Insurance and reinsurance in Bermuda: overview

A Q&A guide to insurance and reinsurance law in Bermuda.

The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Bermuda.

To compare answers across multiple jurisdictions visit the Insurance and reinsurance Country Q&A tool.

This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit

Mark Chudleigh and Nick Miles, Sedgwick Chudleigh Ltd

Market trends and regulatory framework

1. What were the main trends in the insurance and reinsurance markets over the last 12 months?

In 2015, a number of major commercial insurers in or into Bermuda were incorporated or re-domiciled, including:

  • Fidelis Insurance Bermuda Limited, the largest start-up in Bermuda since 2005, which was registered as a Class 4 reinsurer with BM$1.5 billion in capital.

  • Qatar Reinsurance Company Limited, a subsidiary of the US$4.3 billion Qatar Insurance Company group, re-domiciled to Bermuda and was registered as a Class 4 reinsurer.

  • A new joint venture in the shape of ABR Re, a Class 4 reinsurer reinsuring treaty business placed by Ace with assets invested in an alternative investment portfolio managed by Black Rock.

The wave of merger and acquisition activity in the sector continued, reflecting a prolonged soft market and a search for savings and synergies (although without quite as much vigour as some had predicted). Ace acquired New Jersey-domiciled Chubb for US$28.3 billion. EXOR SpA's revised takeover offer to the members of PartnerRe Ltd was accepted, which stopped AXIS Capital Holdings Limited's attempt to amalgamate and left PartnerRe liable to pay AXIS US$315 million to terminate its agreement to amalgamate.

The popularity of insurance-linked securities continued, with the volume of listings on the Bermuda Stock Exchange increasing from US$15.2 billion (2014) to above US$19 billion (source: Bermuda Stock Exchange). Some issuances involved new sponsors (Amtrak). Sponsorship came primarily from the US but also from a number of other jurisdictions, including China (Panda Re) and Japan (Nakama Re).

There were 65 insurer incorporations in 2015 (source: BMA regulatory updates 2015).

On the international regulatory front, Bermuda was recognised by the US National Association of Insurance Commissioners as a "Qualified Jurisdiction" under its credit for reduced collateral requirements.

The European Commission adopted a Delegated Act recommending full equivalence for Bermuda with Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive), and full equivalence was officially confirmed on 24 March 2016.

2. What is the regulatory framework for insurance/reinsurance activities?

The following are all regulated when carried out in or from within Bermuda:

  • Carrying on insurance business.

  • Carrying on the business of an insurance manager, an insurance broker, an insurance agent or an insurance salesman.

Regulation of these activities is predominantly set out in the Insurance Act 1978 (Insurance Act) and in secondary legislation made under powers created by the Insurance Act.

Anyone carrying on the listed activities in or from within Bermuda must be registered by the Bermuda Monetary Authority (BMA), an authority independent of government and created by statute.

The Insurance Act sets out:

  • Minimum statutory criteria of registration.

  • Prudential requirements.

  • Supervisory and reporting requirements.

  • Enforcement powers of the BMA.

It also provides that the BMA can publish codes of conduct that its registrants must comply with. The BMA can also publish guidance on its interpretation of provisions of the Insurance Act.

For the purposes of the Insurance Act:

  • "Insurance business" is the business of effecting and carrying out contracts to:

    • protect persons against loss or liability to loss in respect of risks to which they may be exposed; or

    • pay a sum of money or render money's worth on the occurrence of an event and includes reinsurance business.

  • An "insurance agent" is effectively a cover holder, and is more specifically a person who, with the authority of an insurer, acts on its behalf in relation to the initiation and receipt of proposals, the issue of policies and the collection of premiums relating to insurance business.

  • An "insurance broker" is a person who arranges or places insurance business with insurers on behalf of prospective or existing policyholders.

  • An "insurance manager" undertakes the outsourced executive, administrative and/or underwriting functions of an insurer. More specifically, this is a person who is not an employee of any insurer, and who holds himself out as a manager in relation to one or more insurers, whether or not the functions performed by him go beyond the keeping of insurance business accounts and records.

  • An "insurance salesman" is a person who solicits applications for, or negotiates, insurance business on behalf of an insurer or an insurance broker or agent.

  • "Special purpose business" is insurance business under which an insurer fully funds its liabilities to persons insured through:

    • the proceeds of a subordinated debt issuance or other financing approved by the BMA;

    • cash; and

    • time deposits.

Insurers sub-divide into three categories:

  • Captive insurers.

  • Commercial insurers.

  • Special purpose insurers.

Special purpose insurers have certain unique features which will be discussed at the end of this section.

Bermuda adopts a bifurcated approach to the regulation of captive insurers and commercial insurers. Recognising the more limited risks that captive insurers pose, the prudential and supervisory regimes for them are less onerous than those applicable to commercial insurers.

The division of insurers into captive and commercial insurers is subject to further sub-division, which in turn is matched by variations in supervisory and prudential requirements.

Captive insurers are sub-divided into classes reflecting whether they are single-parent (Class 1 for general business captives, Class A for long-term business captives) or multi-parent (Class 2/Class 3/Class B), and/or how much "unrelated" business the captive writes (if any). For example, a Class 1 captive can write no unrelated business, whereas a Class 3 captive can write more than 20% unrelated business.

Commercial insurers sub-divide into three classes depending on:

  • The volume of net premiums written and, in some cases, the proportion of unrelated business written:

    • Class 3A or 3B (general business).

    • Class C, D or E (long-term business).

  • The minimum statutory capital and surplus of the insurer: Class 4 (which requires minimum statutory capital and surplus of BM$100 million).

All insurers must:

  • Maintain a prescribed minimum margin of solvency and (to the extent they carry on general business) a minimum liquidity ratio.

  • Comply with the Insurance Code of Conduct.

  • Maintain a principal representative resident in Bermuda whose role it is to report matters of concern to the BMA.

