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Handbook of

Bermuda Insurance Law 2007

HANDBOOK OF BERMUDA INSURANCE LAW 2006i

TABLE OF CONTENTS

THE HANDBOOK OF BERMUDA INSURANCE LAW 2007

APPLEBYii

TABLE OF CONTENTS


The contents of the Appleby Handbook are a reproduction of those public Acts, Regulations andOrders of the Legislature of Bermuda dealing with insurance matters in the 1989 Revision of TheRevised Laws of Bermuda (the “Revised Laws”). The Revised Laws are revised, compiled andpublished under the authority of the Computerization and Revision of Laws Act 1989 by theAttorney General of Bermuda.

With the kind permission of the Bermuda Monetary Authority (the “Authority”), we havereproduced in this booklet the Insurance Guidance Notes published by the Authority in March2005. The intention of the Guidance Notes is not to amend the provisions of the Act or itsapplication, but rather to provide clarity as to the scope and implementation of the provision ofthe Act and its regulations. The Authority encouraged all insurers and other relevant parties tocome into compliance with the Guidance Notes as soon as possible and, in any event, not later than 31 December 2005.

While every effort has been made to ensure the accuracy of the reproduction of the Revised Lawscontained in the Appleby Handbook and Guidance Notes, Appleby accepts no responsibility forany errors it may contain or for any losses however arising from or in reliance upon its contents.

It is intended that the Appleby Handbook be updated and made available electronically on aperiodic basis as a service to insurance clients and colleagues of Appleby.

Readers are invited to contact any member of the Appleby Insurance Team (Bermuda) to obtaincopies of the Appleby Handbook or the following companion publication:

The Guide to the Bermuda Insurance Market 2006

APPLEBY INSURANCE PRACTICE

Appleby has been active in Bermuda’s insurance industry since the firm’s earliest days. We have acted for most of the major insurers and reinsurers in Bermuda in one capacity or another. The Firm was the first Bermuda law practice to establish a distinct insurance team within its corporate practice group. The Insurance Team of Appleby has been actively contributing to the growth of Bermuda’s dynamic international insurance industry by our involvement in formulating and recommending changes to relevant legislation and advising on innovative corporate structures. Our Bermuda team is further complemented by the expertise provided in our other jurisdictions. Our team members include: Timothy Faries, Group Team Leader 441 298 3216 Bermuda [email protected] Bryan Hunter, Local Team Leader 345 814 2052 Cayman [email protected] Warren Cabral, Managing Partner 020 7469 0521 London [email protected] Mark Lewis, Local Team Leader 01534 818042 Jersey [email protected] D Bradfield Adderley, Partner 441 298 3243 Bermuda [email protected] Michael Burns, Partner 441 298 3208 Bermuda [email protected] David Lines, Partner 441 298 3228 Bermuda [email protected] Malcolm Moller , Managing Partner 230 203 4301 Mauritius [email protected] Bruce Putterill, Partner 345 814 2069 Cayman [email protected] Alan Bossin, Counsel 441 298 3536 Bermuda [email protected] Samantha Adams, Associate 441 298 3543 Bermuda [email protected] Sherice Arman, Associate 345 814 2019 Cayman [email protected] Janita Burke Waldron, Associate 441 298 3541 Bermuda [email protected] Sally Cox, Associate 284 852 5301 BVI [email protected] Jean-Paul Dyer, Associate 441 298 3210 Bermuda [email protected] Joelina Redden, Associate 441 298 3550 Bermuda [email protected] Erica Robinson, Associate 441 298 3268 Bermuda [email protected] Audrey Mansell, 441 298 3254 Bermuda [email protected] Corporate Administrator Maria Pacheco, 441 298 3263 Bermuda [email protected] Corporate Administrator

APPLEBYiv

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© 2007 Appleby

ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise,without the prior written permission of Appleby, application for which should be addressed toAppleby.

Additionally, the Guidance Notes contain proprietary information and all copyright therein is theproperty of the Authority and should not be reproduced without their permission.

ISBN: 1-894916-57-3

HANDBOOK OF BERMUDA INSURANCE LAW 2007v

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TABLE OF CONTENTS

Insurance Act 1978........................................................................................10(consolidated as at 1 January 2007)1978:39

Insurance Accounts Regulations 1980..............................................................70(consolidated as at 16 September 2005)BR 18/1980

Insurance Returns and Solvency Regulations 1980...............................................105(consolidated as at 16 September 2005)BR 16/1980

Life Insurance Act 1978................................................................................119(consolidated as at 20 February 2003)1978:25

Rules of the Supreme Court 1985, Order 115.....................................................133(consolidated as at 28 February 2003)GN 470/1985

Non-Resident Insurance Undertakings Act 1967..............................................135(consolidated as at 3 March 2003)1967:75

APPLEBYvi

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Non-Resident Insurance Undertakings (Long-Term Insurers) Investmentin Bermuda Order 1985...............................................................................138(consolidated as at 4 March 2003)BR 36/1985

Companies Act 1981, Part XII & XIIA – Mutual Companies................................1391981:59

The Mutual Companies (Non-Application of Companies Act) Regulations 1995.......144(consolidated as at 28 February 2003)BR 42/1995

Companies (Financial Statements and Auditor’s Report) Rules 1995.....................146(as at 1998)BR 52/1995

Third Parties (Rights Against Insurers) Act 1963...............................................153(consolidated as at 4 March 2003)1963:31

Proceeds of Crime Act 1997.........................................................................156(consolidated and updated as at 1 April 2005)1997:34

The Proceeds of Crime (Designated Countries and Territories) Order 1998..........198BR 1/1999

USA – Bermuda Tax Convention Act 1986......................................................240(consolidated as at 4 March 2003)1986:39

Exempted Undertakings Tax Protection Act 1966...............................................258(consolidated as at 20 February 2003)1966:41

The Segregated Accounts Companies Act 2000................................................260(consolidated and updated as at 12 January 2005)

HANDBOOK OF BERMUDA INSURANCE LAW 2007vii

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Bermuda Monetary Authority Insurance Department Guidance Notes

Guidance Note #1: .....................................................................................286

Guidance Note #2: .....................................................................................292

Guidance Note #3: ....................................................................................298 Guidance Note #4: .................................................................................................................304

Letter of Undertaking — Loss Reserve Specialist ...................................................................316

Guidance Note #5: ....................................................................................318

Guidance Note #6: ....................................................................................324

Letter of Undertaking — Approved Auditor ...................................................332

Guidance Note #7: ....................................................................................335

Guidance Note #8: ....................................................................................342

Guidance Note #9: .....................................................................................348

Guidance Note #10: ....................................................................................354

Letter of Understanding — Approved Actuary ..................................................364

Guidance Note #11: ..................................................................................366

Guidance Note #12: ..................................................................................374

Guidance Note #13: ...................................................................................386

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Guidance Note #14: ..................................................................................415Insurance Activity

Guidance Note #15: ..................................................................................419Investments

INSURANCE ACT 1978 (Consolidated by Appleby as at 1 January 2007)

APPLEBY

BERMUDA

1978 : 39

INSURANCE ACT 1978

ARRANGEMENT OF SECTIONS

PART I

1 Interpretation

1A Meaning of “director”, “controller”, “chief executive”, “officer”, “senior executive”, “associate”

1B Meaning of parent and subsidiary company

PART IA

THE AUTHORITY

Functions and duties of the Authority

2 Functions of the Authority

2A Authority’s statement of principles

2B Guidance

2BA Codes of Conduct

2C Insurance Advisory Committee

PART II

REGISTRATION

3 Insurers to be registered

4 Registration as insurer

4A Determination of class of registration for general business

4B Class 1 insurer

4C Class 2 insurer

4D Class 3 insurer

4E Class 4 insurer

4F Classes of insurer: interpretation

5 Factors to be considered by Authority under section 4

6 Margin of solvency

7 Paid up share capital

8 Principal office and principal representative

8A Principal representative to report certain events

8B Appointment of approved loss reserve specialist

9 Insurance managers and intermediaries to be registered

10 Authority may register insurance managers and intermediaries

11 Factors to be considered by Authority under section 10

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APPLEBY

12 Power of Authority in relation to registration

13 Registration

14 Fees

PART III

REGULATION OF INSURERS GENERALLY

15 Statutory financial statements

16 Appointment and approval of auditors

16A Auditor to communicate certain matters to Authority

17 Keeping and filing of statutory financial statements

18 Insurer to make financial returns

18A Failure to file statutory statements or returns

18B Opinion of loss reserve specialist

18C Requirement to keep records in Bermuda

19 Segregation of insurance accounts and business

20 Minister may require Bermuda investment

21 Maintenance of assets in Bermuda

22 Custody of assets

PART IV

INSURERS CARRYING ON LONG-TERM BUSINESS

23 Insurers to which this Part applies

24 Insurer carrying on long-term business to maintain separate accounts

25 Transfer of long-term business

26 Appointment of actuary by insurer carrying on long-term business

27 Actuarial certificates of long-term business liabilities

PART V

INSURANCE MANAGERS, BROKERS, AGENTS AND SALESMEN

28 Insurance managers to maintain lists of insurers for which they act

29 Insurance broker, agent or salesman deemed agent of insurer in certain cases

29A Power to obtain information and reports

29B Power to require production of documents

29C Communication with Authority

29D Meaning of related company

29E Repealed

29F Repealed

PART VI

POWERS


APPLEBY

30 Investigation of affairs of an insurer

30A Investigation of suspected contravention

30B Powers of entry

30C Obstruction of investigations

30D Notification by shareholder controllers of new or increased control – private companies

30E notification by shareholder controllers of new or increased control – public companies

30F Objection to new or increased control

30G Contraventions by controller

30H Objection to existing controller

30I Restriction on and sale of shares

30J Notification by registered person of change of controller

31 Authority may require information

31A Failure to meet solvency requirements

31B Restrictions as to payment of dividends

31C Restrictions as to reduction of capital

32 Powers of intervention

PART VII

INSOLVENCY AND WINDING UP

33 Margin of solvency for general business

34 Winding up of insurers under Companies Act 1981

35 Winding up on petition of Authority

36 Winding up of insurers carrying on long-term business

37 Continuation of long-term business of insurer in liquidation

38 Subsidiary insurers

39 Reduction of contracts as alternative to winding up

40 Winding up rules

PART VIII

CANCELLATION OF REGISTRATION

41 Cancellation of registration of insurers

42 Cancellation of registration of insurance managers, etc

43 Appeals to Supreme Court Repealed by 2006 : 28

44 Cancellation of registration to be gazetted

PART VIIIA

APPEAL TRIBUNALS


APPLEBY

44A Rights of appeal

44B Constitution of tribunal

44C Determination of appeals

44D Costs, procedure and evidence

44E Further appeals on a point of law

PART IX

SUPPLEMENTARY

45 Prohibition of loans to directors, etc

46 Effect on business transactions of infringement of Act

47 Acting on behalf of unregistered insurer

48 Personal liability of intermediaries in certain cases

49 Control of advertisements

50 Issue of false documents etc

PART X

MISCELLANEOUS

51 Service on insurers

51A Request for assistance by foreign regulatory authority

51B Power to require information

51C Exercise of powers by officer

51D Penalty for failure to comply with requirement

52 Confidentiality

52A Disclosure for facilitating the discharge of function of the Authority

52B Disclosure for facilitating the discharge of functions by other authorities

52C Information supplied to the Authority by relevant overseas authority

53 Regulations by Minister

54 Specific offences

55 General provisions relating to offences

56 Authority may modify accounting provisions in certain cases

57 Application

57A Designated investment contracts

58 Omitted

59 Omitted

60 Commencement Omitted

SCHEDULE MINIMUM CRITERIA FOR REGISTRATION


APPLEBY

[7 July 1978]

[preamble and words of enactment omitted]

PART I

§1 Interpretation 1 (1) In this Act, unless the context otherwise requires — Modified by: 2001 : 27 2001 : 33

"actuary" means a person qualified as an actuary by examination of the Institute of Actuaries in England or the Faculty of Actuaries in Scotland or the Society of Actuaries in the United States of America or Canada, or a person recognized by the Authority as an actuary;

Modified by: 2001 : 27 2001 : 33

“approved auditor” means an auditor approved by the Authority under section 16(3);

Inserted by 2004 : 29

"association of underwriters" means an association of individual underwriters, organized according to the system known as Lloyd's whereby each underwriting member of the association becomes liable for a separate and proportionate part of the sum secured by each policy subscribed to by that association; and, in relation to such an association as aforesaid, "recognized" means recognized by the Authority;

Modified by: 2001 : 27 2001 : 33

"auditor" means either —

(a) a person entitled to practise as a public accountant in Bermuda; or

(b) a person who has qualified as an accountant by examination of one of the Institutes of Chartered Accountants of England and Wales, Ireland and Scotland or the Canadian Institute of Chartered Accountants or the American Institute of Certified Public Accountants; or

(c) a person recognized by the Authority as an auditor; Modified by: 2001 : 27 2001 : 33

"Authority" means the Bermuda Monetary Authority established by the Bermuda Monetary Authority Act 1969;


"bank" means an institution licensed as a bank under the Banks and Deposit Companies Act 1999;

Replaced by BR 81/1999

"Class 1", "Class 2", "Class 3" and "Class 4" in relation to an insurer carrying on general business mean the class of the insurer's registration under section 4;


“code of conduct” means a code of conduct issued by the Authority pursuant to section 2BA;

Inserted by 2006: 42

"the Court" means the Supreme Court;

"domestic business" means insurance business where, whether the contract of insurance is made in Bermuda or elsewhere, the subject-matter of the contract is either—

(a) property that at the time of the making of the contract is in, or in transit to or from Bermuda; or

(b) the life, safety, fidelity or insurable interest of an individual who at the time of the making of the contract is ordinarily resident in Bermuda; or

(c) a risk of a company formed in Bermuda that is not an exempted company within the definition of that expression in section 127 of the


APPLEBY

Companies Act 1981 [title 17 item 5];

"excepted long-term business" means either — Inserted by 1983 : 14

(a) credit life business, that is to say, the business of effecting and carrying out contracts of insurance against risks of loss to persons arising from the nonpayment of debts due to such persons by reason of the death of debtors of theirs, being contracts that are—

(i) not contracts of domestic business; and

(ii) expressed to be in effect for a period of five years or less; and

(iii) not either automatically renewable or convertible into contracts of insurance of any other kind or for any different period; and

(iv) of a kind which the Authority, upon application made to it by the insurer for the purpose, has given its prior approval in writing for the insurer to effect and carry out; or

Modified by: 2001 : 27 2001 : 33

(b) employee group business, that is to say, the business of effecting and carrying out contracts of insurance on the lives of employees of the insurer or of an affiliate (within the definition of "affiliate" in regulation 2 of the Insurance Accounts Regulations 1980) [title 17 item 49(a)] of the insurer, being contracts that are —

(i) not contracts of domestic business; and

(ii) expressed to be in effect for a period of five years or less; and

(iii) not either automatically renewable or convertible into contracts of insurance of any other kind or for any different period; and

(iv) made on a group insurance basis; and

(v) of a kind which the Authority, upon application made to it by the insurer for the purpose, has given its prior approval in writing for the insurer to effect and carry out;

Modified by: 2001 : 27 2001 : 33

"financial year", in relation to an insurer, means the period not exceeding fifty-three weeks at the end of which the balance of the insurer's accounts is struck or, if no such balance is struck or if a period in excess of fifty-three weeks is employed, then calendar year;

"functions" includes powers and duties;

"general business" means, subject to subsection (4), insurance business that is not long-term business;

Modified by 1983 : 14

"insolvent" means, in relation to an insurer at any relevant date, that if proceedings had been taken for the winding up of the insurer the Court could, in accordance with sections 161 and 162 of the Companies Act 1981 [title 17 item 5], hold or have held that the insurer was at that date unable to pay its debts;

"inspector" means a person appointed as an inspector under section 30;

"Insurance Advisory Committee" means the Insurance Advisory Committee mentioned in section 2C;


"insurance agent" means a person who with the authority of an insurer acts on its behalf in relation to any or all of the following matters, that is to say, the initiation and receipt of proposals, the issue of policies and the collection of


APPLEBY

premiums, being proposals, policies and premiums relating to insurance business;

"insurance broker" means a person who arranges or places insurance business with insurers on behalf of prospective or existing policy-holders;

"insurance business" means the business of effecting and carrying out contracts—

(a) protecting persons against loss or liability to loss in respect of risks to which such persons may be exposed; or

(b) to pay a sum of money or render money's worth upon the happening of an event,


and includes re-insurance business;

"insurance manager" means a person who, not being an employee of any insurer, holds himself out as a manager in relation to one or more insurers, whether or not the functions performed by him as such go beyond the keeping of insurance business accounts and records;

"insurance salesman" means a person who otherwise than as an employee solicits applications for, or negotiates, insurance business on behalf of an insurer or an insurance broker or agent;

"insurer" means a person carrying on insurance business;

"long-term business" means, subject to subsection (4), insurance business of any of the following kinds, namely, —

Modified by: 1981 : 16 1983 : 14

(a) effecting and carrying out contracts of insurance on human life or contracts to pay annuities on human life;

(b) effecting and carrying out contracts of insurance against risks of the persons insured sustaining injury as the result of an accident or of an accident of a specified class or dying as the result of an accident or of an accident of a specified class or becoming incapacitated or dying in consequence of disease or disease of a specified class, being contracts that are expressed to be in effect for a period of not less than five years or without limit of time and either not expressed to be terminable by the insurer before the expiration of five years from the taking effect thereof or are expressed to be so terminable before the expiration of that period only in special circumstances therein mentioned, but does not include excepted long-term business;

(c) effecting and carrying out contracts of insurance, whether effected by the issue of policies, bonds or endowment certificates or otherwise, whereby in return for one or more premiums paid to the insurer a sum or a series of sums is to become payable to the persons insured in the future, not being contracts such as fall within either paragraph (a) or (b),

but does not include excepted long-term business;

"long-term insurer" means an insurer carrying on long-term business registered as such under section 4;


"loss reserve specialist" means a person approved by the Authority under section 8B(3) as an insurer’s loss reserve specialist;;

Inserted by: 1995 : 20 2004 : 29

"minimum criteria" means the minimum criteria for registration set out in the Schedule;



APPLEBY

"minimum liquidity ratio" means the ratio prescribed by regulation 11 of the Insurance Returns and Solvency Regulations 1980;


"Minister" means the Minister of Finance;

"non-resident insurance undertaking" means an insurer carrying on domestic business under a permit granted under section 3 of the Non-Resident Insurance Undertakings Act 1967;

"parent company" has the meaning given in section 1B; Inserted by 2006 : 28

"prescribed" means prescribed by regulations;

"to register" means to register under this Act;

"Register" means the Register for which provision is made in section 13(1);

"registered person" means a person registered under either section 4 or section 10;


"regulations" means regulations made under section 53;

"solvency margin" means, in relation to an insurer carrying on general business, the margin prescribed by regulation 10 of the Insurance Returns and Solvency Regulations 1980, and in relation to an insurer carrying on long-term business, the margin prescribed by regulation 12 of those Regulations;


"statutory financial return" means the return provided for in section 18;

"statutory financial statements" means the accounts provided for in section 15;

"subsidiary company" has the meaning given in section 1B, and “subsidiary” has a corresponding meaning;


"total statutory capital" in relation to an insurer, means the total statutory capital of the insurer as calculated in accordance with the Insurance Accounts Regulations 1980;


"total statutory capital and surplus" in relation to an insurer, means the total statutory capital and surplus of the insurer as calculated in accordance with the Insurance Accounts Regulations 1980;


(2) [spent on repeal of the Companies (Winding Up) Act 1977] Inserted by 1981 : 16

(3) In this Act — Modified by 1981 : 16

(a) any reference to carrying on business from within Bermuda includes reference to carrying on business outside Bermuda from a principal place of business within Bermuda;

(b) unless the context otherwise requires, any reference to carrying on the business of effecting and carrying out contracts of any kind includes reference to carrying on one aspect, or some aspects, only of that business;

(c) every company or body, being a company or body formed in Bermuda with power to carry on insurance business, shall, if carrying on insurance business anywhere, be deemed to be carrying on insurance business in or from within Bermuda for the purposes of section 3(1).


(4) The limitations upon the meaning of "general business" and "long-term Inserted by 1983


APPLEBY

business" as defined in subsection (1) shall, in relation to any insurer, not operate to disentitle that insurer —

: 14

(a) if authorized to carry on general business, from carrying on long-term business; or

(b) if authorized to carry on long-term business, from carrying on general business,

being—

(aa) in the case set forth in paragraph (a), long-term business as to which the Authority has given a direction under section 56 on the ground that it is satisfied that that long-term business either is or will be only incidental to the insurer's general business, or is or will be of such a limited extent that the insurer ought not to be treated in all respects as a composite within the definition of "composite" in regulation 2 of the Insurance Accounts Regulations 1980 [title 17 item 49(a)]; or

Modified by: 2001 : 27 2001 : 33

(bb) in the case set forth in paragraph (b), general business as to which the Authority has given a corresponding direction mutatis mutandis.

Modified by: 2001 : 27 2001 : 33

§1A Meaning of “director”, “controller”, “chief executive”, “officer”, “senior executive”, “associate”

1A (1) In this Act, “director”, “controller”, “chief executive”, “officer”, “senior executive”, and “associate” shall be construed in accordance with the provisions of this section.

Repealed by 2001 : 33 Inserted by 2006 : 28

(2) “Director”, in relation to a registered person, includes any person who occupies the position of director, by whatever name called.


(3) ‘Controller”, in relation to a registered person, means - Inserted by 2006 : 28

(a) a managing director of the registered person or of another company of which it is a subsidiary company;


(b) a chief executive of the registered person or of another company of which it is a subsidiary;


(c) a person who satisfies the requirements of this paragraph; or Inserted by 2006 : 28

(d) 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 registered person by virtue of paragraph (c) (or any of them) are accustomed to act.


(4) A person satisfies the requirements of subsection (3)(c) in relation to a registered person if, either alone or with any associate or associates -


(a) he holds 10 per cent or more of the shares carrying rights to vote at any general meeting of the registered person or another company of which it is a subsidiary company;


(b) he is entitled to exercise, or control the exercise of 10 per cent or more of the voting power at any general meeting of the registered person or another company of which it is such a subsidiary; or


(c) he is able to exercise a significant influence over the management of the registered person or another company of which it is such a



APPLEBY

subsidiary by virtue of -

(i) a holding of shares in; or Inserted by 2006 : 28

(ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of,


the registered person or, as the case may be, the other company concerned. Inserted by 2006 : 28

(5) A person who is a controller of a registered person by virtue of subsection (3)(c) is in this Act referred to as a “shareholder controller” of the registered person; and in this Act -


(a) a “10 per cent shareholder controller” means a shareholder controller in whose case the percentage referred to in the relevant paragraph is 10 or more but less than 20;


(b) a “20 per cent shareholder controller” means a shareholder controller in whose case that percentage is 20 or more but less than 33;


(c) a “33 per cent shareholder controller” means a shareholder controller in whose case that percentage is 33 or more but less than 50;


(d) a “50 per cent shareholder controller” means a shareholder controller in whose case that percentage is 50 or more;


(6) In subsection (5), “the relevant paragraph” in relation to a shareholder controller means whichever of paragraphs (a) and (b) of subsection (4) gives the greater percentage in his case.


