can be waived by resolution of the members for a specified year or number of years, or indefinitely. Where the requirement has been waived, any member can serve notice on the company requesting that the annual general meetings are reinstated.

Non-compliance

What are the consequences of non-compliance with the operating requirements applicable to (re)insurers?

The BMA may, by written notice, carry out an investigation where it suspects that:

  • a person has failed to register properly under the Insurance Act;
  • a registered person or designated (re)insurer has failed to comply with a requirement under the Insurance Act; or
  • a person is not a fit and proper person to perform functions in relation to a regulated activity.

Further, the BMA may require any person who is or was a controller, officer, employee, agent, banker, auditor, accountant, barrister, attorney or insurance manager to:

  • produce a report and the documents in his or her care, custody and control;
  • appear before the BMA to answer questions relevant to the investigation; and
  • take such actions as the BMA directs.

The BMA may also enter any premises for the purposes of carrying out its investigation and may petition the court for a warrant if it believes that a person has failed to comply with a notice served on him or her, or where there are reasonable grounds for suspecting:

  • the completeness of any information or documentation produced in response to such notice;
  • that its directions will not be complied with; or
  • that any relevant documents will be removed, tampered with or destroyed.

The BMA may issue such directions as it sees fit for safeguarding the interests of a (re)insurer’s policyholders or potential policyholders where it appears that:

  • the business of the registered (re)insurer is being conducted in a way that creates a significant risk of the (re)insurer becoming insolvent or being unable to meet its obligations to policyholders;
  • the (re)insurer is in breach of the Insurance Act or any conditions imposed on its registration;
  • the minimum criteria stipulated in the Insurance Act has not been fulfilled in respect of a registered (re)insurer;
  • a person has become a controller without providing the BMA with the appropriate notice or in contravention of a notice of objection;
  • the registered (re)insurer is in breach of its ECR; or
  • a designated (re)insurer is in breach of the Insurance Act or the regulations or rules applicable to it.

The BMA has the power to assist other regulatory authorities, including foreign insurance regulatory authorities, with investigations involving (re)insurers in Bermuda if it is satisfied that the requested assistance is in connection with the discharge of regulatory responsibilities and that such cooperation is in the public interest. The grounds for disclosure by the BMA to a foreign regulatory authority without the (re)insurer’s consent are limited and the Insurance Act provides for sanctions for breach of the statutory duty of confidentiality.

Contracts

General

What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?

The parties have the broad freedom to contract on terms as they see fit. The Supply of Services (Implied Terms) Act 2003 implies terms on consideration, time of performance and standard of performance that are not excludable by agreement. Standard of performance is generally considered to apply to consumer contracts only. The minister in charge of consumer affairs has the power to exempt certain contracts from the scope of the legislation. To date, such power has not been exercised.

Mandatory/prohibited provisions

Are (re)insurance contracts subject to any mandatory/prohibited provisions?

(Re)insurance contracts are subject to no mandatory or prohibited provisions.

Implied terms

Can any terms by implied into (re)insurance contracts (eg, a duty of good faith)?

Terms can be implied as part of the process of judicial construction of the contract where:

  • they are necessary to give business efficacy to the contract;
  • the implied term is a sufficiently obvious implication of the parties’ intentions (despite not being explicitly stated); and
  • the contract is deemed dishonourable in the market in which the parties contract.

Standard/common terms

What standard or common contractual terms are in use?

Common contractual terms include:

  • an occurrence-based first reported trigger;
  • a continuous policy allowing for integrated occurrence across years;
  • no duty to defend;
  • maintenance deductible for certain expected or intended injuries or damages;
  • modified New York law as the governing law; and
  • arbitration in England or Bermuda.

Treaty reinsurance usually includes clauses on:

  • ultimate net loss;
  • inspection of records;
  • insolvency; and
  • special termination.

‘Smart’ contracts

What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?

The development of ‘smart’ contracts is formative. The (re)insurance industry is becoming increasingly tech-savvy and benefits from a young, well-educated and well-travelled workforce. In 2017 Bermuda saw the introduction of companies carrying out blockchain-based digital token sales using Ether as their cyptocurrency. Ethereum smart contracts are likely to spread into the Bermuda (re)insurance market given the market’s prominence.

Breach

What rules and procedures govern breach of contract (for both (re)insurer and insured)?

(Re)insurer Where there is a breach of an insured’s duty of utmost good faith, the (re)insurer is entitled to avoid the policy if it can establish that it was induced by the breach. A (re)insurer can also seek damages in lieu of rescission for negligent misrepresentation under the Law Reform (Misrepresentation and Frustrated Contracts Act) 1977. Where the misrepresentation is fraudulent in nature, the (re)insurer may have a claim for damages in the tort of deceit.

A breach of warranty will discharge a (re)insurer from liability from the date of the breach.

If an insured fails to provide the claims cooperation or control required under the policy, the (re)insurer may be entitled to damages for loss of opportunity. The insured is unlikely to be able to oppose the claim unless cooperation or control is a condition precedent to liability.

Breach of a procedural condition precedent means that the (re)insurer is automatically not liable for the claim or loss to which the precedent relates. If the insured uses fraud or any fraudulent means or device to make a claim under the policy, it forfeits the whole benefit of the policy. This is generally understood to mean that the (re)insurer can reject the tainted claim in its entirety and repudiate the policy prospectively. In theory, the breach of a term by the insured can, as a result of the gravity of its consequences, entitle the (re)insurer to repudiate the policy.