  • Meet the "minimum criteria" of registration, namely that:

    • officers and controllers meet a fitness and propriety test;

    • appropriate corporate governance policies and processes are established given the nature, size, complexity and risk profile of the insurer;

    • a minimum of two individuals effectively direct the business of the insurer;

    • there are an appropriate number of non-executive directors on the board of the insurer;

    • the business of the insurer is conducted in a prudent manner;

    • the position of the insurer within the structure of any group to which it belongs does not obstruct effective consolidated supervision; and

    • the business of the insurer is carried on with integrity and the professional skills appropriate to the nature and scale of the insurer's activities.

For insurers carrying on general business, the minimum margin of solvency is calculated by reference to the greater of net written premiums and discounted loss reserves and other insurance reserves. This is subject to a minimum floor of BM$120,000 for single-parent captives at one end of the scale, and BM$100 million for Class 4 reinsurers at the other. For insurers carrying on long-term business, the minimum margin of solvency is a proportion of assets reported on the insurer's statutory balance sheet, subject to a floor of BM$120,000 for single-parent captives and BM$8 million for Class E insurers.

All multi-parent captives and commercial insurers carrying on general business must appoint a suitably qualified approved loss reserve specialist to confirm the insurer's reserves. Insurers carrying on long-term business must appoint a suitably qualified actuary approved by the BMA.

In terms of reporting requirements, captive insurers must file:

  • An annual statutory financial return containing the following:

    • auditor's report;

    • solvency certificate;

    • loss reserve opinion (for general business multi-parent captives);

    • actuary's opinion (for long-term business multi-parent captives);

    • declaration of compliance;

    • own risk assessment; and

    • underwriting analyses.

  • Annual financial statements.

Commercial insurers must:

  • File annual GAAP financial statements.

  • File an annual capital and solvency return comprising a version of the insurer's Bermuda Solvency Capital Requirement (BSCR) model (or, for smaller commercial insurers classified as Class 3A, based on a bespoke SME-BSCR), or (if applicable) a version of the insurer's approved internal capital model, plus a loss reserve specialist's opinion and/or actuary's opinion, and a declaration that the return fairly represents the financial condition of the insurer.

  • File quarterly financial returns.

  • Maintain assets sufficient to capitalise an "enhanced capital requirement" based on the insurer's BSCR or internal capital model.

  • Satisfy a minimum proportion of their enhanced capital requirement with qualifying "tiers" of eligible capital.

  • Maintain a head office in Bermuda.

  • Carry out a commercial insurer's solvency self-assessment.

  • Prepare and publish a financial condition report and declaration signed by the chief executive of the insurer and any senior executive responsible for actuarial or risk management or internal audit or compliance function.

In addition, commercial insurers must meet a "target capital level" of 120% of enhanced capital requirement. Failure to meet this acts as an early warning signal to the BMA, but does not in itself involve any regulatory violation.

The financial condition report must be made available on the commercial insurer's website (if it has one) or in hard copy to members of the public on request.

The BMA publishes an Insurance Code of Conduct (Code) setting out duties, requirements and standards with which insurers must comply in the conduct of their business. Specifically, the Code:

  • Requires insurers to establish and maintain a sound corporate governance framework, providing for appropriate oversight of the insurer's business, and adequately protecting the interests of policyholders.

  • Requires (in the case of an insurer that employs an insurance manager) the board of directors of the insurer to ensure that the insurance manager passes the fitness and propriety tests.

  • Obliges the board of directors and the chief and senior executives to adopt an effective risk management strategy and an internal controls framework that has regard for international best practice on risk management and internal controls.

  • Specifies particular governance mechanisms to be embedded in the corporate governance framework as part of the insurer's obligation to conduct business in a prudent manner.

In recognition of the varying risk profiles of insurers, the BMA interprets the Code flexibly in accordance with a principle of proportionality. This means that the assessment of compliance is made by reference to the nature, scale and complexity of the business of each insurer. What is expected from a Class 4 insurer (a larger commercial insurer) by way of compliance is usually therefore considerably more exacting than what is expected from a small Class 1 insurer.

Special purpose insurers (SPIs)

SPIs are fully collateralised and have a notional minimum margin of solvency and paid up capital requirements. Supervision of SPIs is "light touch" on the understanding (which the BMA must be satisfied about before registration) that the sponsoring cedant is sufficiently well informed about the quantity and quality of the SPI's assets and the risks involved in using an SPI. Purchasers of securities issued in the SPI must be sophisticated investors.

Group supervision

The BMA can decide whether it should be the "group supervisor" of an insurance group with a member registered under the Insurance Act. It will generally be the group supervisor where the parent company is incorporated under Bermuda legislation, or when it is satisfied that the group is directed and managed from Bermuda.

When it decides that it should be the group supervisor, the BMA can assign a "designated insurer" in the group, which will be responsible for:

  • Appointing a group actuary.

  • Ensuring that the group maintains available group capital and surplus equal to or greater than its group minimum margin of solvency.

  • The designated insurer's board of directors must establish group solvency self-assessment procedures.

Group solvency requirements and reporting apply to insurance groups of which the BMA is group supervisor.

Insurance intermediaries

An insurance manager, broker, agent or salesman can be either a natural person or body corporate. It must meet the minimum criteria for registration, including fitness and propriety of controllers. The fitness and propriety of officer controllers are assessed by reference to the competence and capability, and the honesty, integrity and reputation of the officer controllers. Intermediaries are needed to maintain adequate professional indemnity insurance but are not otherwise subject to any prudential requirements.

The BMA proposed a draft code of conduct for insurance managers, providing advice on:

  • Corporate governance framework.

  • Effective risk management.

  • Compliance, internal audit and internal controls.

  • Record-keeping and reporting.

  • Duties relating to outsourcing.

  • Fraud, anti-money laundering and anti-terrorist financing obligations.

  • Client due diligence and conduct towards clients.

  • Client confidentiality.

  • Specific responsibilities where the insurance manager acts as the principal representative for an insurer.