(7) “Chief executive”, in relation to a registered person, means a person who, either alone or jointly with one or more persons, is responsible under the immediate authority of the directors for the conduct of the business of the registered person.


(8) “Officer”, in relation to a registered person, includes a director, secretary, chief executive or senior executive of the registered person by whatever name called.


(9) “Senior executive”, in relation to a registered person, means a person (other than a chief executive) who, under the immediate authority of a director or chief executive of the registered person -


(a) exercises managerial functions; or Inserted by 2006 : 28

(b) is responsible for maintaining accounts or other records of the registered person.


(10) “Associate”, in relation to a person entitled to exercise or control the exercise of voting power in relation to, or holding shares in, a company, means -


(a) if that person is an individual - Inserted by 2006 : 28

(i) the spouse, child, step-child or parent of that person; Inserted by 2006 : 28

(ii) the trustees of any settlement under which that person has a life interest in possession;


(iii) any company of which that person is a director; Inserted by 2006 : 28


APPLEBY

(iv) any person who is an employee or partner of that person; Inserted by 2006 : 28

(b) if that person is a company - Inserted by 2006 : 28

(i) any director of that company; Inserted by 2006 : 28

(ii) any subsidiary of that company; Inserted by 2006 : 28

(iii) any director or employee of any such subsidiary company; Inserted by 2006 : 28

(c) if that person has with any other person an agreement or arrangement with respect to the acquisition, holding or disposal of shares or other interests in that company or under which they undertake to act together in exercising their voting power at any general meeting in relation to it, that other person.


(11) For the purposes of subsection (10), “settlement” includes any disposition or arrangement under which property is held in trust.


§1B Meaning of parent and subsidiary company

1B (1) The expressions “parent company” and “subsidiary company” in this Act shall be construed as follows.


(2) A company is a parent company in relation to another company, a subsidiary company, if -


(a) it holds a majority of the voting rights in the company; Inserted by 2006 : 28

(b) it is a member of the company and has the right to appoint or remove a majority of its board of directors; or


(c) it is a member of the company and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in the company.


(3) For the purposes of subsection (2) a company shall be treated as a member of another company -


(a) if any of its subsidiary companies is a member of that company; or Inserted by 2006 : 28

(b) if any shares in that other company are held by a person acting on behalf of the company or any of its subsidiary companies.


(4) In subsections (2)(a) and (c) the references to the voting rights in a company are to the rights conferred on shareholders in respect of their shares, to vote at general meetings of the company on all, or substantially all, matters.


(5) In subsection (2)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on all, or substantially all, matters.


(6) A company shall be treated as having the right to appoint to a directorship if -

(a) a person’s appointment to it follows necessarily from his appointment as director of the company; or


(b) the directorship is held by the company itself. Inserted by 2006


APPLEBY

: 28

PART IA THE AUTHORITY


Functions and duties of the Authority

§2 Functions of the Authority

2 (1) The Authority shall have the functions and powers conferred on it by this Act and the duty generally to supervise persons carrying on insurance business and persons carrying on business as insurance managers, brokers, agents or salesmen, for the purpose of protecting the interests of clients and potential clients of such persons.

Modified by: 2001 : 27 2001 : 33 Replaced by 2006 : 28

(2) It shall also be the duty of the Authority to keep under review the operation of this Act and developments in the field of insurance which appear to it to be relevant to the performance of its functions, the exercise of its powers and the discharge of its duties.

Replaced by 2006 : 28

(3) The Authority shall as soon as practicable after the end of each of its financial years, make to the Minister and publish in such manner as it thinks appropriate a report on its activities under this Act in that year.


(4) [Deleted] Modified by 2001 : 27 2001 : 33 Deleted by 2006 : 28

(5) [Deleted] Inserted by 2001 : 27 Deleted by 2006 : 28

§2A Authority’s statement of principles

2A (1) The Authority shall as soon as practicable after the coming into force of this Act, publish in such manner as it thinks fit a statement of principles in accordance with which it is acting or proposing to act -

Inserted by 2004 : 29 Replaced by 2006 : 28

(a) in interpreting the minimum criteria and the grounds for cancellation of a registration specified in Part VIII;


(b) in exercising its powers to register or cancel the registration of a registered person;


(c) in exercising its power to grant or impose conditions on a registered person; and


(d) in exercising its power to obtain information, reports and to require production of documents.


(2) If the Authority makes a material change to the principles it shall publish a statement of the change or the revised statement of principles in the same manner as it published the statement under subsection (1).

Inserted by 2004 : 29 Replaced by 2006 : 28

§2B Guidance 2B (1) The Authority may from time to time give guidance on the application of this Act and regulations made under it.

Inserted by 2006 : 28; Replaced by 2006: 42

(2) The Authority may publish such guidance (which may be in the form of information and advice) in such manner as it thinks fit.


§2BA Codes of Conduct 2BA (1) The Authority may issue codes of conduct on the duties, requirements Inserted by 2006: 42


APPLEBY

and standards to be complied with by registered persons, and the procedures (whether on client identification, record-keeping, internal reporting and training or otherwise) and sound principles to be observed by such persons.

(2) Before issuing a code of conduct, the Authority shall publish a draft of that code in such manner as it thinks fit and shall consider any representations made to it about the draft.


(3) Every registered person shall in the conduct of its business comply with the provisions of any code of conduct issued by the Authority.


(4) A failure on the part of a registered person to comply with the provisions of such a code shall be taken into account by the Authority in determining whether the business is being conducted in a prudent manner as required by paragraph 4 of the minimum criteria.


§2C Insurance Advisory Committee

2C (1) There shall continue to be a committee to be known as the Insurance Advisory Committee whose function shall be to advise the Authority on any matter relating to the development of the insurance industry in Bermuda which the Authority may refer to it.


(2) The Insurance Advisory Committee shall consist of such persons (not fewer than five in number) to be appointed by the Minister, as the Minister may think fit, but so that not fewer than three members of the Committee shall be persons appearing to the Minister to be knowledgeable about insurance business in Bermuda.


(3) The Minister shall appoint a person to be chairman of the Insurance Advisory Committee.


(4) The Insurance Advisory Committee may advise the Minister on any matter relating to the development and promotion of the insurance industry in Bermuda.


PART II

REGISTRATION

§3 Insurers to be registered

3 (1) Subject to this Act, and notwithstanding anything in any other Act, no person shall carry on insurance business in or from within Bermuda unless he is registered by the Authority as an insurer under section 4.

Modified by 2001 : 27 2001 : 33

(2) Any person who contravenes subsection (1) commits an offence.

§4 Registration as insurer

4 (1) Subject to sections 4A to 7 and 12, on an application made to the Authority by a body corporate and on payment of the relevant fee provided for by section 14, the Authority may register that body⎯

Substituted by 1995 : 20 Modified by: 2001 : 27 2001 : 33

(a) as a Class 1, Class 2, Class 3 or Class 4 insurer where it proposes to carry on general business;

(b) as a long-term insurer where it proposes to carry on long-term business; or

(c) as a Class 1, Class 2, Class 3 or Class 4 insurer and as a long-term insurer where it proposes to carry on both general business and long-term business.

(2) Registration of a body corporate as an insurer shall be subject to its complying with the terms of its registration and with such other conditions as the Authority may impose; and different conditions may be imposed in respect of different insurers or categories of insurer.

Modified by 2001 : 27 2001 : 33


APPLEBY

(3) The Authority may at any time, whether or not on an application made by an insurer, add to, vary or delete any conditions imposed under subsection (2).

Modified by 2001 : 27 2001 : 33

(4) Before the Authority exercises its power under subsection (3) in relation to an insurer, who has not made an application under that subsection, the Authority shall give notice to the insurer and shall take into account any written representations made by the insurer within such period as may be specified in the notice.

Modified by 2001 : 27 2001 : 33 2004 : 29

(5) [Repealed] Modified by 2001 : 27 2001 : 33 Repealed by 2004 : 29

(6) On application made to the Authority for that purpose by an insurer, the Authority may⎯

Modified by 2001 : 27 2001 : 33

(a) register a Class 1, Class 2, Class 3 or Class 4 insurer as a different class of insurer carrying on general business;

(b) register an insurer carrying on long-term business as a Class 1, Class 2, Class 3 or Class 4 insurer where it proposes to carry on general business (either instead of, or in addition to, its registration as a long-term insurer); or

(c) register an insurer carrying on general business as a long-term insurer where it proposes to carry on long-term business (either instead of, or in addition to, its registration as a Class 1, Class 2, Class 3 or Class 4 insurer).

(7) An application under this section shall be in such form, shall contain such information and shall be accompanied by such documents as the Authority may require.

Modified by: 2001 : 27 2001 : 33

§4A Determination of class of registration for general business

4A (1) Subject to subsection (2), the Authority shall determine whether a body corporate proposing to carry on general business shall be registered as a Class 1, Class 2, Class 3 or Class 4 insurer in relation to its general business in accordance with sections 4B to 4E.

Inserted by 1995 : 20 Modified by: 2001 : 27 2001 : 33

(2) But a body corporate may be registered as a particular class of insurer where it would not be so registrable under sections 4B to 4E if, after taking into account⎯

(a) the nature of the intended relationship between the body corporate and its intended policy-holders, the interests of those policy-holders and of the public generally, and

(b) the level of regulation which is applicable to the different classes of insurer,

the Authority considers it appropriate, whether or not on an application made to it for that purpose by the body corporate.

Modified by: 2001 : 27 2001 : 33

(3) The Authority shall not under any circumstances determine under subsection (2) that a body corporate shall be registered as a Class 4 insurer if it does not satisfy the requirement of section 4E(1)(a).

Modified by: 2001 : 27 2001 : 33

(4) An application under this section shall be in such form, shall contain Modified by:


APPLEBY

such information and shall be accompanied by such documents as the Authority may require.

2001 : 27 2001 : 33

§4B Class 1 insurer 4B A body corporate is registrable as a Class 1 insurer where that body corporate⎯ Inserted by 1995 : 20

(a) is wholly owned by one person and intends to carry on insurance business consisting only of insuring the risks of that person; or

(b) is an affiliate of a group and intends to carry on insurance business consisting only of insuring the risks of any other affiliates of that group or of its own shareholders.

§4C Class 2 insurer 4C (1) A body corporate is registrable as a Class 2 insurer where that body corporate is wholly owned by two or more unrelated persons and intends to carry on insurance business not less than 80% of the net premiums written in respect of which will be written for the purpose of⎯


(a) insuring the risks of any of those persons or of any affiliates of any of those persons; or

(b) insuring risks which, in the opinion of the Authority, arise out of the business or operations of those persons or any affiliates of any of those persons.

Modified by: 2001 : 27 2001 : 33

(2) A body corporate is registrable as a Class 2 insurer where that body corporate would be registrable as a Class 1 insurer but for the fact that⎯

(a) not all of the business which it intends to carry on, but at least 80% of the net premiums written, will consist of the business described in paragraph (a) or (b) of section 4B; or

(b) it intends to carry on insurance business not less than 80% of the net premiums written in respect of which will, in the opinion of the Authority, arise out of the business or operations of the person by whom it is owned or any of the affiliates of that person.

Modified by: 2001 : 27 2001 : 33

§4D Class 3 insurer 4D A body corporate is registrable as a Class 3 insurer where that body corporate is not registrable as a Class 1, Class 2 or Class 4 insurer.


§4E Class 4 insurer 4E (1) A body corporate is registrable as a Class 4 insurer where⎯ Inserted by 1995 : 20

(a) it has at the time of its application for registration, or will have before it carries on insurance business, a total statutory capital and surplus of not less than $100,000,000; and

(b) it intends to carry on insurance business including excess liability business or property catastrophe reinsurance business.

(2) Where a body corporate is registrable as a Class 4 insurer it shall not be so registered if it is also registrable as a Class 1 or Class 2 insurer.

§4F Classes of insurer: interpretation

4F (1) In sections 4B to 4E and this section⎯ Inserted by 1995 : 20

"affiliate" means a body forming part of a group;

"excess liability business" means the business of effecting and carrying out contracts of insurance insuring the risk of the persons insured in the event that any such person incurs liabilities to third parties in excess of a stated sum;

"group" means any two or more bodies, whether corporate or unincorporate, that are in association, and two bodies shall be deemed for this purpose to be


APPLEBY

in association if any one of them has control of the other or both are under the control of the same person or persons; and "control" shall be construed in accordance with section 86(4) of the Companies Act 1981;

"insure" includes reinsure;

"net premiums written" means amounts calculated in relation to a body corporate by the application of the principles set out in the Insurance Accounts Regulations 1980 for the calculation of those amounts in relation to an insurer;

"property catastrophe reinsurance business" means the business of effecting and carrying out contracts of reinsurance indemnifying (whether or not to a specified limit) an insurer as a result of an accumulation of losses arising from a single catastrophic event or series of events;

"shareholder" includes a partner of a partnership and a member of any other body or association; and

"unrelated" means not forming part of the same group.

(2) In determining for the purposes of sections 4B and 4C whether a body corporate is wholly owned by a person, the Authority may have regard to the beneficial as well as the legal ownership of the body corporate.

Modified by: 2001 : 27 2001 : 33

§5 Factors to be considered by Authority under section 4

5 (1) In considering whether to register a body as an insurer under section 4, the Authority, without prejudice to its power under section 12 to refuse registration, must be satisfied that—

Modified by 1995 : 20 2001 : 27 2001 : 33 Replaced by 2006 : 28

(a) the minimum criteria are fulfilled with respect to the body corporate;


(b) the body has, or has available, adequate knowledge and expertise; and


(c) the premises intended to be used in the business are adequate for the conduct of the business.


§6 Margin of solvency 6 (1) The Authority shall not register a body under section 4 unless it is satisfied that the value of its assets exceeds the amount of its liabilities by the prescribed amount.

Modified by: 2001 : 27 2001 : 33

(2) For the purposes of this section the value of any assets and the amount of any liabilities shall, subject to subsection (3), be determined in accordance with any applicable regulations.

(3) The amount of the liabilities of the long-term business of a body at any time shall, for the purposes of this section, be taken to be —

(a) an amount equal to the total amount at that time standing to the credit of the fund or funds maintained by the body in respect of its long-term business; or

(b) the amount of those liabilities at that time as determined in accordance with any applicable regulations,

whichever is the greater.

§7 Paid up share capital 7 (1) In relation to an insurer which has a share capital, the minimum amount paid up on the share capital where the insurer is registered⎯

Substituted by 1995 : 20


APPLEBY

(a) as a Class 1, Class 2 or Class 3 insurer is $120,000;

(b) as a long-term insurer is $250,000;

(c) as a Class 1, Class 2 or Class 3 insurer and as a long-term insurer is $370,000;

(d) as a Class 4 insurer is $1,000,000;

(e) as a Class 4 insurer and as a long-term insurer is $1,250,000.

(2) Subject to subsection (3), the Authority shall not register under section 4 a body corporate which has a share capital unless it satisfies the requirements of subsection (1).

(3) The Authority may register a body corporate as a Class 4 insurer where it does not satisfy the requirement⎯

(a) of paragraph (d) of subsection (1) if it has at least $120,000 paid up share capital, or

(b) of paragraph (e) of subsection (1) if it has at least $370,000 paid up share capital,

but such a body shall not carry on insurance business until it does satisfy the requirement of paragraph (d) or (e).

§8 Principal office and principal representative

8 (1) Every insurer shall maintain a principal office in Bermuda. Modified by 1985 : 1

(1A) Every insurer shall appoint and maintain a principal representative in Bermuda who satisfies the requirements of subsection (1B).

(1B) The principal representative of an insurer shall be a person approved by the Authority as that insurer's principal representative.


(2) An insurer at the time of registration shall give notice in writing to the Authority —

Modified by: 2001 : 27 2001 : 33

(a) of the location of its principal office; and

(b) of the prescribed particulars of its principal representative, its insurance manager (if it has one), its approved auditor and any other prescribed person to be engaged or employed in, or in connection with, its business.

(3) If any information required by subsection (2) to be notified to the Authority is altered, the insurer shall give in writing to the Authority particulars of the alteration within fourteen days after the alteration is made.

Modified by: 2001 : 27 2001 : 33 2004 : 29

(3A) Without a reason acceptable to the Authority —

(a) an insurer shall not terminate the appointment of its principal representative; and

(b) a principal representative shall not cease to act as such,

unless it or he gives thirty days notice in writing to the Authority of the intention to do so.

(4) An insurer shall maintain in its principal office an accurate list of all its insurance agents in Bermuda and, if required in writing at any time by the Authority so to do, shall provide it with a copy of that list.

Modified by: 2001 : 27 2001 : 33


APPLEBY

(5) If an insurer fails to comply with any of subsections (1) to (3A), or with a requirement made of it under subsection (4), it commits an offence.

(6) If a principal representative wilfully fails to give to the Authority notice which he is required by subsection (3A) to give, he commits an offence.

§8A Principal representative to report certain events

8A (1) A principal representative shall forthwith notify the Authority, in such manner as it may direct,—

Inserted by: 1985 : 1 Replaced by 2004 : 29

(a) on his reaching a view that there is a likelihood of the insurer for which he acts becoming insolvent; or


(b) on its coming to his knowledge, or his having reason to believe, that an event to which this section applies has occurred.


(1a) Within fourteen days of such notification, the principal representative shall furnish the Authority with a report in writing setting out all the particulars of the case that are available to him.


(2) As respects any principal representative, this section applies to the following events, being events in which the insurer for which he acts as principal representative is involved, that is to say —

(a) failure by the insurer —

(i) to comply substantially with a condition imposed upon the insurer by the Authority relating to a solvency margin or a liquidity or other ratio;

(ii) to comply in any respect with any other such condition not so relating;

(b) an offence by the insurer against section 20(8) or section 21(5) or section 22(5);

(c) failure by the insurer to comply with a modified provision, or with a condition, being a provision or condition specified in a direction given to the insurer by the Authority in the exercise of his powers under section 56 or section 57A;


(d) involvement of the insurer in any criminal proceedings whether in Bermuda or abroad;

(e) the insurer's ceasing to carry on insurance business in or from within Bermuda.

(3) A principal representative who fails to perform his duty under subsection (1) commits an offence.

§8B Appointment of approved loss reserve specialist

8B (1) Each Class 2, Class 3, and Class 4 insurer, and when directed by the Authority a Class 1 insurer, shall appoint an individual approved by the Authority under subsection (3) as a person qualified to assess the adequacy of insurance loss reserves, as that insurer’s loss reserve specialist.


(2) Before making any such appointment, an insurer shall submit particulars of such person to the Authority for approval.


(3) The Authority, on being satisfied that a person is fit and proper to hold such an appointment, shall approve his appointment as that insurer’s loss reserve specialist.



APPLEBY

(4) Subject to subsection (5), the Authority may revoke an approval of a loss reserve specialist in respect of any insurer, if it is satisfied that he is no longer a fit and proper person to hold the appointment.


(5) The Authority shall not revoke its approval unless it has first notified the loss reserve specialist and the insurer of its intention to do so.


§9 Insurance managers and intermediaries to be registered

9 (1) Subject to this Act, and notwithstanding anything in any other Act, no person shall in or from within Bermuda carry on business as an insurance manager, broker, agent or salesman unless he is registered for the purpose by the Authority under section 10.


(2) Any person who contravenes subsection (1) commits an offence.

§10 Authority may register insurance managers and intermediaries

10 (1) Subject to sections 11 and 12, the Authority may, on application being made to it for that purpose by any person, and on payment of the relevant fee provided for by section 14, register that person as an insurance manager, broker, agent or salesman, as the case may be, subject to that person complying with such conditions as the Authority may see fit to impose.

(2) Every application under subsection (1) for registration shall be made to the Authority and shall be in such form, shall contain such information and shall be accompanied by such documents as the Authority may require.

Modified by: 1995 : 20 2001 : 27 2001 : 33

§11 Factors to be considered by Authority under section 10

11 In considering whether to register a person as an insurance manager, broker, agent or salesman, as the case may be, under section 10, the Authority, without prejudice to its power under section 12 to refuse registration, must be satisfied that -

Modified by 1995 : 20 Replaced by 2006 : 28

(a) the minimum criteria are fulfilled with respect to the applicant; and Inserted by 2006 : 28

(b) the person has knowledge of the insurance business adequate to enable him to act in the capacity in which he has applied for registration.


§12 Power of Authority in relation to registration

12 In deciding whether to register a person under section 4 or 10 the Authority shall act as it thinks fit in the public interest, and, if of opinion that it is not in the public interest that registration should be granted, it shall refuse to grant it.


§13 Registration 13 (1) Where the Authority determines to register any person under section 4 or 10, it shall cause the prescribed particulars relating to that person to be entered in a register to be maintained by it for the purpose (in this Act referred to as “the Register”).

Substituted by: 2001 : 27 2001 : 33

(2) A person's registration shall remain in force until it is cancelled.

(3) Where a person is registered as aforesaid, the Authority shall issue to him a certificate of registration, in which shall be specified—

Modified by 2001 :: 27 2001 : 33

(a) the name and business address of the person registered;

(b) the date of registration; and

(c) any conditions imposed under section 4 or 10.

(4) A certificate issued under this section shall be accepted in all courts as prima facie evidence of the fact that the person named therein is registered, and of the particulars set forth in the certificate.

(5) A copy of every certificate of registration shall be kept by the Authority Modified by:


APPLEBY

in its office and shall be open to inspection by the public. 2001 : 27 2001 : 33

§14 Fees 14 (1) Fees shall be prescribed under the Bermuda Monetary Authority Act 1969 [title 15 item 18] in respect of —


(a) the making of any application for registration under section 4(1) or 10;


(ab) the making of any application under any of the following provisions⎯

(i) sections 4(3) and (6), 4A(2), 17(4), 18C(2), 31B(3), 31C and 56 of this Act;

(ii) regulation 11(4) of the Insurance Returns and Solvency Regulations 1980; and

(iii) the instructions for line 14 in Part I of Schedule III to the Insurance Accounts Regulations 1980;

(b) the registration of any person;

(c) the issue of any certificate;

(d) the inspection of the Register; and

(e) the furnishing by the Authority of any document or copy. Modified by: 2001 : 27 2001 : 33

(2) In addition to the fees for which subsection (1) provides, there shall, subject to subsection (3), be payable by a registered insurer or insurance manager, broker, agent or salesman before the 31 March in every year following the year in which it or he was registered a business fee of such amount as shall be prescribed under the Bermuda Monetary Authority Act 1969:

Modified by 1981 : 16 1985 : 1 2002 : 39

Provided that —

(a) a business fee shall not be payable by a company whose winding up is in progress in winding up proceedings in Bermuda, except where —


(i) the fee, being due for payment, was not paid; and

(ii) the time allowed by this subsection for its payment had expired,

before those proceedings were commenced; and

(b) if a business fee that a company is excused by paragraph (a) of this proviso from paying has in fact been paid, the liquidator may recover it from the Authority.