Insured A (re)insurer will be in breach of an insurance policy if it fails to indemnify the insured on the occurrence of the insured peril. In this event, the insured’s recourse is to seek unliquidated damages for breach of contract. The insured’s only remedy for breach of the duty of utmost good faith is to avoid the insurance contract, which is seldom an attractive remedy unless the insured wishes to secure return of premium. Declaratory relief may be available to the insured, declaring that the policy is valid or in existence, or that it covers a given loss. The (re)insurer has no liability to the insured for the conduct in which it administers claims under the policy (ie, there are no bad-faith damages) because of the doctrine that there are no ‘damages on damages’.

Consumer protection

Regulation

What consumer protection regulations are in place to safeguard the rights of purchasers of insurance products and services?

No such consumer protection regulations are in place.

Claims

General

What general rules, requirements and procedures govern the filing of insurance claims?

There are no rules, regulations or statutes governing the handling of insurance claims in Bermuda. To the extent required, such procedures are generally set out in the policy.

Time bar

What is the time bar for filing claims?

The time bar for filing claims will not be brought after the expiration of six years from the date on which the cause of action accrued.

Denial of claim

On what grounds can the (re)insurer deny coverage?

Standard grounds for denial of coverage apply, including misrepresentation, non-payment of premiums, exclusion clauses and fraudulent claims.

What rules and procedures govern the insured’s challenge of the denial of a claim?

The normal rules and procedures of the Bermuda courts will apply.

Third-party actions

On what grounds can a third party file a claim directly with the (re)insurer?

If the parties have agreed to opt in to the Contracts (Rights of Third Parties) Act 2016, a third party can enforce the terms of the contract and avail itself to any remedy that would be available to the contracting parties, including those related to breach of contract, damages, injunctions and specific performance.

A third party can also file a claim on the grounds that there was an effective cut-through clause or endorsement in the (re)insurance contract. Such clauses will typically provide the underlying insured with a direct right of action under the corresponding (re)insurance contract entered into between an insurer and a reinsurer, thereby providing further security to the insured by enabling it to cut through to the reinsurer for payment of a claim in the event that the insurer is unable to meet its obligations.

Punitive damages

Are punitive damages insurable?

Yes, punitive damages are insurable.

Subrogation

What regime governs (re)insurers’ subrogation rights?

Bermuda has no statutory subrogation rights and, therefore, the courts will generally look to the terms of the contract and English common law principles to determine whether a (re)insurer can exercise subrogation rights in the name of its insureds to recover monies under (re)insurance policies.

Intermediaries

Regulation

How are the services of insurance intermediaries regulated in your jurisdiction?

The Insurance Act regulates services of insurance intermediaries.

Tax

Tax liability

What tax liabilities arise in the conduct of (re)insurance business?

There is no tax liability.

Insolvency

Regulation

What regime governs the insolvency of (re)insurers?

The Insurance Act and the Companies Act govern the insolvency of (re)insurers. The Bermuda Monetary Authority (BMA) has the power to intervene and take action when a (re)insurer becomes financially distressed. An insolvent (re)insurer can be wound up by the Supreme Court on petition from the BMA. At present, (re)insurance creditors are not prioritised over general trade creditors; however, the BMA has consulted on proposed reform in this area.

Effect on insureds

How does a (re)insurer’s insolvency affect insureds and the (re)insurer’s obligations to insureds?

The policyholders of a long-term business (re)insurer must be paid out of a ring-fenced long-term business fund. The liquidator of a company carrying on long-term business must carry on the long-term business of the (re)insurer, unless the court orders otherwise, with a view to transferring it to an existing or newly incorporated (re)insurer. When winding up a (re)insurer that is unable to pay its debts, the Supreme Court has jurisdiction to reduce the amount of the (re)insurer’s contracts instead of making a winding-up order.

Dispute resolution

Litigation

Are there any compulsory or preferred venues for insurance litigation in your jurisdiction?

There are no preferred venues for insurance litigation.

How are insurance disputes with a cross-border element handled in your jurisdiction?

The handling of insurance disputes with a cross-border element will depend on the governing law of the disputed contract.

In Bermuda, the courts will recognise as a valid judgment a final and conclusive judgment in personam obtained in a foreign court against the (re)insurer based on the contract under which a sum of money is payable (excluding in respect of multiple damages, taxes or other similar charges, a fine or other penalty). The courts will give a judgment based thereon, provided that:

  • the original court had proper jurisdiction over the parties subject to the judgment;
  • the court did not contravene the rules of natural justice in Bermuda;
  • the judgment was not obtained by fraud;
  • enforcement of the judgment would not be contrary to the public policy of Bermuda;
  • no new admissible evidence relevant to the action has been submitted prior to the rendering of the judgment by the Bermuda courts; and
  • there is due compliance with the correct procedures under the law of Bermuda.

What issues are commonly the subject of insurance litigation?

The most common subjects of insurance ligation are:

  • whether the loss is covered by the policy;
  • whether any of the exclusions in the policy apply;
  • whether all of the terms of the policy (eg, notification) have been complied with;
  • the correct amount of loss;
  • whether there are any other policies that should cover the loss; and
  • whether there was any misrepresentation in the application for the policy.

What is the typical timeframe for insurance litigation?

There is no typical timeframe for insurance litigation in Bermuda. Rather, this will depend on the subject matter of the litigation and the availability of the courts.

Arbitration

What regime governs the arbitrability of insurance disputes?

International arbitration in Bermuda is subject to the Bermuda International Conciliation and Arbitration Act 1993, which incorporates into Bermuda law the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985. Domestic arbitration is subject to the Arbitration Act 1986.

There is no institutional court of arbitration in Bermuda.