  • Co-operation with regulatory authorities.

Regulatory bodies

The BMA has a wide range of enforcement and disciplinary powers created by the Insurance Act.


Regulation of insurance and reinsurance contracts

3. What is a contract of insurance for the purposes of the law and regulation? How does it differ from a contract of reinsurance?

The definition of "insurance business" in the Insurance Act 1978 is couched in deliberately open terms and is wide enough to encompass effecting and carrying out contracts with a subject matter in which the insured lacks an insurable interest (although there is a statutory requirement of insurable interest in the case of certain long-term business contracts under the Life Insurance Act 1978). Other statutes, such as the Insurance Accounts Regulations 1980, define narrower classes of insurance, such as "liability insurance" and "products liability insurance", "professional liability insurance", "retrocessional contract" and "domestic business".

In the Third Parties (Rights Against Insurers) Act 1963, a "contract of insurance" is defined as "a contract whereby the insured is covered against the risk of liability to third parties".

Outside those limited contexts, there is no official definition of insurance or any reported Bermuda case law in which the definition of insurance is considered. There is no equivalent in Bermuda to the statutory definition of "marine insurance" as in the UK's Marine Insurance Act 1906. The Bermuda courts would probably follow the seminal definition under English law set out in Prudential Insurance Co v Inland Revenue Commissioners ([1904] 2 KB 658), although whether the courts would require an insurable interest in all cases of general business is less clear.

There is no significant legal distinction between insurance and reinsurance. Risk mitigation techniques (such as reinsurance) are unlikely to be effective in reducing an insurer's enhanced capital requirement unless they involve substantial risk transfer, but it is doubtful that a contract that failed to provide for substantial risk transfer would not qualify as insurance as a matter of contract law.

4. Are all contracts of insurance/reinsurance regulated?

The primary statute providing for the regulation of insurance business carried on in or from within Bermuda is the Insurance Act. The Insurance Act defines:

  • "Long-term business", which includes effecting and carrying out contracts of insurance on life or to pay annuities on life, certain accident and health insurance, and certain investment-based contracts.

  • "Special purpose business", which is insurance business under which an insurer fully funds its liabilities to the persons insured through the proceeds of subordinate debt, other financing approved by the Bermuda Monetary Authority (BMA), cash or time deposits.

  • "General business", which is insurance business that is not special purpose or long-term business. It expressly includes certain accident and health insurance contracts expressed to be in effect for a period of less than five years.

The BMA can specify a contract as a "designated investment contract" which means that a party to it will not be carrying on insurance business even though it may fall under that definition in the Insurance Act. This includes contracts to secure a profit or avoid a loss either:

  • By reference to fluctuations in the value or price of property of any description, or in an index, or other factor, specified for that purpose in the contract.

  • Based on the happening of a particular event specified for that purpose in the contract.

Such contracts include options, futures, swaps, derivatives and contracts for differences or security.


Corporate structure

5. What form of corporate organisation can insurers take?

To be registered under the Insurance Act, an insurer must be a body corporate. There are no particular restrictions on the corporate form and it can include a:

  • Company limited by shares.

  • Company limited by guarantee.

  • Mutual company.

  • Segregated accounts company.

Insurance intermediaries can be either natural persons or bodies corporate.


Regulation of insurers and reinsurers

6. Are all insurers and reinsurers regulated? Are they all regulated in the same way?

All persons (including reinsurers) carrying on insurance business in or from within Bermuda must be registered as an insurer by the Bermuda Monetary Authority (BMA).

Subject to the differences in the regulation between captive insurers, commercial insurers and special purpose insurers (SPIs), there is no distinction in the regulation of insurers who carry on reinsurance business as part of or the whole of their insurance business, and those that do not.

Insurers formed under the laws of an overseas jurisdiction can only carry on insurance business in or from within Bermuda if they are granted a permit from the Minister of Finance under the Companies Act 1981, or if they are registered as "non-resident insurance undertakings" under the Non-Resident insurance Undertakings Act 1967 (NRIU Act). There is currently a moratorium on granting permits under the NRIU Act.

Commercial insurers registered under the Insurance Act must maintain their head office in Bermuda. Captive insurers only need to maintain their principal place of business in Bermuda.

7. Can insurers and reinsurers carry on non-insurance business? Are there any restrictions on their business activities?

Commercial insurers cannot engage in non-insurance business unless it is ancillary to their insurance business. Non-insurance business means any business other than insurance business and includes:

  • Investment business as defined in the Investment Business Act 2003.

  • Managing an investment fund as an operator as defined under the Investment Funds Act 2006.

  • Carrying on business as a fund administrator as defined under the Investment Funds Act 2006.

  • Carrying on banking business as defined under the Banks and Deposit Companies Act 1999.

  • Underwriting debt or securities or otherwise engaging in investment banking.

  • Engaging in commercial or industrial activities.

  • Carrying on the business of management, sales or leasing of real property.

There is no such statutory restriction applicable to captive insurers.

There is no prohibition on the same insurer carrying on both general business and long-term business. The insurer must be registered in the appropriate classes, unless the BMA is satisfied that the insurer's general business is ancillary to its long-term business, or that the insurer's long-term business is ancillary to its general business.

8. Are there any statutory limits or other restrictions on, or requirements relating to, the transfer of risk by insurance or reinsurance companies?

There are no statutory limits or other restrictions on, or requirements relating to, or the transfer of risk by, insurance or reinsurance companies registered as insurers by the Bermuda Monetary Authority (BMA). Commercial insurers must identify structured or finite reinsurance on their solvency capital return. Structured or finite reinsurance is referred to in the notes to the return as requiring either the transfer of significant underwriting or timing risks, or the transfer of a risk with a very low probability of economic loss. The implication is that a contract without a transfer of significant underwriting or timing risks does not qualify for entry on the solvency return.