(3) An unpaid business fee may be sued for by the Authority by action as a civil debt and —


(a) the Authority may (whether in such an action or not) require; and Modified by 2002 : 29

(b) where judgment is given for the Authority in any action, the court may order,


for late payment of the fee payment of a penalty in an amount equal to the amount of the fee.


APPLEBY

(4) [Deleted] Deleted by 2002 : 39

PART III

REGULATION OF INSURERS GENERALLY

§15 Statutory financial statements

15 (1) An insurer shall prepare accounts (in this Act referred to as "statutory financial statements") in respect of its insurance business for each financial year.

(2) Statutory financial statements shall be in such form (being a form calculated to enable comparison to be made between the insurer's business for the financial year in respect of which the statements are prepared and the insurer's business for the financial year immediately preceding that year), and shall contain such information, as may be prescribed.

(3) The information required to be included in statutory financial statements pursuant to subsection (2) shall be information calculated to fulfil (in addition to any other purposes for which regulations may be made) the following purposes—

(a) to give as early warning as possible to any person examining the said statements (whether by way of notice of the observance or non-observance by the insurer of any margin of solvency, or in any other way) of any financial or operational difficulties into which the insurer's business has fallen or might appear likely to fall;

(b) to provide the basis on which the Authority or any other authority may in good time take action under this Act or any other statutory provision to exercise any statutory power available to him or it for the safeguarding of any element of the public interest involved in or affected by the insurer's business.

(4) The statutory financial statements of an insurer shall be audited annually by the insurer’s approved auditor.


§16 Appointment and approval of auditors

16 (1) Every insurer shall appoint an auditor approved by the Authority under subsection (3), to audit its statutory financial statements.


(2) Before making any such appointment, an insurer shall submit particulars of such person to the Authority for approval.


(3) The Authority, on being satisfied that a person is fit and proper to hold such an appointment, shall approve his appointment as that insurer’s auditor.


(4) Subject to subsection (5), the Authority may revoke an approval of an auditor in respect of any insurer, if it is satisfied that he is no longer a fit and proper person to hold the appointment.


(5) the Authority shall not revoke its approval unless it has first notified the auditor and the insurer of its intention to do so.


(6) No person having an interest in any insurer otherwise than as an insured, and no officer, servant or agent of any insurer, shall be eligible for appointment as an approved auditor for that insurer; and any person appointed as an approved auditor to any insurer who subsequently acquires such interest or becomes an officer, servant or agent of that insurer shall cease to be an approved auditor.


(7) If an insurer fails to appoint an approved auditor as required by subsection (1), or at any time fails to fill a vacancy for such auditor, the Authority may appoint an approved auditor for the insurer and shall fix the remuneration to be paid by



APPLEBY

that insurer, if not sooner agreed by the insurer and the auditor, within fourteen days.

(8) An insurer shall forthwith give written notice to the Authority if it - Inserted by 2004 : 29

(a) proposes to remove an approved auditor before the expiration of his term of office; or


(b) proposes to replace an approved auditor at the expiration of the term of his office with a different auditor.


§16A Auditor to communicate certain matters to Authority

16A (1) An approved auditor of an insurer shall forthwith give written notice to the Authority if -


(a) he resigns before the expiration of his term of office; Inserted by 2004 : 29

(b) he becomes aware that he will be replaced as the approved auditor of the insurer;


(c) he intends not to seek to be re-appointed; or Inserted by 2004 : 29

(d) he decides to include a material modification of his report on the insurer’s statutory financial statements and in particular, a material qualification or a denial of his opinion, or the statement of an adverse opinion.


(2) Where a notice has been given pursuant to subsection (1)(d), the auditor shall as soon as practicable thereafter furnish the Authority with a copy of his report.


(3) No duty to which an auditor of an insurer may be subject shall be regarded as contravened by reason of his communicating in good faith to the Authority, whether or not in response to a request made by the Authority, any information or opinion on a matter to which this section applies and which is relevant to any function of the Authority under this Act.


(4) Subsection (3) applies to any matter of which an approved auditor of an insurer becomes aware in his capacity as auditor and which relates to the business or affairs of the insurer or any affiliate of that insurer.


(5) In this section “affiliate” has the meaning given in section 4F(1). Inserted by 2004 : 29

§17 Keeping and filing of statutory financial statements

17 (1) Every insurer shall have a copy of its statutory financial statements (together with the notes to those statements and the auditor's report thereon) available at its principal office on or before its filing date, and shall produce them to the Authority if so directed by it on or before a date specified in the direction.

Modified by: 1995 : 20 2001 : 27 2001 : 33

(2) Every insurer shall keep the statutory financial statements, notes and auditor's report at its principal office for the period of five years beginning with its filing date.

(3) Every insurer shall file a copy of its statutory financial statements (together with the notes to those statements) with the Authority on or before its filing date.

Modified by: 2001 : 27 2001 : 33 2004 : 29

(4) In this section and sections 18 and 18A, "filing date" in relation to an insurer means⎯

(a) in the case of a Class 1 or Class 2 insurer (which is not also a long-term insurer), six months after the end of the financial year to

Modified by: 2001 : 27 2001 : 33


APPLEBY

which the statements relate (or such longer period, not exceeding nine months, as the Authority may allow in the case of that insurer on an application made to him for that purpose); and

(b) in the case of a Class 3 or Class 4 insurer or a long-term insurer, four months after the end of the financial year to which the statements relate (or such longer period, not exceeding seven months, as the Authority may allow in the case of that insurer on an application made to it for that purpose).

Modified by: 2001 : 27 2001 : 33

§18 Insurer to make financial returns

18 (1) Every insurer shall at the time of filing its statutory financial statements under section 17, also file with the Authority a statutory financial return.

Replaced by: 1995 : 20 2001 : 27 2001 : 33 2004 : 29

(2) A statutory financial return shall be in the prescribed form, and different forms of return may be prescribed for different categories of insurer.

§18A Failure to file statutory statements or returns

18A (1) Where an insurer fails to comply with a duty imposed on it under section 17(1) or (3) or section 18(1) it shall be guilty of an offence and liable on summary conviction to a fine calculated in accordance with subsection (2).


(2) For each week or part of a week during which an insurer is guilty of an offence by virtue of subsection (1) it shall be liable to a maximum fine⎯

(a) of $500, in the case of a Class 1 or Class 2 insurer;

(b) of $1000, in the case of a Class 3 insurer or a long-term insurer; or

(c) of $5000, in the case of a Class 4 insurer;

and the fine applicable to an insurer falling within more than one paragraph shall be the higher fine.

(3) If the Authority is satisfied that an insurer is guilty of an offence under subsection (1), it may, with the consent of the insurer, accept from the insurer a sum not exceeding its maximum liability for that offence, and no proceedings shall be brought for that offence.

Modified by: 2001 : 27 2001 : 33

(4) Any sum accepted from an insurer under subsection (3) shall be paid into the Consolidated Fund.

(5) Where three months after its filing date (for these purposes not including any extension which may have been granted under section 17(4)(b)) a Class 4 insurer has failed to file its statutory financial statements or return, the Authority shall appoint an inspector to investigate the affairs of the insurer under section 30.

§18B Opinion of loss reserve specialist

18B (1) This section applies in relation to a Class 2, Class 3 or Class 4 insurer. Inserted by 1995 : 20

(2) The statutory financial return required by section 18 shall include the opinion of a loss reserve specialist in respect of the insurer's loss and loss expense provisions⎯

(a) annually, in the case of a Class 3 or Class 4 insurer; or

(b) every third year, in the case of a Class 2 insurer, beginning with the return relating to the financial year following the insurer's registration as a Class 2 insurer.

(3) The requirements of paragraph (f) of the instructions in Part II of Schedule III to the Insurance Accounts Regulations 1980 relating to line 17 of the


APPLEBY

statutory balance sheet shall not apply in relation to any financial year for which an insurer is required by this section to include the opinion of a loss reserve specialist in the statutory financial return.

§18C Requirement to keep records in Bermuda

18C (1) The Authority may direct insurers to keep in Bermuda proper records of account with respect to⎯

Inserted by: 1995 : 20 2001 : 27 2001 : 33

(a) all sums of money received and expended by the insurer and the matters in respect of which the receipt and expenditure takes place;

(b) all premiums and claims relating to the insurer; and

(c) the assets, liabilities and equity of the insurer;

and any such directions may make different provision in relation to Class 1 insurers, Class 2 insurers, Class 3 insurers, Class 4 insurers and long-term insurers.

(2) Without prejudice to section 83 of the Companies Act 1981 (keeping of books of account), on an application made to it for that purpose, the Authority may direct that an insurer be exempt from such of the requirements of subsection (1) as may be specified in the direction.

Modified by: 2001 : 27 2001 : 33

§19 Segregation of insurance accounts and business

19 An insurer which carries on any business other than insurance business shall keep separate accounts in respect of its insurance business, and shall segregate the assets and liabilities of its insurance business from those of its other business,

§20 Minister may require Bermuda investment

20 (1) The Minister acting on the advice of the Authority may by order made under this section require that every insurer, or every insurer of a class specified in the order, being a non-resident insurance undertaking, must maintain invested in Bermuda during the currency of the order approved assets of a value fixed in the order (in this section referred to as "investment asset value").

Modified by: 2001 : 27 2001 : 33

(2) An order under this section may fix —

(a) an investment asset value of not more than 60% of the value of the domestic liabilities of insurers, being liabilities outstanding on account of long-term business;


(b) an investment asset value of not more than 40% of the premium income of insurers, being premium income arising on account of general business that is domestic business,

and such an order may either fix an investment asset value under paragraph (a) alone or paragraph (b) alone, or may fix investment asset values so as to be in force concurrently under both those paragraphs.

(3) Such an order as aforesaid may contain such transitional provision (including provision reducing temporarily a percentage otherwise fixed by the order) as the Minister may deem necessary to enable insurers affected by the order, or any class of such insurers, to re-organize investments held by them immediately before the coming into force of the order with a view to meeting the requirements of the order.

(4) Where an approved asset is a security on which a value was placed by the approved auditor in the course of the latest audit of the statutory financial statements of the insurer, that value shall, in any dispute as to the value of the security, be deemed conclusively to be the true value of the security.

(5) The Minister may include provision in such an order as aforesaid that for the purposes of the order domestic liabilities shall not include any part of such


APPLEBY

liabilities which is re-insured.

(6) For the purposes of this section —

(a) (i) an "approved asset" is an asset approved by the Minister;

(ii) "premium income", in relation to an insurer, means the net amount, after deduction of any premiums paid by the insurer for re-insurance, of the premiums received by the insurer;

(iii) a "domestic liability" is a liability arising in respect of domestic business; and

(b) references to "premium income" and "domestic liabilities", in relation to an insurer affected by an order, are respectively references to premium income and domestic liabilities as shown in the statutory financial statements of the insurer in respect of the financial year next preceding the date of the making of the order;

(c) subject to any applicable regulations, in computing the amount of any liabilities all contingent and prospective liabilities shall be taken into account but not liabilities in respect of share capital.

(7) Any order made under this section shall be subject to the affirmative resolution procedure.

(8) An insurer which at any time fails to comply with an order that is in force under this section and applies to it commits an offence.

§21 Maintenance of assets in Bermuda

21 (1) The Minister may by order made under this section require that every insurer, or every insurer of a class specified in the order, being a non-resident insurance undertaking, must maintain in Bermuda approved assets of the insurer of a value which at any time is equal to the whole or a specified proportion of the amount of its domestic liabilities.

(2) Such an order as aforesaid may contain provision that assets of a specified class or description shall or shall not be treated as assets maintained in Bermuda.

(3) Section 20(4), (5) and (as respects the interpretation or treatment of approved assets, liabilities and domestic liabilities) (6) shall apply mutatis mutandis in relation to an order made under this section as those subsections apply in relation to an order made under section 20.

(4) Any order made under this section shall be subject to the affirmative resolution procedure.


APPLEBY

(5) An insurer which fails at any time to comply with an order that is in force under this section and applies to the insurer commits an offence.

§22 Custody of assets 22 (1) The Authority may impose a requirement on any insurer affected by an order under section 21 that the whole or a specified proportion of the insurer's assets affected by such an order shall be held by a person approved by the Authority for the purposes of the requirement as trustee of the insurer.

Modified by: 2001 : 27

2001 : 33

(2) Assets of an insurer held by a person as trustee for an insurer shall be taken to be held by him in compliance with a requirement imposed under this section if, and only it they are assets in whose case the insurer has given him written notice that they are to be held by him in compliance with such a requirement, or they are assets into which assets in whose case the insurer has given him a written notice as aforesaid have, by any transaction or series of transactions, been transposed by him on the instructions of the insurer.

(3) No asset held by a person as trustee of an insurer in compliance with a requirement imposed under this section shall, so long as the requirement is in force, be released except with the consent of the Authority.

Modified by: 2001 : 27 2001 : 33

(4) If a mortgage or charge is created by an insurer at a time when there is in force a requirement imposed on the insurer by virtue of this section, being a mortgage or charge conferring a security on any assets which are held by a person as trustee of the insurer in compliance with the requirement, the mortgage or charge shall, to the extent that it confers such a security, be void against the liquidator and any creditor of the insurer.

(5) An insurer which fails to comply with a requirement properly imposed upon it under this section commits an offence.

PART IV

INSURERS CARRYING ON LONG-TERM BUSINESS

§23 Insurers to which this Part applies

23 This Part shall apply to insurers carrying on long-term business.

§24 Insurer carrying on long-term business to maintain separate accounts

24 (1) An insurer to which this Part applies shall keep its accounts in respect of its long-term business separate from any accounts kept in respect of any other business.

(2) All receipts of such an insurer's long-term business shall be carried to, and form part of, a special fund with an appropriate name, in this Act referred to as a "long-term business fund".

(3) Such an insurer shall maintain books of account and other records such that —

(a) the assets in its long-term business fund; and

(b) the liabilities of its long-term business,

can be readily identified at any time.

(4) No payment from such an insurer's long-term business fund shall be made directly or indirectly for any purpose other than a purpose of the insurer's long-term business, notwithstanding any arrangement for its subsequent repayment out of receipts of business other than the long-term business, except in so far as such payment can be made out of any surplus certified by the insurer's approved actuary to be available for distribution otherwise than to policy-holders.


APPLEBY

(5) No insurer to which this Part applies shall declare or pay a dividend to any person other than a policy-holder unless the value of the assets of its long-term business fund, as certified by the insurer's approved actuary, exceeds the extent (as to certified) of the liabilities of the insurer's long-term business; and the amount of any such dividend shall not exceed the aggregate of —


(a) that excess; and

(b) any other funds properly available for the payment of dividend, being funds arising out of business of the insurer other than long-term business.

(6) This section shall not apply in relation to an insurer which, immediately before 1 January 1980—


(a) either —

(i) was an exempted company within the definition in section 1 of the Exempted Companies Act 1950; or

(ii) had a permit under section 69 of the Bermuda Immigration and Protection Act 1956 [title 5 item 16] or under section 3 of the Non-Resident Insurance Undertakings Act 1967 [title 5 item 17]; and

(b) was carrying on both long-term and general business in or from within Bermuda.

§25 Transfer of long-term business

25 (1) Any scheme under which the whole or any part of the long-term business of any insurer to which this Part applies (in this section referred to as the "transferor") is to be transferred to another insurer (in this section referred to as the "transferee") shall be void unless it is made in accordance with this section and the Court has sanctioned the scheme thereunder.

(2) Either the transferor or the transferee may apply to the Court, by petition, for an order sanctioning the scheme, and the Court shall have power to make such an order subject to this section.

(3) The Court shall not entertain such a petition unless the petition is accompanied by a report on the scheme prepared by an approved actuary and the Court is satisfied that sufficient notice of the scheme has been served on each policy-holder affected and been published in the Gazette, and also that copies of the petition and the report have been served on the Authority.

Modified by: 2001 : 27 2001 : 33

(4) On any petition under this section —

(a) any person who alleges that he would be adversely affected by the carrying out of the scheme; and

(b) the Authority, Modified by: 2001 : 27 2001 : 33

shall be entitled to be heard.

(5) [Deleted] Deleted by 1983 : 14

(6) [Repealed] Repealed by 1985 : 1

(7) Subsections (1) to (4) shall not have effect in relation to the transfer of long-term business that is re-insurance business.



APPLEBY

§26 Appointment of actuary by insurer carrying on long-term business

26 (1) An insurer shall not carry on long-term business at any time if it does not have an approved actuary (in this Act referred to as the "insurer's approved actuary") at that time.

Repealed and replaced by 1985 : 1

(2) In subsection (1) "approved actuary", in relation to an insurer, means an actuary approved by the Authority as that insurer's approved actuary.

Modified by: 2001 : 27 2001 : 33

§27 Actuarial certificates of long-term business liabilities

27 (1) An insurer to which this Part applies shall include in the insurer's statutory financial return called for by section 18 a certificate prepared by the insurer's approved actuary in the prescribed form as to the amount of the insurer's liabilities outstanding on account of its long-term business.

(2) Notwithstanding subsection (1) the Authority may in writing at any time direct an insurer to which this Part applies to cause to be produced to it a valuation of the insurer's liabilities outstanding at the date specified in the direction on account of its long-term business, together with a certificate prepared by the insurer's approved actuary in the prescribed form relating thereto; and the insurer shall comply with any such direction.


2001 : 33

PART V

INSURANCE MANAGERS, BROKERS, AGENTS AND SALESMEN

§28 Insurance managers to maintain lists of insurers for which they act

28 An insurance manager shall maintain an accurate list of all insurers for which he acts as insurance manager, and shall, if required in writing at any time by the Authority so to do, provide the Authority with a copy of that list.

Modified by: 2001 : 27 2001 : 33

§29 Insurance broker, agent or salesman deemed agent of insurer in certain cases

29 In relation to any contract of insurance to which an insurer is a party and in respect of which an insurance broker, agent or salesman having apparent authority to act for the insurer in that respect in fact receives a premium under the contract—

(a) the broker, agent or salesman shall be deemed to be the agent of the insurer; and

(b) the insurer shall be deemed to have received the premium,

notwithstanding anything to the contrary in the contract.

PART VI

POWERS

§29A Power to obtain information and reports

29A (1) The Authority may by notice in writing served on a registered person⎯ Inserted by 2002 : 29

(a) require the registered person to provide the Authority (or such person acting on behalf of the Authority as may be specified in the notice), at such time or times or at such intervals or in respect of such period or periods as may be so specified, with such information as the Authority may reasonably require with respect to matters that are likely to be material to the performance, in relation to the registered person, of its functions under this Act;

(b) require the registered person to provide the Authority with copies of published and unpublished reports in respect of the registered person as specified in the notice, containing information on, or on any aspect of, any matter about which the Authority has required or could require the registered person to provide information under paragraph (a).


APPLEBY

(2) The Authority may in respect of a registered person appoint a professional person to prepare a report on, or on any aspect of, any matter about which the Authority has required or could require the registered person to provide information under subsection (1)(a).

(3) In making such an appointment the Authority shall ensure that the appointed person has relevant and appropriate experience having regard to the nature and scope of the business being carried out by the registered person.

(4) The person appointed to make a report under subsection (2) shall forthwith give written notice to the Authority of any fact or matter of which he becomes aware which indicates to him⎯

(a) that any term or condition of registration of the registered person is not or has not been fulfilled, or may not be or may not have been fulfilled, in respect of the registered person; and

(b) that the matters are likely to be material to the performance, in relation to the registered person, of the Authority's functions under this Act.


§29B Power to require production of documents

29B (1) The Authority may⎯ Inserted by 2002 : 29

(a) by notice in writing served on a registered person require such person to produce, within such time and at such place as may be specified in the notice, such document or documents of such description as may be so specified;

(b) authorise an officer, servant or agent of the Authority, on producing evidence of his authority, to require any such registered person to provide him forthwith with such information, or to produce to him forthwith such documents, as he may specify;

being such information or documents as the Authority may reasonably require for the performance of its functions under this Act.

(2) Where, by virtue of subsection (1), the Authority or any officer, servant or agent of the Authority has power to require the production of any documents from a registered person, the Authority or that officer, servant or agent shall have the like power to require the production of those documents from any person who appears to be in possession of them; but where any person from whom such production is required claims a lien on documents produced by him, the production shall be without prejudice to the lien.

(3) The power under this section to require a registered person or other person to produce any documents includes power —

(a) if the documents are produced, to take copies of them or extracts from them and to require that registered person or other person, or any other person who is a present or past director, other officer or principal representative of , the registered person in question, to provide an explanation of any of them; and

(b) if the documents are not produced, to require the person who was required to produce them to state, to the best of his knowledge and belief, where they are.


APPLEBY

(4) If it appears to the Authority to be desirable in the interests of the clients of a registered person to do so, it may also exercise the powers conferred by section 29A and subsection (1) of this section in relation to any company which is or has at any relevant time been—

(a) a parent company, subsidiary company or related company of that registered person;

(b) a subsidiary company of a parent company of that registered person;

(c) a parent company of a subsidiary company of that registered person; or

(d) a company in the case of which a shareholder controller of that registered person, either alone or with any associate or associates, holds 50 per cent or more of the shares or is entitled to exercise, or control the exercise of more than 50 per cent of the voting power at a general meeting.

(5) Any person who without reasonable excuse fails to comply with a requirement imposed on him under this section shall be guilty of an offence and liable on summary conviction to a fine of $10,000 or to imprisonment for a term of six months or to both.

(6) Nothing in this section shall require the disclosure or production by a person of information or documents which he would be entitled to refuse to disclose or produce on the grounds of legal professional privilege.

(7) In this section, ‘related company” has the meaning given in section 29D.


§29C Communication with Authority

29C (1) No duty to which a person appointed to make a report under section 29A(2) may be subject shall be regarded as contravened by reason of his communicating in good faith to the Authority, whether or not in response to a request made by the Authority, any information on a matter to which this section applies and which is relevant to any function of the Authority under this Act.


(2) In relation to a person appointed to make a report under section 29A(2) this section applies to any matter of which he becomes aware in his capacity as the person making the report and which ⎯

(a) relates to the business or affairs of the registered person in relation to which his report is made or any associated company of that registered person;

(b) if by virtue of section 29B(4) the report relates to an associated company of a registered person, to the business or affairs of that company.