Operating restrictions

Authorisation or licensing

9. Does the entity or person have to be authorised or licensed?

Insurance/reinsurance providers

The materials needed to support an application for registration vary depending on the class of insurer the applicant seeks to be registered as.

Normally, a promoter seeking to register a body corporate as an insurer will make a "pre-incorporation" application to the Bermuda Monetary Authority (BMA), including details of the proposed controllers of the body corporate, a business plan, five-year financial projection and other materials. A separate, parallel application must be made to the Registrar of Companies seeking to register the corporate body.

Insurance/reinsurance intermediaries

Any person proposing to carry on business as an insurance manager, broker, agent or salesman in or from within Bermuda must be registered by the BMA. The BMA must be satisfied that the person will meet the minimum criteria and that the person has adequate knowledge of the insurance business to enable him to act in the capacity for which he has applied for registration.

The BMA recently proposed the introduction of enhanced minimum criteria for insurance managers, requiring them to hold sufficient professional indemnity cover to meet their business obligations.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.

10. What are the main exemptions or exclusions from authorisation or licensing?

Insurance/reinsurance providers

The following are exempt from the registration requirement by virtue of being deemed not to be insurance business:

  • Insurance business carried on by a friendly society registered under the Friendly Societies Act 1868 or by a trade union registered under the Trade Union Act 1965, in which risks of members of the friendly society or trade union, as the case may be, are insured.

  • Insurance business carried on by the Health Insurance Committee under the Health Insurance Act 1970.

  • Housing loan insurance carried on by the Bermuda Housing Corporation under the Bermuda Housing Loan Insurance Act 1984.

There is also an exemption applicable to underwriting members of Lloyd's of London who write business in Bermuda via local cover holders who are registered as insurance intermediaries under the Insurance Act.

Insurance/reinsurance intermediaries

There are no applicable exemptions.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.

Restrictions on ownership or control

11. Are there any restrictions on the ownership or control of insurance-related entities?

Insurance/reinsurance providers

The only restriction on ownership or control of insurers that are "exempted companies" is that the Bermuda Monetary Authority (BMA) must be satisfied that their controllers are fit and proper persons to be controllers of registered persons. There are no absolute restrictions in principle based on age or nationality, except in connection with "local companies", at least 60% of whose equity must be owned and controlled by Bermudians (although there are exceptions to this where the local company carries on insurance business and is listed on the Bermuda Stock Exchange).

Under the Insurance Act, a controller of an insurer is:

  • The managing director of the insurer or of another company of which the insurer is a subsidiary company.

  • The chief executive of the insurer or of another company of which the insurer is a subsidiary company.

  • A person who holds 10% or more of the shares in an insurer carrying voting rights, or where the holder is entitled to exercise or control 10% or more of the voting power, or where the holder has significant influence over the management of the registered person.

  • A person in accordance with whose directions or instructions the directors of the registered person (or of another company of which it is a subsidiary) or persons who are controllers of the insurer, are accustomed to act.

  • Controllers must be fit and proper persons to discharge their functions. In assessing a proposed shareholder controller, the BMA must have regard to influence that the shareholder controller has or is likely to have on the conduct of the affairs of the insurer. If he does, or is likely to, exercise close control over the business, the BMA will look for evidence that he has the probity and soundness of judgment and relevant knowledge and skills to manage the affairs of the insurer. If the controller is not likely to be closely involved, these factors will be of less relevance. The BMA will also have regard to whether the financial position, reputation or conduct of the shareholder controller has damaged or is likely to damage the insurer through an association which undermines confidence. Proposed controllers must disclose detailed due diligence material. A more detailed personal declaration must be completed by individuals.

  • Insurers that are bodies corporate organised under Bermuda law are precluded from issuing or registering the transfer of securities to or from non-residents of Bermuda without specific permission from the BMA in its capacity as the Controller under the Exchange Control Act 1972. General permission is granted by the BMA for issuing and transferring equity securities (essentially shares carrying voting rights) where the securities are listed on an appointed stock exchange. It is also granted for issuing and transferring securities that are not equity securities, such as preferred or preference shares in the company's capital (stock not carrying voting rights), provided subsequent notice of issue or transfer is given to the BMA, or for limited transfers between existing members.

Insurance/reinsurance intermediaries

As a minimum requirement to register an insurance manager, broker, agent or salesman, the BMA must be satisfied that every controller of the person is fit and proper to perform functions in relation to the activities to be carried out by them.

Intermediaries that are also bodies corporate organised under Bermuda law are subject to the Exchange Control Act 1972.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.

12. Must owners or controllers be approved by or notified to the relevant authorities before taking, increasing or reducing their control or ownership of the entity?

Insurance/reinsurance providers

A shareholder or prospective shareholder must notify the Bermuda Monetary Authority (BMA) of its intention to be allotted or to receive by transfer shares in an insurer whose shares or whose parent's shares are not traded on any stock exchange (a private company) sufficient to make the person a 10%, 20%, 33% or 50% shareholder controller of the insurer. The BMA can object to the change unless satisfied that the person is fit and proper to be a controller, the interests of clients of the insurer will not be threatened and minimum criteria will continue to be satisfied by the insurer.

For changes in the control of insurers that are public companies, a post-transaction notification process applies.

Commercial insurers must notify the BMA after becoming aware of any change in control that meets the threshold proportions referred to above.

Captive insurers must only notify the BMA of changes in control when they file their annual statutory financial statements.

Insurance/reinsurance intermediaries

Currently, insurance managers, brokers, agents or salesmen must only disclose changes in control on an annual basis. However, they must also notify the BMA if they become aware of any material concerns about the appropriateness or professionalism of a controller.

In April 2016, the BMA proposed amending legislation requiring insurance managers to notify changes to controllers within 14 days of becoming aware of them.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.

Ongoing requirements for the authorised or licensed entity

13. What are the key ongoing requirements with which the authorised or licensed entity must comply?

Insurance/reinsurance providers

The reporting and disclosure requirements applicable to insurers are summarised above in Question 2.