(3) In this section "associated company", in relation to a registered person, means any such company as is mentioned in section 29B(4).

§29D Meaning of related company

29D (1) A related company in relation to a registered person or the parent company of a registered person, means a company (other than a subsidiary company) in which the registered person or parent company holds a qualifying capital interest.


(2) A qualifying capital interest means an interest in relevant shares of the company which the registered person or parent company holds on a long term basis for the purpose of securing a contribution to its own activities by the exercise of control or influence arising from that interest.


APPLEBY

(3) A holding of 20 per cent or more of the nominal value of the relevant shares of a company shall be presumed to be a qualifying capital interest unless the contrary is shown.

(4) Relevant shares means shares comprised in the equity share capital of the company of a class carrying rights to vote in all circumstances at general meetings of the company.

(5) Equity share capital means the issued share capital of a company excluding any part of that capital which, neither as respects dividends nor as respects capital, carries any right to participate beyond a specified amount in a distribution.

§29E Meaning of shareholder controller

29E [Repealed] Inserted by 2002 : 29 Repealed by 2006 : 28

§29F Authority’s statement of principles

29F [Repealed] Inserted by 2002 : 29 Repealed by 2006 : 28

§30 Investigation of affairs of an insurer

30 (1) The Authority may appoint any person appearing to it to be a suitably qualified person as an inspector to investigate the affairs, or any part of the affairs, of an insurer if it is satisfied that such an investigation is required in the interest of the policy-holders or of persons who may become policy-holders.

Modified by: 2001 : 27 2001 : 33 2004 : 29

(2) It shall be the duty of any insurer in relation to whose affairs an inspector has been appointed under subsection (1) (in this section called an "insurer under investigation"), and of any past or present officer, employee or insurance manager of such an insurer, to produce to the inspector on request all books, records and documents relating to the insurer under investigation which are in its or his custody or control and otherwise to give to the inspector all assistance in connection with the investigation which it or he is reasonably able to give.

(3) An inspector may —

(a) examine on oath any past or present officer, employee, or insurance manager of the insurer under investigation in relation to its business, and may administer an oath accordingly;

(b) if he thinks it necessary for the purpose of his investigation that a person whom he has no power to examine on oath should be so examined, make application to the Court, and the Court may, if it thinks fit, order that person to attend and be examined on oath before the Court on any matter relevant to the investigation.

(4) The inspector may from time to time report to the Authority on the progress of the investigation and shall, on completion of the investigation, furnish the Authority, and the insurer under investigation, with a copy of his report.


(5) Unless the Authority otherwise directs, the insurer under investigation shall pay to the Authority all expenses of, and incidental to, the investigation.


§30A Investigation of suspected contravention

30A (1) Where the Authority has reasonable grounds for suspecting that a person has contravened section 3 or 9, the Authority or any duly authorised officer, servant or agent of the Authority may by notice in writing require that person or any other person -


(a) to provide, at such place as may be specified in the notice and either forthwith or at such time as may be so specified, such



APPLEBY

information as the Authority may reasonably require for the purpose of investigating the suspected contravention;

(b) to produce, at such place as may be specified in the notice and either forthwith or at such time as may be so specified, such documents, or documents of such description, as may be specified, being documents the production of which may be reasonably required by the Authority for that purpose;


(c) to attend at such place and time as may be specified in the notice and answer questions relevant for determining whether such a contravention has occurred.


(2) The Authority or a duly authorised officer, servant or agent of the Authority may take copies of or extracts from any documents produced under this section.


(3) Any officer, servant or agent of the Authority may, on producing, if required, evidence of his authority, enter any premises occupied by a person on whom a notice has been served under subsection (1) for the purpose of obtaining there the information or documents required by the notice, putting the questions referred to in paragraph (c) of that subsection or exercising the powers conferred by subsection (2).


(4) Any person who without reasonable excuse fails to comply with a requirement imposed on him under this section or intentionally obstructs a person in the exercise of the rights conferred by subsection (3) shall be guilty of an offence and liable on summary conviction to a fine of $10,000 or to imprisonment for 6 months or to both.


(5) A statement made by a person in compliance with a requirement imposed by virtue of this section shall not be used in evidence against him in criminal proceedings.


(6) Nothing in this section shall require the disclosure or production by a person of information or documents which he would be entitled to refuse to disclose or produce on the grounds of legal professional privilege in proceedings in Bermuda.


§30B Powers of entry 30B (1) A magistrate may issue a warrant under this section if satisfied on information on oath laid by an officer of the Authority or laid under the Authority’s authority that there are reasonable grounds for suspecting that a person is guilty of such a contravention as is mentioned in section 30A and -


(a) that that person has failed to comply with a notice served on him under that section;


(b) that there are reasonable grounds for suspecting the completeness of any information provided or documents produced by him in response to such a notice; or


(c) that there are reasonable grounds for suspecting that if a notice were served on him under that section it would not be complied with or that any documents to which it would relate would be removed, tampered with or destroyed.


(2) A warrant under this section shall authorise any police officer not below the rank of inspector, together with any other person named in the warrant and any other police officers -


(a) to enter any premises occupied by the person mentioned in subsection (1) which are specified in the warrant, using such force as is reasonably necessary for the purpose;



APPLEBY

(b) to search the premises and take possession of any documents appearing to be such documents as are mentioned in subsection (1)(c) or to take, in relation to any such documents, any other steps which may appear to be necessary for preserving them or preventing interference with them;


(c) to take copies of or extracts from any such documents; and Inserted by 2006 : 28

(d) to require any person named in the warrant to answer questions relevant for determining whether that person is guilty of any such contravention as is mentioned in section 30A.


(3) A warrant under this section shall continue in force until the end of the period of one month beginning with the day on which it is issued.


(4) Any documents of which possession is taken under this section may be retained -


(a) for a period of three months; or Inserted by 2006 : 28

(b) if within that period proceedings to which the documents are relevant are commenced against any person for any such contravention as is mentioned in section 30A, until the conclusion of those proceedings.


(5) Any person who intentionally obstructs the exercise of any right conferred by a warrant issued under this section or fails without reasonable excuse to comply with any requirement imposed in accordance with subsection (2)(d) shall be guilty of an offence and liable -


(a) on summary conviction, to a fine of $25,000 or to imprisonment for six months or to both;


(b) on conviction on indictment, to a fine of $100,000 or to imprisonment for two years or to both.


§30C Obstruction of investigations

30C (1) A person who knows or suspects that an investigation is being or is likely to be carried out -


(a) into a suspected contravention of section 3 or section 9; or Inserted by 2006 : 28

(b) under section 30. Inserted by 2006 : 28

shall be guilty of an offence if he falsifies, conceals, destroys or otherwise disposes of, or causes or permits the falsification, concealment, destruction or disposal of, documents which he knows or suspects are or would be relevant to such an investigation unless he proves that he had no intention of concealing facts disclosed by the documents from persons carrying out such an investigation.

(2) A person guilty of an offence under this section shall be liable - Inserted by 2006 : 28

(a) on summary conviction, to a fine of $50,000 or to imprisonment for two years or to both;


(b) on conviction on indictment, to a fine of $200,000 or to imprisonment for five years or to both.


§30D Notification by 30D (1) This section applies to a shareholder of an insurer whose shares or the Inserted by 2006


APPLEBY

shareholder controllers of new or increased control – private companies

shares of its parent company, if any, are not traded on any stock exchange. : 28

(2) No person to whom this section applies shall become a 10 per cent, 20 per cent, 33 per cent, or 50 per cent shareholder controller of an insurer unless -


(a) he has served on the Authority a notice in writing stating that he intends to become such a controller of the insurer; and


(b) either the Authority has, before the end of the period of forty-five days beginning with the date of service of that notice, notified him in writing that there is no objection to his becoming such a controller of the insurer, or that period has elapsed without the Authority having served him under section 30F with a written notice of objection to his becoming such a controller of the insurer.


(3) A notice under subsection (2)(a) shall contain such information as the Authority may direct and the Authority may after receiving such a notice from any person, by notice in writing require him to provide such additional information or documents as the Authority may reasonably require for deciding whether to serve notice of objection.


(4) Where additional information or documents are required from any person by a notice under subsection (3) the time between the giving of the notice and the receipt of the information or documents shall be added to the period mentioned in subsection (2)(b).


(5) In subsection (1) “shareholder” includes a prospective shareholder. Inserted by 2006 : 28

§30E Notification by shareholder controllers of new or increased control – public companies

30E (1) This section applies to a shareholder of an insurer whose shares or the shares of its parent company, if any, are traded on any stock exchange recognised by the Authority for this purpose.


(2) Not later than forty-five days after a person to whom this section applies becomes a 10%, 20%, 33% or 50% shareholder controller of an insurer, that person shall file with the Authority a notice in writing stating that he has become such a controller.


(3) In subsection (1) “shareholder” includes a prospective shareholder. Inserted by 2006 : 28

§30F Objection to new or increased control

30F (1) The Authority may serve a notice of objection under this section on a person who has given notice under section 30D unless it is satisfied -


(a) that the person concerned is a fit and proper person to become a controller of the description in question of the insurer;


(b) that the interests of clients or potential clients of the insurer would not be threatened by that person becoming a controller of that description of the insurer; and


(c) without prejudice to paragraphs (a) and (b), that, having regard to that person’s likely influence on the insurer as a controller of the description in question the minimum criteria would continue to be fulfilled in the case of the insurer or, if any of those criteria is not fulfilled, that that person is likely to undertake adequate remedial action.


(2) Before serving a notice of objection under this section the Authority Inserted by 2006


APPLEBY

shall serve the person concerned with a preliminary written notice stating that the Authority is considering service on that person of a notice of objection and that notice -

: 28

(a) shall specify which of the matters mentioned in subsection (1) the Authority is not satisfied about and, subject to subsection (5), the reasons for which it is not satisfied; and


(b) shall give particulars of the rights conferred by subsection (3). Inserted by 2006 : 28

(3) A person served with a notice under subsection (2) may, within a period of twenty-eight days beginning with the day on which the notice is served, make written representations to the Authority; and where such representations are made the Authority shall take them into account in deciding whether to serve a notice of objection.


(4) A notice of objection under this section shall - Inserted by 2006 : 28

(a) specify which of the matters mentioned in subsection (1) the Authority is not satisfied about and, subject to subsection (5), the reasons for which it is not satisfied; and


(b) give particulars of the rights conferred by section 44A. Inserted by 2006 : 28

(5) Subsections (2)(a) and (4)(a) shall not require the Authority to specify any reason which would in its opinion involve the disclosure of confidential information the disclosure of which would be prejudicial to a third party.


(6) Where a person required to give a notice under section 30D in relation to becoming a controller of any description becomes a controller of that description without having given the notice, the Authority may serve him with notice of objection under this section at any time within three months after becoming aware of his having done so and may, for the purpose of deciding whether to serve him with such a notice, require him by notice in writing to provide such information or documents as the Authority may reasonably require.


(7) The period mentioned in section 30D(2)(b) (with any extension under subsection (4) of that section) and the period mentioned in subsection (6) shall not expire, if it would otherwise do so, until twenty-eight days after the end of the period within which representations can be made under subsection (3).


§30G Contraventions by controller

30G (1) Subject to subsection (2), any person who contravenes section 30D by - Inserted by 2006 : 28

(a) failing to give the notice required by subsection (2)(a) of that section; or


(b) knowingly becoming a controller of any description to which that section applies before the end of the period mentioned in subsection (2)(b) of that section in a case where the Authority has not served him with a preliminary notice under section 30F(2);


shall be guilty of an offence. Inserted by 2006 : 28

(2) For the purposes of subsection 1(b), a person knowingly becomes a controller of any description if he knows of the acts or circumstances by virtue of which he became a controller of the relevant description.


(3) Any person who contravenes section 30E by failing to give the notice Inserted by 2006


APPLEBY

required by subsection (2) of that section shall be guilty of an offence. : 28

(4) A person who becomes a controller without knowing of the acts or circumstances by virtue of which he became a controller of the relevant description shall not be guilty of an offence unless he subsequently becomes aware of the fact that he has become such a controller and he fails to give the Authority written notice of the fact that he has become such a controller within thirty days of becoming aware of the fact.


(5) Any person who - Inserted by 2006 : 28

(a) before the end of the period mentioned in section 30D (2)(b), becomes a controller of any description to which that subsection applies after being served with a preliminary notice under section 30F(2);


(b) contravenes section 30D by becoming a controller of any description after being served with a notice of objection to his becoming a controller of that description; or


(c) having become a controller of any description in contravention of that section (whether before or after being served with such notice of objection) continues to be such a controller after such a notice has been served on him;


shall be guilty of an offence. Inserted by 2006 : 28

(6) A person guilty of an offence under subsection (1) or (3) shall be liable on summary conviction to a fine of $25,000.


(7) A person guilty of an offence under subsection (5) shall be liable - Inserted by 2006 : 28

(a) on summary conviction to a fine of $25,000 and in respect of an offence under paragraph (c) of that subsection, to an additional fine of $500 for each day on which the offence has continued;


(b) on conviction on indictment to a fine of $100,000 or imprisonment for 2 years or to both.


§30H Objection to existing controller

30H (1) Where it appears to the Authority that a person who is a controller of any description of a registered person is not or is no longer a fit and proper person to be such a controller of the registered person it may serve him with a written notice of objection to his being such a controller of the registered person.


(2) Before serving a notice of objection under this section the Authority shall serve the person concerned with a preliminary written notice stating that the Authority is considering service on that person of a notice of objection and that notice shall -


(a) subject to subsection (5), specify the reasons for which it appears to the Authority that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1); and


(b) give particulars of the rights conferred by subsection (3). Inserted by 2006 : 28

(3) A person served with a notice under subsection (2) may, within a period of twenty-eight days beginning with the day on which the notice is served, make written representations to the Authority; and where such representations are made the Authority shall take them into account in deciding whether to serve a notice



APPLEBY

of objection.

(4) A notice of objection under this section shall - Inserted by 2006 : 28

(a) subject to subsection (5), specify the reasons for which it appears to the Authority that the person in question is not or is no longer a fit and proper person as mentioned in subsection (1); and


(b) give particulars of the rights conferred by section 44A. Inserted by 2006 : 28

(5) Subsections (2)(a) and (4)(a) shall not require the Authority to specify any reason which would in its opinion involve the disclosure of confidential information the disclosure of which would be prejudicial to a third party.


(6) Any person who continues to be a controller of any description after being served under this section with a notice of objection to his being a controller of that description shall be guilty of an offence.


(7) A person guilty of an offence under subsection (6) shall be liable - Inserted by 2006 : 28

(a) on summary conviction to a fine of $25,000, and to an additional fine of $500 for each day on which the offence has continued;


(b) on conviction on indictment to a fine of $100,000 or imprisonment for 2 years or to both.


§30I Restriction on and sale of shares

30I (1) The powers conferred by this section shall be exercisable where a person -


(a) has contravened section 30F by becoming a controller of any description after being served with a notice of objection to his becoming a controller of that description;


(b) having become a controller of any description in contravention of that section continues to be one after such a notice has been served on him; or


(c) continues to be a controller of any description after being served under section 30H with notice of objection to his being a controller of that description.


(2) The Authority may by notice in writing served on the person concerned direct that any specified shares to which this section applies shall, until further notice, be subject to one or more of the following restrictions -


(a) any transfer of, or agreement to transfer, those shares or, in the case of unissued shares, any transfer of or an agreement to transfer the right to be issued with them, shall be void;


(b) no voting rights shall be exercisable in respect of the shares; Inserted by 2006 : 28

(c) no further shares shall be issued in right of them or in pursuance of any offer made to their holder; or


(d) except in liquidation, no payment shall be made of any sums due from the registered person on the shares, whether in respect of capital or otherwise.


(3) The Court may, on the application of the Authority, order the sale of any specified shares to which this section applies and, if they are for the time being



APPLEBY

subject to any restrictions under subsection (2), that they shall cease to be subject to those restrictions.

(4) No order shall be made under subsection (3) in a case where the notice of objection was served under section 30F or 30H -


(a) until the end of the period within which an appeal can be brought against the notice of objection;


(b) if such an appeal is brought, until it has been determined or withdrawn.


(5) Where an order has been made under subsection (3) the Court may, on the application of the Authority, make such further order relating to the sale or transfer of the shares as it thinks fit.


(6) Where shares are sold in pursuance of an order under this section the proceeds of sale, less the costs of the sale, shall be paid into Court for the benefit of the persons beneficially interested in them; and any such person may apply to the Court for the whole or part of the proceeds to be paid to him.


(7) This section applies - Inserted by 2006 : 28

(a) to all the shares in the registered person of which the person in question is a controller of the relevant description which are held by him or any associate of his and were not so held immediately before he became such a controller of the registered person; and


(b) where the person in question became a controller of the relevant description as a result of the acquisition by him or any associate of his of shares in another company, to all the shares in that company which are held by him or any associate of his and were not so held before he became such a controller of that registered person.


(8) A copy of the notice served on the person concerned under subsection (2) shall be served on the registered person or company to whose shares it relates and, if it relates to shares held by an associate of that person, on that associate.


§30J Notification by registered person of change of controller

30J (1) A registered person shall give written notice to the Authority of the fact that any person has become or ceased to be a controller of the registered person.


(2) A notice required to be given under subsection (1) shall be given before the end of the period of forty-five days beginning with the day on which the registered person becomes aware of the relevant facts.


(3) A registered person which fails to give a notice required by this section shall be guilty of an offence and liable on summary conviction to a fine of $50,000.


§31 Authority may require information

31 [Repealed] Modified by: 2001 : 27 2001 : 33 Repealed by 2002 : 29

§31A Failure to meet solvency requirements

31A (1) A Class 3 or Class 4 insurer which at any time fails to meet its general business solvency margin shall within 30 days after becoming aware of that failure, or having reason to believe that such a failure has occurred, file with the Authority a written report containing particulars⎯


(a) of the circumstances leading to the failure, and


APPLEBY

(b) of the manner and time within which the insurer intends to rectify the failure;

and, notwithstanding anything to the contrary in any other enactment, shall not declare or pay any dividends until the failure is rectified.

(2) Where subsection (1) applies in relation to a Class 4 insurer by reason of its total statutory capital and surplus falling to $75,000,000 or less, the report required by that subsection shall be filed within 45 (rather than 30) days and shall be accompanied by⎯

(a) unaudited interim statutory financial statements covering such period as the Authority may require;

Modified by: 2001 : 27 2001 : 33

(b) the opinion of a loss reserve specialist in relation to lines 17 and 18 of those statements; and

(c) a general business solvency certificate in respect of those statements.

§31B Restrictions as to payment of dividends

31B (1) A Class 4 insurer shall not in any financial year pay dividends which would exceed 25% of its total statutory capital and surplus, as shown on its statutory balance sheet in relation to the previous financial year, unless at least 7 days before payment of those dividends it files with the Authority an affidavit signed⎯


(a) by at least two directors of the insurer (one of whom must be a director resident in Bermuda if the insurer has a director so resident), and

(b) by the insurer's principal representative in Bermuda,

which states that in the opinion of those signing, declaration of those dividends has not caused the insurer to fail to meet its relevant margins.

(2) A copy of every affidavit filed under subsection (1) shall be kept by the Authority in its office and shall be open to inspection by the public.

Modified by: 2001 : 27 2001 : 33

(3) An insurer shall not declare or pay any dividends during any financial year if it would cause the insurer to fail to meet its relevant margins.

(4) An insurer which fails to meet its relevant margins on the last day of any financial year shall not, without the approval of the Authority, declare or pay any dividends during the next financial year.

Modified by: 2001 : 27 2001 : 33

(5) In this section and section 31C, "the relevant margins" means⎯

(a) in relation to an insurer, its solvency margin, and

(b) in relation to an insurer carrying on general business, its minimum liquidity ratio.

§31C Restrictions as to reduction of capital

31C (1) A Class 4 insurer, before reducing by 15% or more its total statutory capital, as set out in its previous year's financial statements, shall apply to the Authority for its approval.


(2) An application by an insurer under subsection (1) shall consist of⎯

(a) an affidavit signed⎯


APPLEBY

(i) by at least two directors of the insurer (one of whom must be a director resident in Bermuda if the insurer has a director so resident), and

(ii) by the insurer's principal representative in Bermuda,

which states that in the opinion of those signing, the proposed reduction of capital will not cause the insurer to fail to meet its relevant margins; and

(b) such other information as the Authority may require. Modified by: 2001 : 27 2001 : 33

(3) A copy of every affidavit filed under subsection (1) relating to an application which the Authority has approved shall be kept by the Authority in its office and shall be open to inspection by the public.

Modified by: 2001 : 27 2001 : 33

(4) A Class 1, Class 2 or Class 3 insurer or a long-term insurer before reducing by 15% or more its total statutory capital, as set out in its previous year's financial statements, shall apply to the Authority for its approval and shall provide such information as it may require.

Modified by: 2001 : 27 2001 : 33

§32 Powers of intervention

32 (1) If it appears to the Authority that⎯ Substituted by 1995 : 20 Modified by: 2001 : 27 2001 : 33

(a) the business of a registered person which is an insurer is being so conducted that there is a significant risk of the registered person becoming insolvent;


(b) a registered person is in breach of a provision of this Act or of regulations, or with a condition imposed on its registration;


(c) the minimum criteria is not or has not been fulfilled, or may not have been fulfilled, in respect of a registered person; or


(d) a person has become a controller of any description of a registered person which is an insurer in contravention of section 30D or has become or remains such a controller after being served with notice of objection pursuant to section 30F or 30H;


the Authority may give the registered person such directions as appear to it to be desirable for safeguarding the interests of clients and potential clients of the registered person, and, without prejudice to the generality of the foregoing, may in particular give any of the directions mentioned in subsection (2).

Modified by: 2001 : 27 2001 : 33 2006 : 28

(2) Those directions are⎯ Modified by 2006 : 28

(a) not to effect further contracts of insurance, or any contract of insurance of a specified description;

(b) to limit the aggregate of the premiums to be written by it during a specified period beginning not earlier than 28 days after the direction is given;

(c) not to vary any contract of insurance in force when the direction is given, if the effect of the variation would be to increase the liabilities of the insurer;


APPLEBY

(d) not to make any investment of a specified class;

(e) before the expiration of a specified period (or such longer period as the Authority may allow) to realise any existing investment of a specified class;

Modified by: 2001 : 27 2001 : 33

(f) not to declare or pay any dividends or any other distributions, or to restrict the making of such payments to such extent as the Authority thinks fit;

Modified by: 2001 : 27 2001 : 33

(g) not to enter into any specified transaction with any specified person or persons of a specified class;

(h) to provide such written particulars relating to the financial circumstances of the insurer as the Authority thinks fit;

Modified by: 2001 : 27 2001 : 33 2006 : 28

(i) to obtain the opinion of a loss reserve specialist with respect to general business, or an actuarial opinion with respect to long-term business, and to submit it to the Authority within a specified time; and

Modified by: 2001 : 27 2001 : 33 2006 : 28

(j) to remove a controller or officer; Inserted by 2006 : 28

and in this subsection "specified" means specified in the direction.