Insurers must maintain a principal representative, who is a person resident in Bermuda whose duty it is to inform the Bermuda Monetary Authority (BMA) of concerns about the insurer's governance, conduct or financial standing.

Commercial insurers must maintain their headquarters in Bermuda. Captive insurers must maintain their principal place of business in Bermuda.

Other than the need to observe the notification procedure relating to acquisition or increase of control discussed in Question 12, and the need for approval of the controller, it is not necessary to seek the BMA's approval to issue any equity or debt security. Companies registered under the Companies Act 1981 must follow the requirements of that statute in relation to any proposed increase in authorised capital.

Transactions or developments that amount to "material changes" affecting an insurer must be notified to the BMA, which has the power to object to the change unless satisfied that it would not threaten the interests of policyholders and that the requirements of the Insurance Act will continue to be complied with by the insurer. A "material change" includes:

  • Certain portfolio transfers.

  • Corporate reorganisations.

  • Material outsourcings.

  • Acquisition of interest in non-insurance businesses.

  • The development of a new line of business.

Where the BMA is the group supervisor of an insurance group, certain material changes affecting any member of the group must be notified to it.

Before paying a dividend exceeding 25% of the statutory capital and surplus of a commercial insurer, it must file affidavits with the BMA, sworn by two directors and the principal representative. They must state that in the opinion of those signing, the dividend has not caused the insurer to fail to meet its relevant margins.

Before reducing the capital of a commercial insurer by 15% or more of its statutory capital, a commercial insurer must file affidavits with the BMA, sworn by two directors and the principal representative. They must state that in the opinion of those signing, the reduction will not cause the insurer to fail to meet its relevant margins.

Insurance/reinsurance intermediaries

Insurance intermediaries must at all times hold professional indemnity insurance and meet the minimum criteria of registration that are applicable to it. Insurance managers must maintain a register of all insurers on whose behalf they have authority to act.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.

Penalties for non-compliance with legal and regulatory requirements

14. What are the possible consequences of an entity failing to comply with applicable legal and regulatory requirements? What recourse do policyholders have if they have done business with a non-approved entity?

Insurance/reinsurance providers

There are a variety of consequences and possible consequences for an insurer that fails to comply with the applicable legal and regulatory requirements, or where there is a risk of harm to policyholders. The consequences depend on the failure or risk, reflecting the wide range of enforcement powers at the disposal of the Bermuda Monetary Authority (BMA).

For example, the BMA can intervene by making directions to safeguard the interests of policyholders and potential policyholders where it appears to it that the conduct of an insurer's business presents a significant risk that the insurer:

  • Will become insolvent.

  • Will be unable to pay its policyholders.

  • Is in breach of a provision of the Insurance Act or of regulations under it.

  • Has not or may not have fulfilled the minimum criteria relevant to it.

Directions can include:

  • A moratorium on issuing new policies.

  • Limiting written premiums.

  • A moratorium on investments of a specified class.

  • A moratorium on the declaration of dividends.

  • Removal of an officer or controller.

Where there appears to be a risk of insolvency, the BMA can direct that the insurer's assets are held in or transferred to a specified bank.

Where the BMA is the group supervisor of an insurance group, it can also give directions to the designated insurer of the group where it appears to it that the designated insurer is in breach of the Insurance Act or regulations or rules applicable to it.

The BMA can make a prohibition order in relation to individuals that it believes not to be fit and proper persons to perform functions in relation to an insurer.

The BMA can publicly censure an insurer that it considers to have contravened a requirement imposed on it by or under the Insurance Act.

The BMA can conduct an investigation where it appears to it that an insurer or designated insurer has or may have contravened a regulatory requirement. It has extensive powers to seek production of information and documents in support of such investigations.

Civil penalties apply for some contraventions.

Insurers can have their registration cancelled or varied if they:

  • Submit false, misleading or inaccurate information under a regulatory requirement.

  • Have not complied with a condition of registration.

  • Have not complied with certain regulatory requirements.

  • Have not, in the opinion of the BMA, carried out business in accordance with sound principles.

In extreme cases, the BMA can apply to the Supreme Court for an injunction restraining contraventions or contraventions that are reasonably likely to happen, and can apply to it for an order winding up an insurer.

Except in urgent cases, enforcement actions will normally be preceded by a warning notice to the insurer, giving it an opportunity to make representations responding to the BMA's concerns, before it determines the course of action (if any) that it intends to adopt.

Insurers carrying on "domestic business" must establish a complaints procedure. There is otherwise no regime for policyholders' redress if they have complaints about conduct by an insurer carrying on its business. This reflects the assumption that purchasers buying insurance from Bermuda carriers are either group companies or large corporations.

Insurance/reinsurance intermediaries

Apart from the power to require that assets be held in a specified bank, and the power to apply to wind up an insurer, the same enforcement measures are available to the BMA when dealing with contraventions by an insurance intermediary, as an insurer. The directions that the BMA can make when intervening must be for the benefit of the clients and potential clients of the insurance intermediary.

Other providers of insurance/reinsurance-related activities

There are no other regulated insurance-related activities.


Restrictions on persons to whom services can be marketed or sold

15. Are there any restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold?

Exempted companies are prohibited by the Companies Act 1981 from carrying on any business whatsoever in or from within Bermuda unless they have a licence from the Minister of Finance. Certain exceptions apply including:

  • Reinsurance.

  • Business with persons outside Bermuda.

  • Transactions ancillary to the company's business outside Bermuda.

The practical result of this is that an exempted company insurer registered under the Insurance Act cannot issue or subscribe a policy of direct insurance insuring the risks of an individual or body corporate in Bermuda unless it holds a licence from the Minister of Finance. Although there are no reported decisions on point, this prohibits marketing business to individuals and bodies corporate in Bermuda.


Reinsurance monitoring and disclosure requirements

16. To what extent can/must a reinsurance company monitor the claims, settlements and underwriting of the cedant company?