(3) In addition, if it appears to the Authority that the business of an insurer is being so conducted that there is a significant risk of the insurer becoming insolvent it may, if it considers it appropriate, direct the insurer to maintain in, or transfer to and keep in the custody of, a specified bank, assets of the insurer of such value and description as are specified in the direction.

Modified by: 2001 : 27 2001 : 33

(4) Without restricting the generality of subsections (1) and (3), the Authority may in particular proceed under those subsections where⎯

Modified by: 2001 : 27 2001 : 33

(a) an insurer has failed to meet a solvency margin or a minimum liquidity ratio which it is required by this Act or regulations to meet;

(b) an event specified in regulation 7(3) of the Insurance Returns and Solvency Regulations 1980 occurs in relation to the audit of an insurer and the approved auditor qualifies his report accordingly, expresses an adverse opinion or denies an opinion under regulation 7(2) of those Regulations;

(c) the auditor's report submitted as part of an insurer's statutory financial return indicates that there is a significant doubt as to the insurer's ability to continue as a going concern;

(d) an insurer fails to retain an auditor or principal representative, or fails to retain a loss reserve specialist or actuary where required to retain one under this Act or regulations;

(e) the insurer's total statutory capital and surplus has diminished to an extent which the Authority considers unacceptable having regard to the particular circumstances of the insurer.

Modified by: 2001 : 27 2001 : 33

(5) The Authority shall not give a direction by virtue of subsection (1)(b) if the breach in question⎯



APPLEBY

2001 : 33

(a) is being investigated by an inspector by virtue of section 18A(5), or

(b) requires a report to be filed under section 31A,

until the Authority has considered a preliminary report of the inspector or (as the case may be) the report filed under section 31A.

Modified by: 2001 : 27 2001 : 33

(6) No assets kept in the custody of a bank pursuant to a direction under subsection (3) shall, so long as the direction is in force, be removed from the bank except with the prior consent of the Authority in writing.

Modified by: 2001 : 27 2001 : 33

(7) Where the Authority gives the registered person notice of its intention to give a direction under subsection (1), it shall take into account any representations made by the registered person within such period as may be specified in the notice before giving such a direction.

Modified by: 2001 : 27 2006 : 28

(8) The powers which the Authority may exercise under this section in certain circumstances in relation to a registered person do not restrict the exercise of any other powers in relation to the same registered person on the basis of the same circumstances, nor do they restrict any other consequences provided for under any enactment in respect of that registered person on the basis of those circumstances.

Modified by: 2001 : 27 2001 : 33 2006 : 28

(9) Any registered person who fails to comply with a direction given under subsection (1), and any person who causes such a direction to be contravened, commits an offence.


PART VII

INSOLVENCY AND WINDING UP

§33 Margin of solvency for general business

33 (1) An insurer, being a company that may be wound up under the Companies Act 1981, carrying on general business shall be deemed for the purposes of section 161 of the Companies Act 1981 (winding up of company by the court) to be unable to pay its debts if at any time the value of its assets does not exceed the amount of its liabilities and the provisions of this Act as to winding up shall have effect accordingly.


(2) For the purposes of this section in computing the amount of liabilities of an insurer, all contingent and prospective liabilities shall be taken into account but not liabilities in respect of share capital.

(3) For the purposes of this section the value of any assets and the amount of any liabilities shall, subject to subsections (4) and (5), be determined in accordance with any applicable regulations making provision as to the taking into, or leaving out of, account of assets or liabilities for any purpose.

(4) In the case of an insurer which carries on long-term business as well as general business, the amount of the liabilities of its long-term business at any time shall, for the purposes of this section, be taken to be —

(a) an amount equal to the total amount at that time standing to the credit of the insurer's long-term business fund; or

(b) the amount of those liabilities at any time as determined in accordance with any applicable regulations,


(5) Regulations may require that, in every statutory financial return prepared by an insurer carrying on general business, there shall be included a certificate


APPLEBY

as to solvency (to be called a "solvency certificate") —

(a) in such form and signed by such persons as may be prescribed by the regulations; and

(b) containing such a statement with respect to the assets and liabilities of the insurer as may be so prescribed,

and if any such insurer fails to comply with the regulations so made the value of its assets shall, in any proceedings under this section for the winding up of the insurer, be deemed, until the contrary is proved, not to exceed the amount of its liabilities by the amount required by subsection (1).

(6) Nothing in this section shall be taken as affecting the manner in which, on a winding up, any assets or liabilities are required to be dealt with whether by virtue of section 36 or otherwise.

§34 Winding up of insurers under Companies Act 1981

34 The Court may order the winding up, in accordance with the Companies Act 1981, of an insurer, being a company which may be wound up under that Act, and that Act shall apply accordingly subject to the modification that the insurer may be ordered to be wound up on the petition of ten or more policyholders owning policies of an aggregate value of not less than $50,000:

Provided that such a petition shall not be presented except by leave of the Court, and leave shall not be granted until a prima facie case has been established to the satisfaction of the Court and until security for costs for such amount as the Court may think reasonable has been given.

§35 Winding up on petition of Authority

35 (1) The Authority may present a petition for the winding up, in accordance with the Companies Act 1981, of an insurer, being a company which may be wound up under that Act, on the ground—

Modified by: 2001 : 27 2001 : 33

(a) that the insurer is unable to pay its debts within the meaning of sections 161 and 162 of the Companies Act 1981; or

(b) that the insurer has failed to satisfy an obligation to which it is or was subject by virtue of this Act; or

(c) that the insurer has failed to satisfy the obligation imposed upon it by section 15 as to the preparation of accounts or to produce or file statutory financial statements in accordance with section 17, and that the Authority is unable to ascertain its financial position.


2001 : 27

2001 : 33

(2) In any proceedings on a petition to wind up an insurer presented by the Authority under subsection (1), evidence that the insurer was insolvent —

Modified by: 2001 : 27 2001 : 33

(a) at the close of the period to which the statutory financial statements last prepared under section 15 relate; or

(b) at any date specified in a direction under section 27(2),

shall be evidence that the insurer continues to be unable to pay its debts, unless the contrary is proved.

(3) If, in the case of an insurer, being a company which may be wound up under the Companies Act 1981, it appears to the Authority that it is expedient in the public interest that the insurer should be wound up, it may, unless the insurer is already being wound up by the Court, present a petition for it to be so wound up if the Court thinks it just and equitable for it to be so wound up.

Modified by: 2001 : 27 2001 : 33

(4) Where a petition for the winding up of an insurer is presented by a Modified by:


APPLEBY

person other than the Authority, a copy of the petition shall be served on the Authority, and he shall be entitled to be heard on the petition.

2001 : 27 2001 : 33

§36 Winding up of insurers carrying on long-term business

36 (1) An insurer which carries on long-term business shall not be wound up voluntarily.

(2) Subject to subsection (3) and to rules made by virtue of section 40, in any winding up of an insurer which immediately before the winding up was carrying on or entitled to carry on long-term business —

(a) the assets in the insurer's long-term business fund shall be available only for meeting the liabilities of the insurer attributable to its long-term business;

(b) other assets of the insurer shall be available only for meeting the liabilities of the insurer attributable to its other business.

(3) Where the value of the assets mentioned in either paragraph of subsection (2) exceeds the amount of the liabilities mentioned in that paragraph the restriction imposed by that subsection shall not apply to so much of those assets as represents the excess.

(4) In relation to the assets falling within either paragraph of subsection (2) the creditors mentioned in section 176(1) and (2) of the Companies Act 1981 shall be only those who are creditors in respect of liabilities falling within that paragraph; and any general meeting of creditors summoned for the purposes of that section shall accordingly be separate general meetings of the creditors in respect of the liabilities falling within each paragraph.

(5) Where under section 247(1) of the Companies Act 1981 (power of court to assess damages against delinquent officers) the Court orders any money or property to be repaid or restored to an insurer or any sum to be contributed to its assets then, if and so far as the wrongful act which is the reason for the making of the order related to assets belonging to an insurer's long-term business fund, the Court shall include in the order a direction that the money, property or contribution shall be treated for the purposes of this Act as assets of that fund, and this Act shall have effect accordingly.

§37 Continuation of long-term business of insurer in liquidation

37 (1) This section shall have effect in relation to the winding up of an insurer, being an insurer carrying on long-term business.

(2) The liquidator shall, unless the Court otherwise orders, carry on the long-term business of the insurer with a view to its being transferred as a going concern to another insurer, whether an existing insurer or an insurer formed for that purpose; and, in carrying on that business as aforesaid, the liquidator may agree to the variation of any contracts of insurance in existence when the winding up order is made, but shall not effect any new contracts of insurance.

(3) If the liquidator is satisfied that the interests of the creditors in respect of liabilities of the insurer attributable to its long-term business require the appointment of a special manager of the insurer's long-term business, he may apply to the Court, and the Court may on such application appoint a special manager of that business to act during such time as the Court may direct, with such powers, including any of the powers of a receiver or manager, as may be entrusted to him by the Court.

(4) Section 190(2) and (3) of the Companies Act 1981 (special manager to give security and receive remuneration) shall apply to a special manager appointed under subsection (3) of this section as they apply to a special manager appointed under that section.


APPLEBY

(5) The Court may, if it thinks fit and subject to such provisions (if any) as it may determine, reduce the amounts of the contracts made by the insurer in the course of carrying on its long-term business.

(6) The Court may, on the application of a liquidator, a special manager appointed under subsection (3) or the Authority, appoint an independent actuary to investigate the long-term business of the insurer and to report to the liquidator, the special manager or the Authority, as the case may be, on the desirability or otherwise of that business being conducted and on any reduction in the contracts made in the course of carrying on that business that may be necessary for its successful continuation.

Modified by: 2001 : 27 2001 : 33

(7) Notwithstanding section 175(1) of the Companies Act 1981 (which requires the liquidator to obtain the sanction of the Court or committee of inspection for the bringing of legal proceedings in the name of and on behalf of the company) the liquidator may without any such sanction make an application in the name of and on behalf of the insurer under section 25.

§38 Subsidiary insurers 38 (1) Where the insurance business or any part of the insurance business of an insurer has been transferred to an insurer under an arrangement in pursuance of which the first mentioned insurer (in this section called the subsidiary insurer) or the creditors thereof has or have claims against the insurer to which the transfer was made (in this section called the principal insurer), then, if the principal insurer is being wound up by or under the supervision of the Court, the Court shall, subject to this section, order the subsidiary insurer to be wound up in conjunction with the principal insurer, and may by the same or any subsequent order appoint the same person to be liquidator for the two insurers, and make provision for such other matters as may seem to the Court necessary, with a view to the insurers being wound up as if they were one insurer.

(2) The commencement of the winding up of the principal insurer shall, save as otherwise ordered by the Court, be the commencement of the winding up of the subsidiary insurer.

(3) In adjusting the rights and liabilities of the members of the several insurers between themselves, the Court shall have regard to the constitution of the insurers, and to the arrangements entered into between the insurers, in the same manner as the Court would have regard to the rights and liabilities of different classes of contributories in the case of the winding up of a single insurer, or as near thereto as circumstances admit.

(4) Where any insurer alleged to be subsidiary is not in process of being wound up at the same time as the principal insurer to which it is subsidiary, the Court shall not direct the subsidiary insurer to be wound up unless, after hearing all objections (if any) that may be urged by or on behalf of the insurer against it being wound up, the Court is of the opinion that the insurer is subsidiary to the principal insurer, and that the winding up of the insurer in conjunction with the principal insurer is just and equitable.

(5) An application may be made in relation to the winding up of any subsidiary insurer in conjunction with a principal insurer by any creditor of, or person interested in, the principal insurer or the subsidiary insurer.

(6) Where an insurer stands in the relation of a principal insurer to one insurer, and the relation of a subsidiary insurer to some other insurer, or where there are several insurers standing in the relation of subsidiary insurers to one principal insurer, the Court may deal with any number of such insurers together or in separate groups, as it thinks most expedient, upon the principles laid down in this section.

§39 Reduction of contracts as alternative

39 In the case of an insurer which has been proved to be unable to pay its debts, the Modified by 1981 : 16


APPLEBY

to winding up Court may, if it thinks fit, reduce the amount of the contracts of the insurer on such terms and subject to such conditions as the Court thinks just instead of making a winding up order.

§40 Winding up rules 40 (1) The Minister acting on the advice of the Authority may make rules under this section for determining the amount of the liabilities of an insurer to policyholders of any class or description for the purpose of proof in a winding up and generally for carrying into effect this Act in respect to the winding up of insurers.

Modified by: 2001 : 27 2001 : 33

(2) Without prejudice to the generality of subsection (1), rules made under this section may make provision for all or any of the following matters—

(a) the identification of the assets and liabilities falling within either paragraph of section 36(2);

(b) the apportionment between the assets falling within paragraphs (a) and (b) of section 36(2) of the costs, charges or expenses of the winding up or any debts of the insurer having priority under section 236 of the Companies Act 1981;

(c) the determination of the amount of liabilities of any description falling within either paragraph of section 36(2) for the purpose of establishing whether or not there is any such excess in respect of that paragraph as is mentioned in section 36(3);

(d) the application of assets within subsection (2)(a) for meeting the liabilities within that paragraph;

(e) the application of assets representing any such excess as is mentioned in section 36(3).

(3) Rules made under this section shall be subject to the negative resolution procedure.

PART VIII

CANCELLATION OF REGISTRATION

§41 Cancellation of registration of insurers

41 (1) The Authority may, subject to this Part, by order cancel the registration of an insurer —

Modified by: 1981 : 16 2001 : 27 2001 : 33

(a) at the request of the insurer; or

(b) upon any one or more of the following grounds—

(i) that false, misleading or inaccurate information has been supplied by the insurer or on it's behalf for the purpose of any provision of this Act or the regulations;

(ii) that two years have elapsed since the registration of the insurer, and the insurer has not commenced to carry on business;

(iii) that the insurer has ceased to carry on business;

(iv) that the insurer has persistently failed to pay fees due under section 14;

(v) that the insurer has not complied with a condition attached to its registration or with a requirement made of it under this Act or the regulations:


APPLEBY

(vi) that the insurer has been convicted of an offence against a provision of this Act or the regulations;

(vii) that, in the opinion of the Authority, the insurer has not been carrying on business in accordance with sound insurance principles;

Modified by: 2001 : 27 2001 : 33 2006 : 28

(viii) that any of the minimum criteria is not or has not been fulfilled, or may not be or may not have been fulfilled, in respect of the insurer.


(2) Before it cancels the registration of an insurer under subsection (1)(b), the Authority shall give the insurer notice in writing of the ground on which it proposes to cancel the registration, and shall afford the insurer an opportunity to make objection in writing within the period of thirty days after receipt of the notice; and the Authority shall take into consideration any such objection and, if it decides to cancel the registration, cause the order of cancellation to be served on the insurer together with a notice giving particulars of the rights conferred by section 44A.

Modified by: 2001 : 27 2001 : 33 2006 : 28

(3) The cancellation of the registration of an insurer shall take effect on the expiration of the period of twenty-one days beginning on the date of service of the order upon the insurer, or on such later date as may be specified in the order, but subject to the right of the insurer to appeal to an appeal tribunal under section 44A.


(4) In this section "to carry on business" means to carry on insurance business in or from within Bermuda.

§42 Cancellation of registration of insurance managers, etc

42 (1) The Authority may, subject to this Part, by order cancel the registration of an insurance manager, broker, agent or salesman —

Modified by: 1981 : 16 2001 : 27 2001 : 33

(a) at the request of the manager, broker, agent or salesman in question; or

(b) upon any one or more of the following grounds—

(i) that false, misleading or inaccurate information has been supplied by him on his behalf for the purposes of any provision of this Act or the regulations;

(ii) that two years have elapsed since his registration, and he has not commenced to carry on business;

(iii) that he has ceased to carry on business;

(iv) that he has persistently failed to pay fees due under section 14;

(v) that he has not complied with a condition attached to his registration or with a requirement made of him under this Act or the regulations;

(vi) that he has been convicted of an offence against a provision of this Act or the regulations;

(vii) that he has been convicted by a court (whether in Bermuda or elsewhere) of an offence involving fraud or dishonesty;

(viii) that, in the opinion of the Authority, he has not been carrying on business in accordance with sound insurance



APPLEBY

principles. 2001 : 33

(ix) that any of the minimum criteria is not or has not been fulfilled, or may not be or may not have been fulfilled, in respect of any such persons.


(2) The provisions of subsections (2) and (3) of section 41 shall apply in relation to the cancellation under this section of a registration as those provisions apply in relation to a cancellation under that section.

(3) In this section "to carry on business" means to carry on business in or from within Bermuda as an insurance manager, broker, agent or salesman, as the case may be.


§43 Appeals to Supreme Court

43 [Repealed] Repealed by 2006 : 28

§44 Cancellation of registration to be gazetted

44 The Authority shall publish in the Gazette notice of any cancellation of a registration under this Act.

Modified by: 2001 : 27 2001 : 33

PART VIIIA APPEAL TRIBUNALS


§44A Rights of appeal 44A (1) A registered person which is aggrieved by a decision of the Authority - Inserted by 2006 : 28

(a) cancelling its registration under section 41 or 42; or Inserted by 2006 : 28

(b) directing it to remove a controller or officer under section 32(2)(j); Inserted by 2006 : 28

may appeal against the decision to a tribunal constituted in accordance with section 44B.


(2) Where - Inserted by 2006 : 28

(a) the ground or a ground for a decision within subsection (1)(a) is that it appears to the Authority that the criterion in paragraph 1 of the minimum criteria is not or has not been fulfilled in the case of any person; or


(b) the Authority directs the removal of a person as a controller or officer of a registered person under section 32(2)(j);


the controller or officer to whom the ground relates or in respect of whom the direction is made may appeal to a tribunal constituted as aforesaid against the finding that there is such a ground for the decision or, as the case may be, against the direction for his removal.


(3) Any person on whom notice of objection is served under section 30F or 30H may appeal to a tribunal constituted as aforesaid against the decision of the Authority to serve the notice; but this subsection does not apply to a person in any case in which he has failed to give a notice or become or continued to be a controller in circumstances in which his doing so constitutes an offence under section 30G(1), (3),(4) or (5).


(4) The tribunal may suspend the operation of the decision appealed against pending the determination of an appeal in respect of the decision.


(5) The cancellation of a registered person’s registration pursuant to a decision against which there is a right of appeal under this section shall not have effect -



APPLEBY

(a) until the end of the period within which the appeal can be brought; or


(b) if such an appeal is brought, until it is determined or withdrawn. Inserted by 2006 : 28

§44B Constitution of tribunal

44B (1) A tribunal shall consist of a chairman, or, in his absence, a deputy chairman, and two other members.


(2) The chairman and the deputy chairman shall be appointed by the Minister for a term not exceeding three years, and shall be barristers and attorneys of at least seven years’ standing.


(3) During any period of time when the chairman or deputy chairman is absent from Bermuda or is for any other reason unable to act, the Minister may appoint another person to act in his place for the period of his absence or inability to act.


(4) The Minister shall appoint a panel of not less than nine persons with experience of insurance business to serve as members of appeal tribunals.


§44CDetermination of appeals

44C (1) Where an appeal is brought under the provisions of this Act the chairman or as the case may be the deputy chairman shall nominate two other members from the panel of members, who together with him shall constitute the tribunal which shall determine the appeal.


(2) On an appeal under sections 44A(1) and (2) the question for the determination of the tribunal shall be whether, for the reasons adduced by the appellant, the decision was unlawful or not justified by the evidence on which it was based.


(3) On any such appeal the tribunal may confirm or reverse the decision which is the subject of the appeal but shall not have power to vary it except that where the decision was to cancel a registration the tribunal may direct the Authority to impose conditions or issue directions instead.


(4) Notice of a tribunal’s determination, together with a statement of its reasons, shall be given to the appellant and to the Authority; and, unless the tribunal otherwise directs, the determination shall come into operation when the notice is given to the appellant and to the Authority.


§44D Costs, procedure and evidence

44D (1) A tribunal may give such directions as it thinks fit for the payment of costs or expenses by any party to the appeal.


(2) The Minister may make regulations with respect to appeals and those regulations may in particular make provision -


(a) as to the period within which and the manner in which such appeals are to be brought;


(b) as to the manner in which such appeals are to be conducted, including provision for any hearing to be held in private and as to the persons entitled to appear on behalf of the parties;


(c) as to the procedure to be adopted where appeals are brought both by a registered person and by a person who is to be a controller or officer of a registered person, including provision for the hearing of the appeals together and for the mutual disclosure of information.


(d) for requiring an appellant or the Authority to disclose or allow the inspection of documents in his or its custody or under his or its control;



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(e) for requiring any person, on tender of the necessary expenses of his attendance, to attend and give evidence or produce documents in his custody or under his control and for authorising the administration of oaths to witnesses;


(f) for enabling an appellant to withdraw an appeal or the Authority to withdraw its opposition to an appeal and for the consequences of any such withdrawal;


(g) for taxing or otherwise settling any costs or expenses which the tribunal directs to be paid and for the enforcement of any such direction;


(h) for enabling any preliminary or incidental functions in relation to an appeal to be discharged by the chairman or, as the case may be, the deputy chairman of the tribunal; and


(i) as to any other matter connected with such appeals. Inserted by 2006 : 28

(3) Regulations made under subsection (2) shall be subject to negative resolution procedure.


(4) A person who, having been required in accordance with regulations made under this section to attend and give evidence, fails without reasonable excuse to attend or give evidence, shall be guilty of an offence and liable on summary conviction to a fine of $10,000.


(5) A person who without reasonable excuse alters, suppresses, conceals, destroys or refuses to produce any document which he has been required to produce in accordance with regulations under this section, or which he is liable to be so required to produce, shall be guilty of an offence and liable -


(a) on summary conviction to a fine of $25,000 or to imprisonment for six months or to both;


(b) on conviction on indictment to a fine of $50,000 or to imprisonment for two years or to both.


§44E Further appeals on a point of law

44E (1) A registered person or other person who has appealed to a tribunal may appeal to the Court on any question of law arising from the decision of the appeal by the tribunal and an appeal on any such question shall also lie at the instance of the Authority; and if the Court is of the opinion that the decision was erroneous in point of law it shall remit the matter to the tribunal for re-hearing and determination by it.


(2) No appeal to the Court of Appeal shall be brought from a decision under subsection (1) except with leave of the Court of Appeal.


PART IX

SUPPLEMENTARY

§45 Prohibition of loans to directors, etc

45 (1) Subject to subsection (2), an insurer which carries on domestic business shall not, directly or indirectly, without the previous consent of the Authority in writing —

Modified by: 2001 : 27 2001 : 33

(a) make any loan to any director or officer of the insurer, or to the spouse or child of any such director or officer; or


(b) guarantee, or provide any security in connection with, a loan by any other person to a person referred to in paragraph (a).