There is no statutory requirement beyond the obligation of reinsurers to conduct their business in a prudent manner. An exception to this is special purpose insurers (SPIs), where the onus is expected to rest on the cedant to monitor reserves and claims (an SPI's role is relatively passive). Reporting duties are determined by agreement between the parties to the reinsurance contract.

17. What disclosure/notification obligations does the cedant company have to the reinsurance company?

These will be determined by the treaty or facultative reinsurance wording. Generally the cedant must:

  • Report paid balances and case reserves on a monthly or quarterly basis (in a treaty).

  • Report claims or losses likely to implicate the reinsurance within a reasonable time (usually a prescribed absolute period).

  • Furnish the reinsurer with all further information reasonably required.

Much will depend on the extent to which the reinsurer is minded to involve itself in the claims administration process.

Under Bermuda law, a common interest subsists between a cedant and its reinsurer that protects the privileged status of communications and other documents on any underlying loss to which the cedant and reinsurer are both potentially exposed.


Insurance and reinsurance policies

Content requirements and commonly found clauses

18. What are the main general form and content requirements for insurance policies? What are the most commonly found clauses?

Form and content requirements

Apart from a limited range of policy types (for example, policies prescribed by the Motor Car Insurance (Third-Party Risks) Act 1943) there are no mandatory terms or coverage requirements.

Commonly found clauses

A number of insurers write business on the "Bermuda form", a high excess layer general liability policy. The Bermuda form has various distinctive features:

  • An occurrence-based first reported trigger.

  • A continuous policy allowing for integrated occurrence across years.

  • No duty to defend.

  • A "maintenance deductible" for certain expected or intended injury or damage.

  • Modified New York law as the governing law.

  • Arbitration in England or Bermuda.

19. Is facultative or treaty reinsurance more common? What are the most commonly found clauses in reinsurance policies?

Facultative/treaty reinsurance

Treaty reinsurance is more common than facultative reinsurance. Insurance loss warranties, which respond to industry events in which the cedant has an insurable interest, are also common.

Commonly found clauses

A "follow settlements" (in a facultative reinsurance) or "loss settlements binding" (in treaty reinsurance) clause is commonly included. Its purpose is to remove or reduce the cedant's obligation to prove on the balance of probability that it was liable to pay the underlying loss. A follow or loss settlements clause that is not qualified by reference to the terms and conditions of the underlying policy will normally require the reinsurer to follow the settlement, provided that it is proper and business-like and within the terms of the reinsurance treaty. Most excess of loss treaties include a qualified loss settlements clause, requiring the cedant to prove that the loss fell within the terms of the underlying policy.

A substantial amount of high excess treaty business is written by Class 3 insurers backed by third party capital. These are either special purpose vehicles or segregated accounts companies writing business linked to a segregated account. In either case, the reinsurance treaty will require the reinsurer to maintain a trust account holding assets sufficient to collateralise the liabilities of the reinsurer, plus a margin usually in the region of 2 or 3%.

The following clauses are usually found in treaty reinsurance:

  • Ultimate net loss.

  • Inspection of records.

  • Insolvency.

  • Special termination.

Implied terms

20. Are there any terms that are implied by law or regulation (even if not included in the insurance or reinsurance contract)?

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 (even though not explicitly stated).

  • They embody a market custom that is notorious in the market in which the parties contract.

A contract of insurance is a contract of utmost good faith. One of its legal incidents is a duty on the insured (before conclusion of the policy) to disclose all facts and circumstances material to the risk which are known (or ought in the ordinary course of business to be known) by, or communicated to, the insured. The duty of utmost good faith is not an implied term. For remedies for breach of the duty of utmost good faith, see Question 27.

Customer protections

21. How do customer protections in the general law affect insurance contracts? What customer protections are generally included in insurance policies to supplement this?

General law

In a commercial context (including insurance and reinsurance), the parties have 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 only to consumer contracts. The minister in charge of consumer affairs has the power to exempt certain contracts from the scope of the legislation. To date, the powers have not been exercised.

Insurance policies

Since the vast majority of business written by Bermuda insurers is international insurance and reinsurance of substantial commercial corporations, most policies include no particular protections for policyholders.

Insurers carrying on "domestic business" must comply with various conduct of business standards in their dealings with customers, particularly where they give advice on insurance products. Advertisements relating to domestic business must meet certain standards on accuracy and clarity. Insurers must also:

  • Maintain consumer complaints policies.

  • Resolve complaints effectively and equitably.

  • Have systems and training to ensure compliance.

Standard policies or terms

22. What are the main standard policies or terms produced by trade associations or relevant authorities?

There are no applicable Bermuda trade association or authority standard policies or terms. The Bermuda form policy has evolved over the last 30 years to meet the demands of clients in the US and international commercial markets (see Question 18).


Insurance and reinsurance policy claims

Establishing an insurance claim

23. What must be established to trigger coverage under an insurance policy?

Since the policy trigger is a matter for agreement between the parties it is impossible to generalise. By way of some illustrative examples:

  • Bermuda form policies (which are almost always governed by modified New York law, not by Bermuda law) are triggered by the notification of an occurrence, but need injury-in-fact and/or actual property damage before they respond.

  • Treaty reinsurance is frequently triggered by the date of the event, occurrence or loss.

  • Insurance loss warranties usually have a double trigger, requiring an industry loss event of a prescribed threshold insured value, plus loss to the cedant.

Third party insurance claims

24. What are the circumstances in which third parties can claim under an insurance policy?

Claimants can proceed directly against liability insurers in the event of the bankruptcy or winding-up of the insured under the Third Parties (Rights Against Insurers) Act 1963.

In certain circumstances, direct actions are permitted against insurers who issue policies insuring ship owners for liability under The Merchant Shipping Act 2002. Insolvency of the insured is not a pre-condition.

Under the Motor Car Insurance (Third-Party Risks) Act 1943, claimants can sometimes proceed directly against insurers in the event of the bankruptcy or winding-up of the insured.