APPLEBY

(2) Nothing in subsection (1) shall operate to prohibit the making of a loan—

(a) to a person referred to in subsection (1)(a) where the amount of the loan is within the surrender value of a life policy issued to him by the insurer; or

(b) secured by a first mortgage, where the amount of the loan does not exceed three quarters of the market value of the property mortgaged.

(3) An insurer which contravenes this section commits an offence.

§46 Effect on business transactions of infringement of Act

46 No business transaction shall be void or voidable by reason only that at the relevant time any party to the transaction is in breach of any provision of this Act.

§47 Acting on behalf of unregistered insurer

47 (1) Subject to subsection (2), any person who solicits another person, or causes him to enter into, or make application to enter into, a contract of domestic business with a person who is not a registered insurer commits an offence.

(2) Subsection (1) shall not apply in relation to —

(a) any contract arranged by any person authorized in that behalf by the Authority in accordance with any conditions imposed by the Authority; or

Modified by: 2001 : 27 2001 : 33

(b) any contract of re-insurance.

§48 Personal liability of intermediaries in certain cases

48 (1) Any insurance broker or agent who arranges a policy of domestic business with a person who is not a registered insurer shall be personally liable on the policy as if he were the insurer.

(2) For the purposes of subsection (1) a member of a recognized association of underwriters shall be deemed to be a registered insurer.

§49 Control of advertisements

49 An insurer or an insurance broker or agent shall not publish any advertisement which misleads, or directly or by implication is likely to mislead or deceive, any prospective policy-holder with respect to an insurer's assets or financial standing, or in any other material respect.

§50 Issue of false documents etc

50 (1) Any person who, for any purposes of this Act, issues any document which is false or misleading in a material respect, and any person who takes part in the preparation or issue of such a document, or who signs such a document, commits an offence unless he proves —

(a) if an individual, that he had no knowledge of the falsity or misleading character of the document and took every reasonable precaution to ensure its accuracy; and

(b) in any other case, that every person acting on his behalf had no such knowledge, and took every such reasonable precaution, as aforesaid.

PART X

MISCELLANEOUS

§51 Service on insurers 51 (1) Any notice, instrument or other document, and any legal process, to be delivered to, or served on, an insurer for the purposes of this Act may be delivered or served by leaving it at the principal office of the insurer.

(2) If the said office cannot reasonably be found, any such notice, Modified by:


APPLEBY

instrument, document or process may be delivered or served by leaving it at the office of the Authority and publishing notice of the fact in the Gazette.

2001 : 27 2001 : 33

(3) Delivery or service pursuant to subsection (2) shall be deemed to be delivery to, or service on, an insurer.

PART XI

POWERS EXERCISABLE TO ASSIST FOREIGN REGULATORY AUTHORITIES


§51A Request for assistance by foreign regulatory authority

51A (1) The powers conferred by section 51B are exercisable by the Authority for the purpose of assisting a foreign regulatory authority which had requested assistance in connection with inquiries being carried out by it or on its behalf.


(2) A “foreign regulatory authority” means the authority which, in a country or territory outside Bermuda, exercises regulatory functions corresponding to the regulatory functions of the Authority under this Act.

(3) The Authority shall not exercise the powers conferred by section 51B unless it is satisfied that the assistance requested by the foreign regulatory authority is for the purposes of its regulatory functions.

(4) An authority’s “regulatory functions’ means any function falling within subsection (2).

(5) In deciding whether to exercise those powers the Authority shall take into account, in particular⎯

(a) whether corresponding assistance would be given in that country or territory to the Authority;

(b) whether the inquiries relate to the possible breach of a law, or other requirement, which has no close parallel in Bermuda or involves the assertion of a jurisdiction not recognised by Bermuda;

(c) the nature and seriousness of the matter to which the inquiries relate, the importance to the inquiries of the information sought in Bermuda and whether the assistance could be obtained by other means; and

(d) whether it is otherwise appropriate in the public interest to give the assistance sought.

(6) The Authority may decline to exercise the powers conferred by section 51B unless the foreign regulatory authority undertakes to make such contributions towards the costs of their exercise as the Authority considers appropriate.

(7) The Authority shall decline to exercise the powers conferred by section 51B(1)(c) unless it is satisfied that any statement that may be given in the exercise of that power could not be used against the maker of the statement in evidence in proceedings under the law of the jurisdiction of the foreign regulatory authority.

§51B Power to require information

51B (1) Where in accordance with section 51A the Authority is satisfied that assistance should be provided pursuant to a request by a foreign regulatory authority and that the request is in relation to information in Bermuda pertaining to the business of a person registered under this Act (‘the registered person’) which is in its possession or under its control, the Authority may by notice in writing served on the registered person⎯

(a) require the registered person to furnish it with such information as the Authority may require with respect to any matter relevant to


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the inquiries to which the request relates;

(b) require the registered person to produce to it such document or documents of such description as it may specify;

(c) require an officer, servant or agent of the registered person to attend before it at a specified time and place and answer any questions or otherwise furnish any information with respect to any matter relevant to the inquiries; or

(d) require the registered person to otherwise give it such assistance in connection with those inquiries as the registered person may reasonably be able to give.

(2) Where documents are produced pursuant to this section the Authority may take copies from them.

(3) Nothing in this section shall require the disclosure or production by a person of information or documents which he would be entitled to refuse to disclose or produce on the grounds of legal professional privilege in proceedings in Bermuda.

(4) A statement by a person in compliance with a requirement imposed by subsection (1)(c) shall not be used in evidence against him.

(5) Where a person claims a lien on a document, its production under this section is without prejudice to his lien.

(6) In this section “documents” includes information recorded in any form; and, in relation to information recorded otherwise than in legible form, the power to require its production includes power to require the production of a copy of it in legible form.

§51C Exercise of powers by officer

51C (1) The Authority may authorise any of its officers or any other competent person to exercise on its behalf any of the powers conferred by section 51B.

(2) No such authority shall be granted except for the purpose of investigating⎯

(a) the affairs, or any aspect of the affairs, of a person specified by the Authority; or

(b) a subject matter specified by the Authority;

being a person who, or a subject matter which, is the subject of the inquiries being carried out by or on behalf of the foreign regulatory authority.

(3) No person shall be bound to comply with a requirement imposed by a person exercising powers by virtue of an authority granted under this section unless he has, if required, produced evidence of his authority.

(4) Where the Authority authorises a person other than one of its officer to exercise powers by virtue of this section, that person shall make a report to the Authority in such manner as it may require on the exercise of those powers and the results of exercising them.

§51D Penalty for failure to comply with requirement

51D (1) A person who without reasonable excuse fails to comply with a requirement imposed on him under section 51B commits an offence and is liable on summary conviction to a fine of $5,000 or to imprisonment for six months or both.

(2) A person who in purported compliance with any such requirement furnishes information which he knows to be false or misleading in a material particular, or a recklessly furnishes information which is false or misleading in a material particular commits an offence and is liable on summary conviction to a fine of $25,000 or to


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imprisonment for two years or to both.

PART XII

RESTRICTION ON DISCLOSURE OF INFORMATION


§52 Restricted information

52 (1) Except as provided by sections 52A, 52B and 52C⎯ Deleted and replaced by 2001 : 27

(a) no person who under or for the purposes of this Act receives information relating to the business or other affairs of any person; and

(b) no person who obtains such information directly or indirectly from a person who has received it as aforesaid,

shall disclose the information without the consent of the person to whom it relates and (if different) the person from whom it was received as aforesaid.

(2) This section does not apply to information which at the time of the disclosure is or has already been made available to the public from other sources or to information in the form of a summary or collection of information so framed as not to enable information relating to any particular person to be ascertained from it.

(3) Any person who discloses information in contravention of this section commits an offence and is liable⎯

(a) on summary conviction to a fine of $50,000 or to imprisonment for two years or to both;

(b) on conviction on indictment to a fine of $100,000 or to imprisonment for five years or to both.

§52A Disclosure for facilitating the discharge of functions of the Authority

52A (1) Section 52 does not preclude the disclosure of information in any case in which disclosure is for the purpose of enabling or assisting the Authority to discharge its functions under this Act.

Inserted by: 2001 : 27 2001 : 33

(2) Without prejudice to the generality of subsection (1), section 52 does not preclude the disclosure of information by the Authority to the auditor of the registered person if it appears to the Authority that disclosing the information would enable or assist the Authority to discharge its functions or would otherwise be in the interests of the policy-holders.


§52B Disclosure for facilitating the discharge of functions by other authorities

52B (1) Section 52 does not preclude the disclosure of information to the Minister or other authority in Bermuda in any case in which the disclosure is for the purpose of enabling or assisting the Minister or other authority to discharge his regulatory functions.


(2) Section 52 does not preclude the disclosure of information for the purpose of enabling or assisting an authority in a country or territory outside Bermuda to exercise functions corresponding to the functions of the Authority under this Act.


(3) Subsection (2) does not apply in relation to disclosure to an authority other than the foreign regulatory authority which has requested the information pursuant to section 51A, of information obtained pursuant to the exercise of powers under section 51B unless the Authority has taken into account the matters specified in section 51A(5).


(4) Subsection (2) does not apply in relation to disclosure to an authority unless the Authority is satisfied that the authority is subject to restriction on further disclosure at least equivalent to those imposed by sections 52, 52A and this section.



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(5) Section 52 does not preclude the disclosure of information⎯

(a) for the purpose of enabling or assisting an inspector appointed under section 30 to carry out an investigation;

(b) with a view to the institution of, or otherwise for the purposes of, any criminal proceedings, whether under this Act or any other Act;

(c) in connection with any other proceedings arising out of this Act.

(6) Section 52 does not preclude the disclosure by the Authority to the Director of Public Prosecutions or a police officer not below the rank of inspector of information obtained pursuant to section 30 or of information in the possession of the Authority as to any suspected contravention in relation to which the powers conferred by that section is exercisable.


(7) Information which is disclosed to a person in pursuance of this section shall not be used otherwise then for the purpose mentioned in this section.

§52C Information supplied to the Authority by relevant overseas authority

52C (1) Section 52 applies to information which has been supplied to the Authority for the purposes of any relevant functions by the relevant supervisory authority in a country or territory outside Bermuda.

Inserted by: 2001 : 27 2001 : 33

(2) Information supplied to the Authority as mentioned in subsection (1) shall not be disclosed except as provided by section 52 or⎯

Modified by: 2001 : 33 2002 : 29

(a) for the purpose of enabling or assisting the Authority to discharge its functions under the Act; or


(b) with a view to the institution of, or otherwise for the purpose of criminal proceedings, whether under this Act or any other Act.

(3) In this section⎯

“relevant functions” in relation to the Authority mean its functions under this Act;


“relevant supervisory authority” means the authority discharging in that country or territory functions corresponding to those of the Authority under this Act.


§53 Regulations by Minister

53 (1) The Minister acting on the advice of the Authority may make regulations —

Modified by: 2001 : 27 2001 : 33

(a) dividing insurance business into classes for the purposes of any provision of this Act;

(b) exempting any class of insurance business from any provision of this Act;

(c) exempting any person or class of persons from any provision of this Act;

(d) determining the value of assets or the amount of liabilities for the purposes of any provision of this Act;

(e) without prejudice to paragraph (d), providing that, for any specified purpose, assets or liabilities of any specified class or description shall be left out of account or shall be taken into account only to a specified extent;


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(f) prescribing the information to be contained in any statement or report required by any provision of this Act to be provided, and the manner of presentation of such information;

(g) prescribing the information to be contained in any register under this Act which is to be made available for inspection by members of the public;

(h) prescribing the number of copies and the manner of certification of any document required to be furnished under any provision of this Act;

(i) prescribing anything permitted or required by this Act to be prescribed;

(j) creating offences and prescribing penalties (including imprisonment) for such offences.


(2) Regulations prescribing the information to be contained in any statutory financial statement or any statutory financial return may provide for enabling the information to be given in a note on, or a statement or report annexed to, the statement or return; or may require there to be given in such a note, statement or report as aforesaid such information in addition to that given in the statement or return as may be prescribed.

(3) Regulations may, as respects such matters stated in any statutory financial statement or any statutory financial return or in statements or reports annexed thereto as may be prescribed, require there to be given by such persons as may be prescribed and to be annexed to the statutory financial statement or statutory financial return certificates of such matters as may be prescribed.

(4) If a form is prescribed for any statutory financial statement or as that in which information authorized or required to be given in a statement or report annexed to any statutory financial statement is to be given, or for a certificate to be so annexed, the statutory financial statement shall be prepared, the information shall be given or, as the case may be, the certificate shall be framed, in that form.

(5) In this section "Act" includes any regulations.

(6) Regulations made under this section shall be subject to the affirmative resolution procedure.

§54 Specific offences 54 (1) Any person who fails to comply with any duty or prohibition imposed upon him by any provision to which this section applies commits an offence.

(2) This section applies to sections 16, 16A, 17(1), (2) and (3), 24(4), 27(2), 28, 30(2), 43(5) and 49.


§55 General provisions relating to offences

55 (1) Any person committing an offence against this Act or any regulation for which no penalty is specifically provided may be proceeded against either summarily or on indictment:

Punishment on summary conviction: imprisonment for 12 months or a fine of $5,000 or both such imprisonment and fine.

Punishment on conviction on indictment: imprisonment for 3 years or a fine of $15,000 or both such imprisonment and fine.

(2) Where an offence committed against this Act or any regulation by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or



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other similar officer of the body corporate, or any person who was purporting to act in any such capacity, he, as well as the body corporate, commits that offence and is liable to be proceeded against and punished accordingly.

§56 Authority may modify accounting provisions in certain cases

56 (1) The Authority may, on the application, or with the consent, of any insurer, direct that all or any of the provisions to which this section applies shall not apply to that insurer or shall apply to it subject to such modifications as may be specified in the direction.

Modified by: 2001 : 27 2001 : 33

(2) A direction under this section may be subject to conditions.

(3) A direction under this section may be made with retroactive effect.

(4) A direction under this section may be revoked at any time by the Authority; and the Authority may also vary any such direction at any time, provided the variation has been applied for, or is consented to, by the insurer affected by the variation.

Modified by: 2001 : 27 2001 : 33

(5) The provisions to which this section applies are — Modified by 1983 : 14

(a) the limitations upon the carrying on of general business or, as the case may be, long-term business specified in section 1(4);

(b) the provisions of sections 4 to 4F, 6, 15 to 18 , 18B and 33; and Modified by 1995 : 20 2002 : 29

(c) the provisions of any regulations —

(i) relating to the limitations referred to in paragraph (a); or

(ii) made for the purposes of any of the provisions specified in paragraph (b).

(6) A direction given under this section is not a statutory instrument having legislative effect.

§57 Application 57 (1) Insurance business of any of the following kinds—

(a) insurance business carried on by a friendly society registered under the Friendly Societies Act 1868 [title 13 item 11] or by a trade union registered under the Trade Union Act 1965 [title 18 item 2], being business in which risks of members of the friendly society or trade union, as the case may be, are insured;

(b) insurance business carried on by the Bermuda Health Council (established under the Bermuda Health Council Act 2004) pursuant to the Health Insurance Act 1970;


(c) the health insurance scheme conducted pursuant to the Government Employees (Health Insurance) Act 1986 [title 9 item 16];

(d) housing loan insurance carried on by the Bermuda Housing Corporation under the Bermuda Housing Loan Insurance Act 1984 [title 29 item 5],

shall be deemed not to be insurance business within the meaning of this Act.

(2) Apart from —

(a) section 48; and

(b) any provision dealt with in subsection (3) of this section,


APPLEBY

nothing in this Act or any regulation shall apply in relation to any member of a recognized association of underwriters.

(3) In relation to a member of a recognized association of underwriters—

(a) section 3 shall not apply in relation to any member of a recognized association of underwriters who is registered in accordance with paragraph (b) below and carries on his business in accordance with the requirements of that paragraph and with any conditions attached to his registration;

(b) sections 9 to 14 and any regulations made for the purposes of those sections shall apply in relation to a member of a recognized association of underwriters as respects the carrying on of insurance business by him in or from within Bermuda as those provisions apply in relation to an insurance manager, broker, agent or salesman acting as such;

(c) sections 42 to 44 shall apply in relation to a member of a recognized association of underwriters in the same manner as those sections apply in relation to an insurance manager, broker, agent or salesman;

(d) section 54 shall apply as respects the proviso to section 43(5);

(e) section 55 shall apply;

(f) section 1 shall apply to the extent necessary for the interpretation of any other section that applies.

§57A Designated investment contracts

57A (1) For the purposes of this section— Inserted by 1998 : 8

"contract" includes investment or security, and any reference to "parties" in relation to an investment or security shall be taken to be a reference to its issuers and investors; and

"designated investment contract" means—

(a) any contract (including, but not limited to, any option contract, futures contract, swap contract, derivative contract, contract for differences or security) the purpose of which is to secure a profit or avoid a loss—

(i) 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, or

(ii) based on the happening of a particular event specified for that purpose in the contract; and

(b) in relation to which the Authority has given a direction under subsection (2).

Modified by: 2001 : 27 2001 : 33

(2) The Authority may direct in writing that a contract falling within paragraph (a) of the definition of designated investment contract in subsection (1), which was submitted to it in draft together with—

Modified by: 2001 : 27 2001 : 33

(a) the fee of $1,000, or such other fee as may be prescribed under the Bermuda Monetary Authority Act 1969, and


(b) such other documents as the Authority may require, Modified by:


APPLEBY

2001 : 27 2001 : 33

is a designated investment contract for the purposes of this section.

(3) A direction under this section—

(a) may be made with retroactive effect;

(b) may be subject to conditions which may be varied at any time, provided—

(i) that the variation has been applied for, or is consented to by the parties to the contract in question; and

(ii) that those parties undertake to notify such other persons as the Authority considers may be affected by the variation;

Modified by: 2001 : 27 2001 : 33

(c) is not a statutory instrument having legislative effect.

(4) Being a party to a designated investment contract shall not constitute carrying on insurance business, and a designated investment contract shall not constitute a contract of insurance, for any purposes.

(5) For the avoidance of doubt, a designated investment contract shall not constitute a bet for the purposes of the Betting Act 1975.

(6) The Minister may by order amend the definition of designated investment contract in subsection (1), if, after consulting the Authority, he considers it necessary to do so; and any such order shall be subject to the negative resolution procedure.

Modified by: 2001 : 27 2001 : 33

§58 Transitional 58 [Omitted]

§59 Amendment of Act No. 43 of 1971

59 [Omitted]

§60 Commencement 60 [Omitted]

SCHEDULE (sections 5, 11) MINIMUM CRITERIA FOR REGISTRATION


1 (1) Every person who is, or is to be, a controller or officer of a registered person is a fit and proper person to hold the particular position which he holds or is to hold.


(2) In determining whether a person is a fit and proper person to hold any particular position, regard shall be had to his probity, to his competence and soundness of judgement for fulfilling the responsibilities of that position, to the diligence with which he is fulfilling or likely to fulfil those responsibilities and to whether the interests of clients or potential clients of the registered person are, or are likely to be, in any way threatened by his holding that position.


(3) Without prejudice to the generality of the foregoing provisions, regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has -


(a) committed an offence involving fraud or other dishonesty or violence;


(b) contravened any provision made by or under any enactment appearing to the Authority to be designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of banking,



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insurance, investment or other financial services or the management of companies or against financial loss due to the conduct of discharged or undischarged bankrupts;

(c) engaged in any business practices appearing to the Authority to be deceitful or oppressive or otherwise improper (whether lawful or not) or which otherwise reflect discredit on his method of conducting business;


(d) engaged in or has been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgement.


Business to be directed by at least two individuals

2 If a body corporate, at least two individuals shall effectively direct the business of the registered person.


Composition of board of directors

3 If a body corporate, the directors shall include such number (if any) of directors without executive responsibility for the management of its business as the registered person considers appropriate having regard to the circumstances of the registered person and the nature and scale of its operations.


Business to be conducted in prudent manner

4 (1) The registered person conducts, or, in the case of a registered person which is not yet carrying on business, will conduct its business in a prudent manner.


(2) In determining whether a registered person is conducting its business in a prudent manner, the Authority shall take into account any failure by the registered person to comply with the provisions of this Act any other provisions of law and code of conduct.

Inserted by 2006 : 28; Modified by 2006: 42

(3) A registered person shall not be regarded as conducting its business in a prudent manner unless it maintains or, as the case may be, will maintain adequate accounting and other records of its business and adequate systems of control of its business and records.


(4) Those records and systems shall not be regarded as adequate unless they are such as to enable the business of the registered person to be prudently managed and the registered person to comply with the duties imposed on it by or under this Act or other provision of law; and in determining whether those systems are adequate the Authority shall have regard to the nature and scale of its operations and the functions and responsibilities in respect of them of any such directors of the registered person as are mentioned in paragraph 3.


(5) Subparagraphs (2) to (4) are without prejudice to the generality of subparagraph (1).


Consolidated supervision

5 The position of the registered person within the structure of any group to which it may belong shall be such that it will not obstruct the conduct of effective consolidated supervision.


Integrity and skill

6 The business of the registered person is or, in the case of a registered person which is not yet carrying on business, will be carried on with integrity and the professional skills appropriate to the nature and scale of its activities.



APPLEBY

Amended by

Insurance Amendment Act 1981 1981 : 16

Insurance Amendment Act 1983 1983 : 14 Insurance Amendment Act 1985 1985 : 1

Bermuda Immigration and Protection Act 1985 1985 : 20




Insurance Amendment (No. 2) Act 2001 2001 : 33


Bermuda Monetary Authority Act 2002 2002 : 39


The Banks and Deposit Companies (Consequential Amendments) Order 1999 BR 81/1999


Insurance Amendment (No. 2) Act 2006 2006: 42

INSURANCE ACCOUNTS REGULATIONS 1980 (Consolidated by Appleby as at 16 September 2005)

BERMUDA STATUTORY INSTRUMENT

BR 18/1980

INSURANCE ACCOUNTS REGULATIONS 1980

[made by the Minister of Finance under the Insurance Act 1978 [title 17 item 49] and brought into operation on 1 January 1980]

§1 Citation 1 These Regulations may be cited as the Insurance Accounts Regulations 1980.