Under the Contracts (Rights of Third Parties) Act 2016, a third party can enforce a term of a contract in its own right where the:

  • Third party is identified in the contract by name, as a member of a class, or as answering a particular description.

  • Contract expressly provides in writing that the third party can enforce the term.

Time limits

25. Is there a time limit outside of which the insured/reinsured is barred from making a claim?

An insured's or reinsured's claim for payment of policy or reinsurance proceeds will normally take the form of an action for damages for breach of contract. The statutory limitation period for actions founded on contract is six years from the date on which the cause of action accrued. When the cause of action accrues can vary depending of the type of insurance.

A cause of action for breach of an insurance policy against liability to third parties will not accrue until the insured has ascertained its loss and the quantum of its loss by judgment, settlement or award. This is also true in relation to an action for breach of a reinsurance contract, although some writers have suggested accrual when the underlying insured loss occurred. A cause of action for breach of an insurance policy against first party risks will normally accrue when the damage or injury occurred.


26. Can the original policyholder or other third party enforce the reinsurance contract against a reinsurer?

A policyholder or other third party can only enforce terms of a reinsurance contract against a reinsurer if they are a:

  • Party to the reinsurance contract.

  • Third party entitled to enforce the term in their own right under the Contracts (Rights of Third Parties) Act 2016.

See Question 25 for third party insurance claims.

An assignee of a matured right in a reinsurance contract can institute proceedings in respect of the right in its own name if:

  • The assignment is absolute and in writing under the hand of the insurer.

  • Express written notice of the assignment has been given to the reinsurer.

  • The reinsurance contract does not prohibit the assignment of rights in it.

An insured or third party can, in some circumstances, (for example where the insured or third party has been subrogated to the rights of the reinsured, or is an equitable assignee) commence proceedings against the reinsurer and borrow the name of the reinsured by joining it as a defendant. Insolvency of the cedant does not change the position.

"Cut-through" provisions (entitling an insured to require a reinsurer, in the event of insolvency, to discharge the reinsurer's obligations by payment direct to the insured) are unusual in Bermuda and potentially void as contrary to the anti-deprivation principle.


27. What remedies are available for breach of an insurance policy?


Where there is breach of the insured's duty of utmost good faith, the insurer is entitled to avoid the policy if it can establish that it was induced by the breach. It is also possible that an insurer may be able to 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 insurer may also have a claim for damages in the tort of deceit.

A breach of warranty will discharge the insurer from liability from the date of breach.

If the insured fails to provide the claims co-operation or control required by the policy, the insurer may be entitled to damages for loss of opportunity. It is unlikely to be able to reject the claim unless co-operation or control is a condition precedent to liability.

Breach of a procedural condition precedent means the insurer is automatically not liable for the claim or loss to which the condition 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, which is normally understood to mean that the insurer can reject the tainted claim in its entirety and repudiate the policy prospectively. It is theoretically possible that breach of a term by the insured can, as a result of the gravity of its consequences, entitle the insurer to repudiate the policy.


An insurer will be in breach of an insurance policy if it fails to indemnify the insured on the occurrence of the insured peril. The insured's recourse in this event 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 contract of insurance, which will seldom be an attractive remedy unless the insured is concerned to secure return of premium. Declaratory relief may be available to the insured, declaring that the policy is valid or in existence, or that a given loss is covered under the policy. The insurer has no liability to the insured for the conduct in which the insurer administers claims under the policy (there are no so-called "bad faith" damages), because of the doctrine that there are no "damages on damages".

Punitive damage claims

28. Are punitive damages insurable? Can punitive damages be reinsured if they are covered by an underlying policy?

There is no reason in principle why an insured's risk of liability to pay punitive damages cannot be validly insured under a policy governed by Bermuda law.


Insolvency of insurance and reinsurance providers

29. What is the regulatory framework for dealing with distressed or insolvent insurance or reinsurance companies, or other persons or entities providing insurance or reinsurance related services? What regulatory and/or other protections exist for policyholders if the insurance company is insolvent?

The powers of the Bermuda Monetary Authority (BMA) to intervene and take action when an insurer becomes financially distressed are discussed in Question 14. An insolvent insurer can be wound up by the Supreme Court on petition from the BMA. There is currently no priority for insurance or reinsurance creditors over general trade creditors, although the BMA has consulted on proposed reform in this area.

The long-term business policyholders of an 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 insurer, unless the court orders otherwise, with a view to transferring it to an existing or newly incorporated insurer. When winding up an insurer that is unable to pay its debts, the Supreme Court has jurisdiction to reduce the amount of the insurer's contracts instead of making a winding up order.

30. Can excess insurance policies "drop down" to provide coverage if the primary insurer goes into insolvency?

A properly drafted clause specifying that the excess is an aggregate excess, will "drop down" and attach without the benefit of any excess when the aggregate excess is exhausted.

With appropriate language, attachment can be determined by reference to the underlying loss of the insured, without reference to the ability or inability of the primary insurer to satisfy its liability for the underlying loss under the primary policy in full from its own assets.

31. Is a right to set-off mutual debts and credits recognised in an insolvency proceeding involving an insurer or reinsurer?

When an order is made to wind up a company under the Companies Act, a mandatory statutory account is taken of all mutual dealings between the company and any other person. The person (if a net creditor) may need to prove the net balance in the winding up of the company.

Where an insurer that is being wound up carried on long-term business, and has long-term business liabilities, the liabilities can only be paid out of the company's "long-term business fund", which are assets earmarked for paying long-term business liabilities.

An insurer that is a segregated accounts company will have insurance liabilities that can be satisfied only from assets linked to a particular segregated account. Unless expressly provided for, the liabilities cannot be satisfied by set-off against claims linked to other separate accounts belonging to the company.


Taxation of insurance and reinsurance providers

32. What is the tax treatment for insurers, reinsurers, and other persons or entities providing insurance and reinsurance-related services?