§2 Interpretation 2 In these Regulations, except where the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say—

Modified by BR 41/2005

"account" includes any of the statements specified in regulation 3(2), and any note or other document annexed or attached to any such statement;

"the Act" means the Insurance Act 1978;

"affiliate", in relation to an insurer, means a body forming part of a group with that insurer;

"association" has the meaning assigned thereto in the definition of "group";

"composite" means an insurer which in the relevant year carried on both general business and long-term business;

"fair value determined in good faith", in relation to an investment held by an insurer, means the value of that investment, being the value that in the opinion of the directors, exercising good faith, that investment would realize on a sale or other disposition of that investment within a reasonable period of time;

"Form" means any Form in Schedule I;

"funds held by ceding reinsurers" means funds held by ceding reinsurers under the terms of contracts of insurance;

"group" means any two or more bodies, whether corporate or un-incorporate, that are in association, and two bodies shall for the purposes of these Regulations be deemed to be in association if one of them has control of the other or both are under the control of the same person or persons;

"independent", in relation to an appraisal, means that the appraisal is made by a person who —

(a) makes such appraisals in the ordinary course of his business; and

(b) is not financially interested in any way in the business of the person whose property is being appraised, apart from the appraisal;

"insurance" has the same meaning as the expression "insurance business" has in the Act;

"liability insurance business" means the business of effecting and carrying out contracts of insurance against risks of the persons insured incurring liabilities to third parties;

"non-admitted", in relation to an asset, means an asset or portion of an asset that is not allowed by these Regulations to be taken into account in preparing the statutory balance sheet;

"policy" or "policy of insurance" means any contract of insurance (including any

applebyglobal.com

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contract to pay an annuity on human life), whether or not there is in being any instrument in writing evidencing the contract;

"policy loan" means a loan made to a policyholder by an insurer carrying on long-term business on the security of the cash surrender value of the policyholder's policy of insurance;

"policy reserve" means the amount by which the present value of any benefits due under a policy of insurance exceeds the present value of the net premiums payable under the policy;

"products liability insurance" means liability insurance business where the risks, the subject of the contract of insurance, are risks of the persons insured incurring liabilities in relation to the manufacture or sale by them of, or some other dealing by them in, products that are, or may be claimed to be, in some respect defective;

"professional liability insurance" means liability insurance business where the risks, the subject of the contract of insurance, are risks of the persons insured incurring liabilities in relation to the negligent or other exercise by those persons of some professional skill;

"quoted"—

(a) in relation to an investment, means an investment as respects which there has been granted a quotation or permission to deal on a stock exchange in Bermuda recognized by the Authority for the purposes of the Act, or on any stock exchange or over-the-counter market of repute outside Bermuda; and

Modified by 2001 : 27 2001 : 33

(b) in relation to the value of an investment, means the market value of that investment, being the value listed on such an exchange or over-the-counter market as aforesaid on the last day of the relevant year,

and "unquoted" shall have a corresponding meaning, so, however, that any investment by all insurer in an affiliate shall not for any purpose of these Regulations be taken to be either a quoted or an unquoted investment;

"regulations" means regulations made under section 53 of the Act;

"relevant year" has the meaning assigned thereto in paragraph (3) of regulation 3;

"section 24(6) composite" means an insurer to which section 24 of the Act does not apply by reason of subsection (6) of that section;

"statutory financial statements" has the meaning assigned thereto in paragraph (2) of regulation 3;

"unearned premiums" means the amount set aside as at the end of an insurer's financial year out of premiums in respect of risks to be borne by the insurer after the end of that year, and calculated pro rata, under contracts of insurance entered into before the end of that year.

§3 Statutory financial statements

3 (1) Except as provided otherwise in other regulations, the duties of every insurer in relation to the preparation of statutory financial statements within the meaning of section 15 of the Act shall be those prescribed in these Regulations.

(2) The said statutory financial statements consist of —

(a) a statutory balance sheet;

(b) a statutory statement of income;


APPLEBY

(c) a statutory statement of capital and surplus;

(d) where the case requires, a statutory open year business revenue statement.

(3) Every insurer shall have the duty to prepare in accordance with the requirements of these Regulations, in respect of its insurance business for each financial year, the statutory financial statements specified in sub-paragraphs (a) to (c) of paragraph (2), and the financial year in relation to which any particular set of financial statements have been, or are to be, prepared is in these Regulations referred to as "the relevant year".

§4 Balance sheet and statement of income for general business

4 (1) Subject to paragraph (3), the statutory balance sheet and the statutory statement of income of an insurer which in the financial year carried on no insurance business other than general business shall respectively be in the forms set out in Forms 1 and 2.

(2) The statutory statement of income of such an insurer as aforesaid may have annexed to it a statutory open year business revenue statement in the form set out in Form 3, and any such statement may relate to one or more, or all, classes of that insurer's general business.

(3) An insurer which annexes to its statutory statement of income a statutory open year business revenue statement —

(a) shall, in preparing Form 1, include in line 18 thereof the balance from the statutory open year business revenue statement;

(b) shall not, in preparing Form 2, include in line 3, 8, 9, 10, 11, 12 or 17 any amount which would, were it not for this sub-paragraph, have to be included there, if that amount has been included in the insurer's statutory open year business revenue statement.

§5 Balance sheet and statement of income for long-term business

5 The statutory balance sheet and the statutory statement of income of an insurer which in the relevant year carried on no insurance business other than long-term business shall respectively be in the forms set out in Forms 4 and 5.

§6 Balance sheet and statement of income for composites

6 (1) Subject to paragraph (3)—

(a) the statutory balance sheet;

(b) the statutory statement of income; and

(c) where the case requires, the statutory open year business revenue statement,

of every composite shall, in respect of its general business, respectively be in the forms called for by regulation 4.

(2) Subject to paragraph (3), the statutory balance sheet and the statutory statement of income of every composite shall, in respect of the composite's long-term business, respectively be in the forms called for by regulation 5.

(3) Subject to paragraph (4), the requirements of paragraphs (1) and (2) shall not apply in relation to any section 24(6) composite, but instead —

(a) the statutory balance sheet and the statutory statement of income of a section 24(6) composite shall respectively be in the forms set out in Forms 6 and 7; and

(b) the statutory statement of income of a section 24(6) composite may


APPLEBY

have annexed to it a statutory open year business revenue statement in the form set out in Form 3, and any such statement may relate to one or more, or all, classes of that composite's general business.

(4) A section 24(6) composite may, if it thinks fit, comply with the requirements of paragraphs (1) and (2) voluntarily, and any section 24(6) composite which complies with those requirements need not comply with the requirements of paragraph (3).

§7 Statement of capital and surplus for all insurers

7 The statutory statement of capital and surplus of every insurer shall be in the form set out in Form 8.

§8 Notes to statutory financial statements

8 (1) Every insurer shall set forth in a general note to its statutory financial statements the matters called for in Part I of Schedule II.

(2) Every insurer shall also set forth—

(a) in notes to its statutory balance sheet;

(b) in notes to its statutory statement of income; and

(c) in notes to its statutory statement of capital and surplus, the matters called for by Parts II, III and IV respectively of that Schedule.

§9 Instructions relating to statutory financial statements

9 (1) Every insurer shall comply with the following provisions of this regulation (being provisions containing instructions affecting the preparation of the several statutory financial statements).

(2) In the preparation of the statutory balance sheet the instructions set forth in the several Parts of Schedule III shall have effect in accordance with the following rules, that is to say—

(a) every insurer shall comply with the instructions in Part I;

(b) every insurer which in the relevant year carried on no insurance business other than general business shall, in addition to complying with the instructions in Part I, comply with the instructions in Part II;

(c) every insurer which in the relevant year carried on no insurance business other than long-term business shall, in addition to complying with the instructions in Part I, comply with the instructions in Part III;


(d) every section 24(6) composite shall, in addition to complying with the instructions in Part I, comply with the instructions in Parts II and III.

(3) In the preparation of the statutory statement of income the instructions set forth in the several Parts of Schedule IV shall have effect in accordance with the following rules, that is to say—

(a) every insurer shall comply with the instructions in Part I;

(b) every insurer which in the relevant year carried on no insurance business other than general business shall, in addition to complying with the instructions in Part I, comply with the instructions in Part II;

(c) every insurer which in the relevant year carried on no insurance business other than long-term business shall, in addition to complying with the instructions in Part I, comply with the


APPLEBY

instructions in Part III;

(d) every section 24(6) composite shall—

(i) in addition to complying with the instructions in Part I, comply with the instructions in Parts II and III; and

(ii) in addition include in line 36 of Form 7 the total of lines 18 and 35 of that Form,

(4) In preparing its statutory statement of capital and surplus every insurer shall comply with the instructions in Schedule V.

(5) If any instruction in Schedule III, IV or V requires any amount to be shown or any information to be given in a line of a Form in Schedule I, that amount or information must be shown or given on that line notwithstanding that that line or that Form may not contain any express direction or indication where the amount or information is to be shown or given.

§10 Requirements relating to preparation of accounts generally

10 (1) All accounts shall be prepared in the English language.

(2) All amounts which for any purposes of these Regulations are to be shown in any account of any insurer shall be shown in a single currency, and that currency shall be the currency in which the books and records of the insurer are kept in the insurer's principal office in Bermuda or, where different books and records are kept in different currencies in that office, then the currency in which the majority of those books and records are kept:

Provided that where the Authority pursuant to the power given to him by section 17(1) of the Act directs the production to him of statutory financial statements, and amounts in those statements are shown in a foreign currency. those amounts must be converted into their Bermudian equivalent before the said statements are so produced.

Modified by 2001 : 27 2001 : 33

(3) For the purposes of paragraph (2), the Bermudian equivalent of an amount in a foreign currency shall be the Bermudian dollar equivalent of that amount as converted into Bermudian dollars at the rate of exchange used by any licensed Bank in Bermuda in relation to purchases by that Bank of that foreign currency on the last day of the relevant year.

(4) For all items shown in any account of any insurer (other than a statutory open year business revenue statement) there shall be shown the corresponding amounts for the immediately preceding financial year.

§11 Offences 11 (1) Any person who—

(a) fails to comply with any duty or prohibition imposed upon him by these Regulations; or

(b) in or in relation to any account makes, or joins in making, any statement which he knows to be false or does not believe to be true,

shall be guilty of an offence against these Regulations.

(2) In sub-paragraph (b) of paragraph (1), the expression "make a statement" includes, in relation to any statement made, a wilful omission to state something that is material.

§12 Commencement 12 omitted

SCHEDULE I (Regs. 2, 4, 5, 6, 7)

PRESCRIBED FORMS OF STATUTORY FINANCIAL STATEMENTS


APPLEBY

Form 1

STATUTORY BALANCE SHEET (General Business)

[blank] name of Company

as at [blank] (day/month/year)

expressed in [blank] (currency used (vide Reg. 10(2)))

ASSETS

STMT. LINE No. 19XX 19XX

1. CASH AND TIME DEPOSITS XXX XXX

2. QUOTED INVESTMENTS:

(a) Bonds and Debentures XXX XXX

(b) Equities (preferred and ordinary) XXX XXX

(c) Other quoted investments XXX XXX Modified by BR 38/1981

(d) Total quoted investments XXX XXX Modified by BR 38/1981

3. UNQUOTED INVESTMENTS:



(c) Total unquoted investments XXX XXX

4. INVESTMENTS IN AND ADVANCES TO AFFILIATES XXX XXX

5. INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE:

(a) First liens XXX XXX

(b) Other than first liens XXX XXX

(c) Total investment in mortgage loans on real estate XXX XXX

7. REAL ESTATE:

(a) Occupied by the company (less encumbrances) XXX XXX

(b) Other properties (less encumbrances) XXX XXX

(c) Total real estate XXX XXX

8. COLLATERAL LOANS XXX XXX

9. INVESTMENT INCOME DUE AND ACCRUED XXX XXX

10. ACCOUNTS AND PREMIUMS RECEIVABLE XXX XXX


APPLEBY

11. REINSURANCE BALANCES RECEIVABLE XXX XXX

12. FUNDS HELD BY CEDING REINSURERS XXX XXX

13. SUNDRY ASSETS:

(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

14. LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS


(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

15. TOTAL XXX XXX

GENERAL BUSINESS INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY CAPITAL AND SURPLUS


INSURANCE RESERVES

16. UNEARNED PREMIUMS XXX XXX

17. LOSS AND LOSS EXPENSES PROVISIONS XXX XXX

18. OTHER INSURANCE RESERVES — GENERAL BUSINESS XXX XXX

19. TOTAL GENERAL BUSINESS INSURANCE RESERVES XXX XXX

OTHER LIABILITIES

28. INSURANCE AND REINSURANCE BALANCES PAYABLE XXX XXX


29. COMMISSIONS, EXPENSES, FEES AND TAXES PAYABLE XXX XXX

30. LOANS AND NOTES PAYABLE XXX XXX

31. (a) INCOME TAXES PAYABLE XXX XXX

(b) DEFERRED INCOME TAXES XXX XXX

32. AMOUNTS DUE TO AFFILIATES XXX XXX

33. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES XXX XXX

34. FUNDS HELD UNDER REINSURANCE CONTRACTS XXX XXX

35. DIVIDENDS PAYABLE XXX XXX


APPLEBY

36. SUNDRY LIABILITIES:

(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

37. LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS XXX XXX


38. TOTAL OTHER LIABILITIES XXX XXX

39. TOTAL GENERAL BUSINESS INSURANCE RESERVES AND OTHER LIABILITIESXXX XXX

STATUTORY CAPITAL AND SURPLUS

40. TOTAL STATUTORY CAPITAL AND SURPLUS XXX XXX

41. TOTAL XXX XXX

Form 2

STATUTORY STATEMENT OF INCOME (General Business)





UNDERWRITING INCOME

1. GROSS PREMIUMS WRITTEN XXX XXX

2. REINSURANCE PREMIUMS CEDED XXX XXX

3. NET PREMIUMS WRITTEN XXX XXX

4. INCREASE (DECREASE) IN UNEARNED PREMIUMS XXX XXX

5. NET PREMIUMS EARNED XXX XXX

6. OTHER INSURANCE INCOME XXX XXX

7. XXX XXX

UNDERWRITING EXPENSES

8. NET LOSS INCURRED AND NET LOSS EXPENSES INCURRED XXX XXX

9. COMMISSIONS AND BROKERAGE XXX XXX

OTHER UNDERWRITING EXPENSES

10. GENERAL AND ADMINISTRATIVE XXX XXX

11. PERSONNEL COSTS XXX XXX

12. OTHER XXX XXX


APPLEBY

13. XXX XXX

14. UNDERWRITING PROFIT (LOSS) XXX XXX

15. TRANSFERRED FROM (TO) OPEN YEAR BUSINESS REVENUE STATEMENT XXX XXX

16. NET UNDERWRITING PROFIT (LOSS) XXX XXX

17. GENERAL BUSINESS INVESTMENT INCOME — NET XXX XXX

18. INCOME BEFORE THE UNDERNOTED ITEMS XXX XXX

37. OTHER INCOME (DEDUCTIONS) XXX XXX

38. INCOME BEFORE TAXES XXX XXX

39. INCOME TAXES (IF APPLICABLE):

(a) Current XXX XXX

(b) Deferred XXX XXX

(c) Total XXX XXX

40. INCOME BEFORE REALIZED GAINS (LOSSES) XXX XXX

41. REALIZED GAINS (LOSSES) XXX XXX

42. NET INCOME XXX XXX

Form 3

STATUTORY OPEN YEAR BUSINESS REVENUE STATEMENT (General Business)

temporarily omitted

Form 4

STATUTORY BALANCE SHEET (Long-term Business)




ASSETS










APPLEBY




4. INVESTMENTS IN AND ADVANCES TO AFFILIATES XXX XXX



(b) Other than first liens XXX XXX

(c) Total investment in Mortgage Loans on Real Estate XXX XXX

6. POLICY LOANS

7. REAL ESTATE:









13. SUNDRY ASSETS:

(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX



(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

15. TOTAL XXX XXX

LONG-TERM BUSINESS INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY CAPITAL AND SURPLUS


APPLEBY


LONG-TERM BUSINESS INSURANCE RESERVES

20. RESERVES FOR REPORTED CLAIMS XXX XXX

21. RESERVES FOR UNREPORTED CLAIMS XXX XXX

22. POLICY RESERVES — LIFE XXX XXX

23. POLICY RESERVES — ACCIDENT AND HEALTH XXX XXX

24. POLICYHOLDERS' FUNDS ON DEPOSIT XXX XXX

25. LIABILITY FOR FUTURE POLICYHOLDERS' DIVIDENDS XXX XXX

26. OTHER INSURANCE RESERVES — LONG-TERM XXX XXX

27. TOTAL LONG-TERM BUSINESS INSURANCE RESERVES XXX XXX

OTHER LIABILITIES












(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

37. LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS XXX XXX



39. TOTAL GENERAL BUSINESS INSURANCE


APPLEBY

RESERVES AND OTHER LIABILITIESXXX XXX


40. TOTAL STATUTORY CAPITAL AND SURPLUS _XXX _XXX

41. TOTAL XXX XXX

Form 5

STATUTORY STATEMENT OF INCOME (Long-term Business)





19. PREMIUMS AND OTHER CONSIDERATIONS:

(a) Life XXX XXX

(b) Annuities XXX XXX

(c) Accident and Health XXX XXX

(d) Total Premiums and Other Considerations XXX XXX

20. LONG-TERM BUSINESS INVESTMENT INCOME — Net XXX XXX


22. XXX XXX

DEDUCTIONS

23. Claims — Life XXX XXX

24. Policyholders' Dividends XXX XXX

25. Surrenders XXX XXX

26. Maturities XXX XXX

27. Annuities XXX XXX

28. Accident and Health Benefits XXX XXX

29. Commissions XXX XXX

30. Other XXX XXX

31. XXX XXX

32. OPERATING EXPENSES XXX XXX

33. XXX XXX

34. INCREASE (DECREASE) IN POLICY RESERVES (Actuarial Liabilities):

(a) Life XXX XXX


APPLEBY



(d) Total Increase (Decrease) in policy reserves XXX XXX





(a) Current XXX XXX


(c) Total XXX XXX


41. REALIZED GAINS (LOSSES) XXX XXX


Form 6

STATUTORY BALANCE SHEET

(Section 24(6) Composite)




ASSETS

STMT.

LINE No. 19XX 19XX











4. INVESTMENTS IN AND ADVANCES


APPLEBY

TO AFFILIATES XXX XXX



(b) Other than first liens _XXX _XXX

(c) Total investment in mortgage loans on real estate XXX XXX

6. POLICY LOANS XXX XXX

7. REAL ESTATE:









13. SUNDRY ASSETS:

(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX



(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

15. TOTAL XXX XXX

GENERAL BUSINESS INSURANCE RESERVES, LONG-TERM BUSINESS INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY

CAPITAL AND SURPLUS


GENERAL BUSINESS INSURANCE RESERVES


APPLEBY

16. UNEARNED PREMIUMS XXX XXX

17. LOSS AND LOSS EXPENSES PROVISIONS XXX XXX

18. OTHER INSURANCE RESERVES — GENERAL BUSINESS XXX XXX

19. TOTAL GENERAL BUSINESS INSURANCE RESERVES _XXX _XXX

LONG-TERM BUSINESS INSURANCE RESERVES

20. RESERVES FOR REPORTED CLAIMS XXX XXX

21. RESERVES FOR UNREPORTED CLAIMS XXX XXX

22. POLICY RESERVES — LIFE XXX XXX

23. POLICY RESERVES — ACCIDENT AND HEALTH XXX XXX

24. POLICYHOLDERS' FUNDS ON DEPOSIT XXX XXX

25. LIABILITY FOR FUTURE POLICYHOLDERS' DIVIDENDS XXX XXX

26. OTHER INSURANCE RESERVES — LONG-TERM XXX XXX

27. TOTAL LONG-TERM BUSINESS INSURANCE RESERVES XXX XXX

OTHER LIABILITIES












(a) ___________ XXX XXX

(b) ___________ XXX XXX

(c) ___________ XXX XXX

37. LETTERS OF CREDIT, GUARANTEES Modified by BR


APPLEBY

AND OTHER INSTRUMENTS XXX XXX 29/1989


39. TOTAL GENERAL BUSINESS INSURANCE RESERVES AND OTHER LIABILITIESXXX XXX



41. TOTAL XXX XXX

Form 7

STATUTORY STATEMENT OF INCOME (Section 24(6) Composite)


for the year ended [blank] (day/month/year)



UNDERWRITING INCOME

1. GROSS PREMIUMS WRITTEN XXX XXX

2. REINSURANCE PREMIUMS CEDED XXX XXX

3. NET PREMIUMS WRITTEN XXX XXX

4. INCREASE (DECREASE) IN UNEARNED PREMIUMS XXX XXX

5. NET PREMIUMS EARNED XXX XXX


7. XXX XXX

UNDERWRITING EXPENSES

8. NET LOSS INCURRED AND NET LOSS EXPENSES INCURRED XXX XXX

9. COMMISSIONS AND BROKERAGE XXX XXX

OTHER UNDERWRITING EXPENSES

10. GENERAL ADMINISTRATIVE XXX XXX

11. PERSONNEL COSTS XXX XXX

12. OTHER XXX XXX

13. XXX XXX

14. UNDERWRITING PROFIT (LOSS) XXX XXX

15. TRANSFERRED FROM (TO) OPEN YEAR BUSINESS REVENUE STATEMENT XXX XXX

16. NET UNDERWRITING PROFIT (LOSS) XXX XXX


APPLEBY

17. GENERAL BUSINESS INVESTMENT INCOME — NET XXX XXX

18. INCOME FROM GENERAL BUSINESS BEFORE THE UNDERNOTED ITEMS XXX XXX

19. PREMIUMS AND OTHER CONSIDERATIONS:

(a) Life XXX XXX



(d) Total Premiums and Other Considerations XXX XXX

20. LONG-TERM BUSINESS INVESTMENT INCOME — Net XXX XXX


22. XXX XXX

DEDUCTIONS

23. Claims — Life XXX XXX

24. Policyholders' Dividends XXX XXX

25. Surrenders XXX XXX

26. Maturities XXX XXX

27. Annuities XXX XXX

28. Accident and Health Benefits XXX XXX

29. Commissions XXX XXX

30. Other XXX XXX

31. XXX XXX

32. OPERATING EXPENSES XXX XXX

33. XXX XXX

34. INCREASE (DECREASE) IN POLICY RESERVES (ACTUARIAL LIABILITIES):

(a) Life XXX XXX



(d) Total Increase (Decrease) in policy reserves XXX XXX


COMBINED INCOME AND UNALLOCATED ITEMS

STMT.