There is no tax payable by an exempted company insurer on profits, income, capital gains or appreciation, or any estate duty or inheritance tax (except in relation to certain transactions relating to land in Bermuda). Stamp duty is not payable by exempted undertakings, except on certain transactions relating to land in Bermuda. There is no indirect taxation of insurance premiums.


Insurance and reinsurance dispute resolution

33. Are there special procedures or venues for dealing with insurance or reinsurance complaints or disputes?

The Supreme Court of Bermuda has jurisdiction to determine actions for breach of insurance or reinsurance contract. The Commercial Court, a division of the Supreme Court, was established in 2006, with jurisdiction over "commercial actions", including claims and counterclaims relating to insurance and reinsurance.

International arbitration in Bermuda is subject to the Bermuda International Conciliation and Arbitration Act 1993 (Arbitration Act), which incorporates into Bermuda law the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Arbitration Law). Domestic arbitration is subject to the Arbitration Act 1986.

There is no institutional court of arbitration in Bermuda. Arbitrations are generally ad hoc. A number of private venues offer suites for hire to host arbitration hearings.

34. Are arbitration clauses in insurance and reinsurance agreements enforceable?

The great majority of insurance and reinsurance contracts issued in Bermuda contain arbitration clauses. Almost all insurance and reinsurance arbitrations take place under the provisions of the Arbitration Act.

Under the Arbitration Act, party autonomy prevails and this principle is enthusiastically supported by the Supreme Court. Situations in which the court can assist with arbitration include:

  • Where the arbitrator appointment process has failed.

  • Where the neutrality of an arbitrator is challenged.

  • To secure the attendance of witnesses.

  • To grant injunctive relief restraining proceedings in breach of an arbitration agreement.

  • To enforce an award.

35. Are choice of forum, venue and applicable law clauses in an insurance or reinsurance contract recognised and enforced?

The Supreme Court has jurisdiction over matters commenced by serving process on a defendant within the jurisdiction or where leave is obtained to serve outside the jurisdiction.

Where leave is obtained to serve outside the jurisdiction, the Supreme Court can hear and determine claims brought to:

  • Enforce, rescind, dissolve, annul or otherwise affect a contract.

  • Recover damages or obtain other relief in respect of the breach of contract.

The contract must, in its terms or by implication, be governed by the law of Bermuda, or contain a term that the court has jurisdiction to hear and determine any action in respect of the contract.

This jurisdiction explicitly applies to claims brought for a declaration that no contract exists, provided that (if the contract were found to exist), it would meet the requirement that Bermuda law applied, or the Supreme Court had jurisdiction to hear an action under it.

When seeking leave, it is necessary to show a serious issue to be tried on the merits, and that Bermuda is a convenient forum. The Bermuda court has jurisdiction to restrain foreign proceedings that are clearly unconscionable, and will usually find foreign proceedings in breach of an exclusive jurisdiction clause to be near conclusive evidence of unconscionable conduct.



36. What proposals are there for reform of the law, regulation or rules relating to the provision of insurance or reinsurance services?

See Question 2 on the proposed insurance manager code of conduct and on the introduction of a preferential ranking of insurance creditors when winding up an insurer. The Bermuda Monetary Authority has consulted on the proposed introduction of legislation that would give unsecured policyholder creditors priority over general unsecured creditors in the winding up of an insurer. A decision on the proposal is likely in 2017.


Main insurance/reinsurance trade organisations

Association of Bermuda Insurers and Reinsurers (ABIR)

Main activities. An industry body representing the public policy interests of international insurers and reinsurers carrying on business in Bermuda.


Bermuda Insurance Institute

Main activities. An industry-organised body providing education and training.


Bermuda International Long Term Insurers and Reinsurers (BILTIR)

Main activities. An industry association acting as an advocate for the life insurance industry in Bermuda.


Bermuda Insurance Management Association

Main activities. An association of captive insurance managers and other captive service providers.


Bermuda Insurance and Reinsurance Brokers Association (BIRBA)

Main activities. An industry body representing the public policy interests of international insurers and reinsurers carrying on business in Bermuda.

Claims & Litigation Management Alliance (CLM) (Bermuda Chapter)

Main activities. An association of claims and insurance litigation professionals


Online resources


Description. The website of the Bermuda Monetary Authority (BMA) contains links to legislation, guidance, codes of conduct, reports on industry developments and lists of entities licensed by the BMA.

Contributor profiles

Mark Chudleigh, Managing Partner

Sedgwick Chudleigh Ltd

T +1441 278 7160

Professional qualifications. Barrister, England & Wales, 1990; Barrister and Attorney, Bermuda, 1992; Attorney, State of California, 1998

Areas of practice. Insurance and reinsurance; corporate and commercial litigation.

Professional associations/memberships. Bermuda Bar Association, member of Bar Council; Claims & Litigation Management Alliance, Education Director, Bermuda; Restructuring and Insolvency Specialists Association, Bermuda; PLUS; ARIAS.


  • The International Comparative Legal Guide to International Arbitration.

  • Offshore Professional Risks Newsletter (Editor).

  • The International Comparative Legal Guide to Corporate Recovery and Insolvency.

  • GTDT: Insurance & Reinsurance 2016.

  • Director's liability (3rd Edition).

Nick Miles, Counsel

Sedgwick Chudleigh Ltd.

T +1441 278 7164

Professional qualifications. Barrister and Attorney, Supreme Court of Bermuda, 2015; Solicitor, England and Wales, 2000.

Areas of practice. Insurance and reinsurance; corporate law; insolvency and restructuring.

Professional associations/memberships. Bermuda Bar Association; Law Society of England and Wales; Claims Litigation Management, Bermuda; Restructuring and Insolvency Specialists Association, Bermuda.


  • Part VII Transfers: A Practical Guide (2008).

  • GTDT: Insurance & Reinsurance 2016.

  • The International Comparative Legal Guide to Corporate Recovery and Insolvency.

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