APPLEBY

LINE No. 19XX 19XX

INCOME BEFORE UNALLOCATED ITEMS

18. GENERAL BUSINESS XXX XXX

35. LONG-TERM BUSINESS XXX XXX

36. COMBINED INCOME XXX XXX




(a) Current XXX XXX


(c) Total XXX XXX


41. REALIZED GAINS (LOSSES) XXX XXX Inserted by BR 38/1981


Form 8

STATUTORY STATEMENT OF CAPITAL AND SURPLUS





1. STATUTORY CAPITAL:

(a) Capital Stock

authorized shares of par value each issued and fully paid shares XXX XXX

(b) Contributed surplus XXX XXX

(c) Any other fixed capital

(d) Total Statutory Capital XXX XXX

2. STATUTORY SURPLUS:

(a) Statutory Surplus — Beginning of Year XXX XXX

(b) Add: Income for the year XXX XXX

(c) Less: Dividends paid and payable XXX XXX

(d) Add (Deduct) change in unrealized


APPLEBY

appreciation (depreciation) of investments XXX XXX

(e) Add (Deduct) change in non-admitted assets XXX XXX

(f) Add (Deduct) change in appraisal of real estate XXX XXX

(g) Add (Deduct) change in any other statutory surplus XXX XXX

(h) Statutory Surplus — End of Year XXX XXX


SCHEDULE II (Reg. 8)

NOTES TO STATUTORY FINANCIAL STATEMENTS

PART I

Matters to be set forth in a General Note to the Statutory Financial Statements

1 The name of the person or persons ultimately having power (whether directly or through having control of some other person or persons who directly or indirectly control the insurer) to control the insurer and, where the persons having that ultimate power are a body corporate, the place of incorporation of that body corporate.

2 The general nature of the risks underwritten by the insurer.

3 The insurer's significant accounting policies, the nature of any change made during the relevant year in those policies and the effect, if determinable, of that change on the statutory financial statements.

4 The basis of recognition of premium, investment and commission income.

5 The method used to translate amounts denominated in currencies other than the currency of the statutory financial statements, the amounts, if material, gained or lost on such translation and the manner in which those gains or losses are treated in those statements.

6 Any foreign exchange control restrictions affecting assets of the insurer, with particular reference to money balances which cannot be transferred to the insurer because of reasons that are not insurance reasons.

7 Any contingencies or commitments calling for special mention (for example, a commitment involving an obligation requiring abnormal expenditure, or the conclusion of a long lease).

8 Any default made by the insurer in relation to the principal, interest, sinking fund or redemption provisions of any securities issue made, or any credit agreement entered into, by it.

9 The gross amount of arrears of dividends on preferred cumulative shares, and the date to which those dividends were last paid.

10 The amount of any loan made during the relevant year by the insurer, to any director or officer of the insurer, not being a loan made in the ordinary course of business.


11 The amount of any obligation in respect of retirement benefits relating to


APPLEBY

employees of the insurer arising from service prior to the end of the relevant year remaining to be charged against operations, and the basis on which the insurer proposes to charge that amount.

12 Any transaction made or other event occurring between the end of the relevant year and the date of the auditor's report and materially affecting the statutory financial statements, not being a transaction made or an event occurring in the ordinary course of business.

13 Any other information which in the opinion of the directors is required to be disclosed if the statutory financial statements are not to be misleading.

PART II

Matters to be set forth in Notes to the Statutory Balance Sheet

Information required to be given

[Note: The numerals in bold type refer to the numbers of the line of statutory balance sheet]

§1 Cash and time deposits

1. Any encumbrance on cash or time deposits must be disclosed. Examples of such encumbrances are: irrevocable letters of credit; amounts held for security or as collateral against a liability of the insurer or an affiliate; any other use restriction such for example as that the funds in question are held in escrow or in a custodial account.

3. Unquoted investments

The method of valuation of any unquoted investment must be described. Where a valuation is made-

(a) of bonds or debentures at other than amortized cost; or

(b) of equities (whether preferred or ordinary) by any method other than the cost method or the equity method of valuation,

the reasons shall be stated.

§4 Investment in mortgage loans on real estate

4. The method of valuation must be described. Where a valuation is made of any investment by any method other than the cost method or the equity method of valuation the reasons shall be stated.

Repayment terms and the rates of interest applicable to advances must also be given.


5. The range of interest rates and the range of maturity dates for mortgage loans on real estate must be disclosed.

§7 Real estate 7. As regards real estate—

(a) (i) the method of valuation; and

(ii) where there are encumbrances, the value of the real estate before encumbrances, the amount and nature of the encumbrances and the repaying terms and interest rates applicable to the encumbrances,

shall be disclosed;

(b) where an independent appraisal has been made, real estate may be valued at the appraisal value net of the amount of any encumbrances. In such a case, full details of the appraisal (including the date of the appraisal, the name of the appraiser, the basis of valuation and the disposition of any


APPLEBY

amounts added to or deducted from the book value) shall be disclosed;

(c) where other properties (i.e. properties not occupied by the insurer) are included in the statutory balance sheet, the nature of the investments represented by those properties (for example whether held for investment return, or as a result of default of mortgage, or for speculative gain) shall be disclosed.

§14 Letters of credit, guarantees and other instruments

14. The following must be disclosed in a note— Modified by BR 29/1989

(a) the name of the person granting the letter of credit, guarantee or other instrument, and the name of the person in whose favour the letter of credit, guarantee or other instrument was granted;

(b) the amount of the letter of credit, guarantee or other instrument;

(c) the purpose for which the letter of credit, guarantee or other instrument was granted.

§16 Unearned premiums 16. The method of calculating unearned premiums.

§17 Loss and Loss expense provisions

17. The following must be disclosed in a note— Modified by BR 29/1989

(a) the method of calculating loss and loss expense provisions and provisions for losses incurred but not reported;

(b) the amount by which loss and loss expense provisions have been reduced by discounting for the time value of money, and the rates, or the range of rates, of interest used in any such discounting.

§20 Reserves for reported claims

20. The method of determining the reserves for reported claims.

§21 Reserves for unreported claims

21. The method of determining the reserves for unreported claims.

§22 Policy reserves — life

22. The method of calculation, and the range of significant or material interest rates and mortality factors used in the calculations.

§23 Policy reserves accident and health

23 The method of calculation of the reserves.

§25 Liability for future policyholders' dividends

25 The method of determining the policy-holders' dividends.

§26 Other insurance reserves — long term

26 The method of calculation of these reserves.

§30 Loans and notes payable

30 The repayment terms, rates of interest and the nature of collateral given, if any.

§31 31. (a) Income taxes payable

(b) Deferred income taxes

Details of the deferred income tax provision.

§32 Amounts due to affiliates

32 The repayment terms, rates of interest and the nature of collateral given, if any.

§36 Sundry liabilities 36 The nature of these liabilities and the repayment terms.


APPLEBY


37 (a) the name of the person granting the letter of credit, guarantee or other instrument, and the name of the person in whose favour the letter of credit, guarantee or other instrument was granted;


(b) the amount of the letter of credit, guarantee or other instrument;

(c) the purpose for which the letter of credit, guarantee or other instrument was granted.

PART III

Matters to be set forth in Notes to the Statutory Statement of Income


[Note: The numerals in bold type refer to the numbers of the line of the statutory statement of income]

§37 Other income (deductions)

37 The nature of material items that have been included.

§41 Realized gains (losses)

41 The nature of material items that have been included.

PART IV

Matters to be set forth in Notes to the Statutory Statement of Capital and Surplus


[Note: The numerals in bold type and letters in bold type in parentheses refer to the numbers of the line of the statutory statement of capital and surplus]

§1(a) Capital stock 1(a) As respects authorized capital stock there shall be disclosed severally— Inserted by BR 38/1981

(a) the number of shares of each class, the par value, if any, of each class and a brief description of each class;

(b) the dividend rates applicable to any preference shares, and whether the dividends are cumulative;

(c) the redemption price of any redeemable shares;

(d) any conversion provisions.

As respects issued capital stock there shall be disclosed severally—

(a) the number of shares in, and the capital stock amounts for, each class of shares;

(b) the amounts called and unpaid or otherwise due in respect of those shares;

(c) the amounts not called on those shares that will become receivable in due course when called.

§1(b) Contributed surplus

1(b) The nature of any change in contributed surplus during the relevant year.

§2(c) Dividends paid and payable

2(c) The amount and nature of any dividend paid during the relevant year that was other than a cash dividend.

B. There shall also be disclosed in notes the following information—


APPLEBY

(a) details of any change in the authorized capital stock of the insurer during the relevant year;

(b) where an insurer has contracted to issue or re-issue shares or has given options to purchase shares, the class and number of shares affected, the price and date of the issue or re-issue of the shares or the exercise of the options and (shown separately) the total number of shares in respect of which options are held by directors and officers of the insurer;

(c) details of any share transactions during the relevant year including—

(i) the number of shares of each class issued since the date of the last statutory balance sheet, giving the value attributed thereto and distinguishing—

(aa) shares issued for cash (showing separately shares issued pursuant to options or warrants);

(bb) shares issued directly or indirectly for services; and

(cc) shares issued directly or indirectly for other considerations;

(ii) the number of shares of each class redeemed since the date of the last statutory balance sheet and the consideration given and, where the consideration was other than cash, the nature of the considera-tion given and the value attributed thereto.

SCHEDULE III (Reg. 9(2))

INSTRUCTIONS AFFECTING THE STATUTORY BALANCE SHEET

PART I

Instructions for all insurers

Instructions

[Note: The numerals in bold type refer to the numbers of the line of the statutory balance sheet]

§1 Cash and time deposits

1. Certificates of deposit shall be included.

§2 Quoted investments 2. (a) there shall be disclosed several— Modified by BR 38/1981

(i) bonds and debentures;

(ii) equities (preferred and ordinary);

(iii) other quoted investments;

(iv) the total of (i), (ii) and (iii);

(b) bonds and debentures shall be carried either at quoted value or at cost or amortized cost, and the basis of valuation shall be shown;

(c) where bonds and debentures are carried at cost or amortized cost—

(i) the quoted value shall be shown in brackets;

(ii) adequate provision shall be made for any permanent diminution in value;

(d) equities (preferred and ordinary) shall be carried at their quoted value;

(e) other quoted investments shall be carried at their quoted value.


APPLEBY

§3 Unquoted investments

3. (a) there shall be disclosed severally— Modified by BR 38/1981

(i) bonds and debentures;

(ii) equities (preferred and ordinary);

(iii) the total of (i) and (ii);

(b) bonds and debentures shall be carried either at cost or amortized cost or at fair value determined in good faith, and adequate provision shall be made for any permanent diminution in value;

(c) equities (preferred and ordinary) shall be carried at an amount not exceeding fair value determined in good faith.

§4 Investment in and advances to affiliates

4. (a) amounts receivable or payable on account of policies of insurance or reinsurance with affiliates shall not be included. Such amounts shall be included in accounts and premiums receivable (line 10) and reinsurance balances payable (line 28) respectively;

(b) funds held by ceding reinsurers which are affiliates (line 12) and funds held under reinsurance contracts with affiliates (line 34) shall not be included;

(c) investments in affiliates shall be valued either by the cost method of valuation or the equity method of valuation:


Provided that—

(i) if the value arrived at by the use of the equity method of valuation is less than the value arrived at by the cost method of valuation, the value arrived at by the equity method shall be used;

(ii) the directors shall carry the said investments at a fair value determined in good faith if that value is less than the valuations under the cost method and the equity method of valuation;

(d) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.


5. Mortgages shall be carried at the value of the principal amount outstanding less any provision considered by the directors to be needed for doubtful collection, and there shall be disclosed severally—

(a) first liens;

(b) liens other than first liens; and

(c) the total of (a) and (b).

§7 Real estate 7. (a) both land and buildings shall be included;

(b) the insurer's title must be clear and incontestable;

(c) there shall be disclosed severally—

(i) real estate occupied by the insurer;

(ii) other properties;

(iii) the total of (i) and (ii);

(d) except where carried at a value determined by an independent appraisal net of encumbrances, real estate shall be carried at the lower of—

(i) cost less accumulated depreciation; and


APPLEBY

(ii) fair value determined in good faith,

less the amount of any encumbrances;

(e) where an independent appraisal has been made, real estate may be valued at the appraisal value net of the amount of any encumbrances.

Inserted by BR 38/1981

§8 Collateral loans 8. If any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

§9 Investment income due and accrued

9. If any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

§10 Accounts and premiums receivable

10. (a) amounts receivable on account of policies of insurance from any person, whether an affiliate or not, shall be included;

(b) amounts due from reinsurers and funds held by ceding reinsurers (being amounts or funds which have been included in lines 11 and 12) shall not be included;

(c) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

§11 Reinsurance balances receivable

11. (a) amounts receivable on account of policies of reinsurance from any person, whether an affiliate or not, shall be included;

(b) any amount shown in line 10 or 12 shall not be included;


§12 Funds held by ceding reinsurers

12. (a) funds held by ceding reinsurers (whether affiliates or not) shall be included;

(b) any amount shown in line 10 or 11 shall not be included;


§13 Sundry assets 13. Any asset not accounted for in lines 1 to 12 and 14 may be included here if it has a readily realizable value. Any other assets, prepaid and deferred expenses, goodwill and similar intangible assets, deferred acquisition costs and excess of book value over admitted asset value of stocks and other investments shall be non-admitted assets.



14. Modified by BR 29/1989

(a) where additional fixed capital has been secured to the insurer by means of an irrevocable letter of credit, a guarantee or any other instrument, an asset may, with the approval of the Authority obtained on an application made for that purpose, be recorded and the capital increased by a corresponding amount. Where such an asset is recorded, it must be shown net of any allowance for its collectibility;

Modified by: BR 38/1981 BR 29/1989 1995 : 20

(b) letters of credit, guarantees and other instruments in favour of the insurer which relate to insurance operations shall not be recorded.


§28 Insurance and Reinsurance balances payable

28. Modified by BR 38/1981

(a) amounts, including premiums and other balances, payable to insured persons


APPLEBY

and reinsurers (whether affiliates or not) under insurance and reinsurance contracts shall be included;

(b) funds held by the insurer under reinsurance contracts (shown on line 34) shall not be included.

§29 Commissions, expenses, fees and taxes payable

29. All liabilities in respect of commissions (including profit commissions), underwriting expenses, fees and taxes (other than income taxes) shall be included. Where the insurer is primarily a reinsurer, the said liabilities may be included in line 28.

§30 Loans and notes payable

30. Loans and notes payable to any person other than an affiliate shall be included here.

§31 Income taxes 31. There shall be disclosed severally—

(a) income taxes currently payable;

(b) provision for deferred income taxes.

§32 Amounts due to affiliates

32. All balances due to affiliates, not being amounts payable under reinsurance contracts (shown on line 28 or line 34), shall be included here.


§33 Accounts payable and accrued liabilities

33. Any other (non-insurance) accounts payable and accrued liabilities shall be included here.

§34 Funds held under reinsurance contracts

34. Funds held under reinsurance contracts shall be included here.

§35 Dividends payable 35. The amount of dividends payable to shareholders in the insurer declared prior to the last day of the relevant year and remaining unpaid on that day shall be included here.

§36 Sundry liabilities 36. Any liabilities (including prospective and contingent liabilities) not assigned to another line of the statutory balance sheet shall be included here.


37.


(a) where letters of credit and guarantees are given by the insurer in favour of another person, being letters of credit, a guarantee or any other instrument not relating to the insurer's insurance operations and in effect encumbering the insurer's assets, a liability shall be recorded and the statutory capital and surplus decreased by a corresponding amount, whether the insurer has pledged specific assets or not under the letters of credit, a guarantee or any other instrument;

(b) letters of credit, guarantees and other instruments relating to insurance operations shall not be recorded.

§38 Total other liabilities 38. This shall be the total of lines 28 to 37 inclusive.

§39 Total general business insurance reserves and other liabilities

39. This shall be the total of lines 19 and 38, or of lines 27 and 38, or of lines 19, 27 and 38, as the case may require.

§40 Total statutory capital and surplus

40. This shall be the capital and surplus total as at the end of the relevant year, as shown in the statutory statement of capital and surplus.

§41 Total 41. This shall be the total of lines 39 and 40. Modified by BR 38/1981


APPLEBY

PART II

Additional instructions for Insurers carrying on general business only

Instructions


§16 Unearned premiums 16. (a) this line shall disclose an adequate amount set aside for unearned premiums, which shall be shown net of the unearned portion of the reinsurance premiums ceded which are used for calculating net premiums written;


(b) where refunds are expected to be made under retrospective or experience rating plans, adequate provision must be made by an appropriate addition to the unearned premium reserve;


(c) acquisition costs shall not be deducted in calculating the amount of unearned premiums;

(c) acquisition costs shall not be deducted in calculating the amount of unearned premiums;

§17 Loss and Loss expense provisions

17. (a) this line shall disclose an adequate amount set aside by an insurer to meet losses reported before, but not paid by, the last day of the relevant year, in respect of incidents occurring before that day, and to meet expenses likely to be incurred in connection with the investigation, adjustment and settlement of such losses. The said provisions shall include amounts in respect of losses reported. There shall be disclosed the adequate amount in respect of losses incurred but not reported to the insurer before the last day of the relevant year;


(b) the said amount shall not include any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as is last-mentioned, the collection of which is in their opinion doubtful, and the amount shall be shown net of any such provisions;

(c) loss provisions may be discounted in any of the following cases, that is to say—


(i) where both the amount of the loss provisions and the payment dates of the losses are fixed;

(ii) where neither the amount of the loss provisions nor the payment dates of the losses are fixed but the insurer's approved auditor is of opinion that that amount and those dates are reasonably ascertainable either in the records of the insurer itself or in those of any group of companies of which the insurer is a member;

(iii) where the loss provisions in question were discounted on or before 31st December, 1988 in the insurer's statutory financial statements;

(d) where loss provisions are discounted as allowed by paragraph (c) above, the directors of the insurer shall determine that an adequate amount has been set aside by the insurer for possible variations in the ultimate amount of the losses, the payment dates of the losses and the applicable interest rates;

Inserted by BR 29/1989 Modified by BR 41/2005

(e) where an insurer's loss provisions have been discounted as allowed by paragraphs (c) and (d) above but the insurer has not met its general business solvency margin on an undiscounted basis, the opinion of a loss reserve



APPLEBY

specialist shall be given on the loss and loss expense provisions;

(f) where the gross premiums from professional liability insurance constitute more than 30% of the gross premiums written by the insurer during the relevant year, then the opinion of a loss reserve specialist must be given on the loss and loss expense provisions relating to all professional liability insurance business; but if the loss provisions cannot be so separated then the opinion of the loss reserve specialist must be given on the whole amount of the loss provisions;

Modified by: BR 38/1981 BR 29/1989

(g) where, in relation to an insurer no longer effecting contracts of professional liability insurance, the opinion of a loss reserve specialist as to the matters described in paragraph (f) was required in either of the last two years during which it did effect contracts of professional liability insurance, then such an opinion must be given in every subsequent year.

§18 Other insurance reserves — general business

18. The balance from the open year business revenue statement shall be included.

§19 Total general business insurance reserves

19. This shall be the total of lines 16, 17 and 18.

PART III

Additional instructions for insurers carrying on long-term business only

Instructions


§6 Policy loans 6. These shall be carried at an amount that is the aggregate of the unpaid balances on policy loans and any unpaid interest, so, however, that, for each loan, that amount shall not exceed the cash surrender value of the policy or the applicable policy reserve.

§20 Reserves for reported claims

20. This line shall disclose an adequate amount set aside by the insurer to meet claims unpaid at the end of the relevant year and made under contracts of insurance and reinsurance in respect of incidents occurring and reported to the insurer before the end of that year.


The said amount shall be reduced by any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as is last-mentioned the collection of which is in their opinion doubtful and adjust the reserve by said amount.

§21 Reserves for unreported claims

21. This line shall disclose an adequate amount set aside by the insurer to meet claims under contracts of insurance and reinsurance in respect of incidents occurring, but not reported to the insurer, before the end of the relevant year. The said amount shall be reduced by any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as is last-mentioned the collection of which is in their opinion doubtful and adjust the reserve by said amount.


§22 Policy reserves — life

22. These shall be an amount, actuarially computed, which is considered adequate to provide future guaranteed benefits as they become payable under the provisions of


APPLEBY

life insurance policies in force. Amounts applicable to other life contract benefits (such as disability waiver of premium, disability income benefits and additional accidental death benefits) and to annuities and to supplemental contracts with life contingencies may also be included.

The said amount—

(a) shall not include reserves in respect of accident and health policies; and

(b) shall be reduced by the amount of reserves ceded under reinsurance contracts.

The directors shall make allowance for any amount the collection of which is in their opinion doubtful and adjust the reserve by said amount.

§23 Policy reserves — accident & health

23. These reserves shall be actuarially computed and shall consist of—

(a) an active life reserve, that is to say, that portion of due and collected premiums which has been set aside to be recognized as earned in the future consisting of—

(i) the unearned portion of the current premium;

(ii) additional reserves, that is to say, the reserves applicable to policies which provide for the payment of uniform rate premiums in respect of a risk the cost of which increases with the age of the insured;

(iii) reserves for rate credits;

(b) a claims reserve, that is to say, the present value of amounts not yet due on claims,

provision for future contingent benefits being included in both cases.

The said reserves shall not include the amount of any reserves ceded under reinsurance. The directors shall make allowance for any such amount the collection of which is in their opinion doubtful and adjust the reserve by said amount.

§24 Policyholders' funds on deposit

24. These funds shall consist of premiums paid in advance of the due date, whether or not interest is paid for early payment. These liabilities shall be valued at the amounts received by the insurer, plus any interest credited.

§25 Liability for future policy-holders' dividends

25. This shall be the amount of dividends payable, as declared by the directors, on participating life policies which qualify for such dividends, and shall be recorded at the amount declared.

§26 Other insurance reserves — long-term business

26. These shall consist of any other reserves required by the terms of life or accident and health contracts or as a result of special riders or options attaching to any such contracts, not being reserves provided for in lines 22 to 25 inclusive of the statutory balance sheet.

These must be actuarially determined.

§27 Total long-term business insurance reserves

27. These shall be the total of lines 20 to 26 inclusive.

SCHEDULE IV (Reg. 9(3))

INSTRUCTIONS AFFECTING THE STATUTORY STATEMENT OF INCOME

PART I


APPLEBY

Instructions for all Insurers

Instructions

[Note: The numerals in bold type refer to the numbers of the line of statutory statement of income]

§37 Other income (deductions)

37. These shall comprise all income (deduction) items not assigned to any of the lines above. Income taxes (line 39) and realized gains (losses) (line 41) shall not be included.

§38 Income before taxes 38. This shall be the total of lines 37 and—

(a) in the case of an insurer engaged in general business, line 18;

(b) in the case of an insurer engaged in long-term business, line 35;

(c) in the case of a section 24(6) composite, line 36.

§39 Income taxes 39. The following shall, if applicable, be disclosed severally—

(a) the amount provided in respect of income taxes currently payable;

(b) the amount provided in respect of deferred income taxes;

(c) the total of (a) and (b).

§40 Income before realized gains (losses)

40. This shall be the total of lines 38 and 39.

§41 Realized gains (losses)

41. This shall include gains or losses on the sale of—

(a) investments, whether quoted or unquoted;

(b) investments in affiliates;

(c) investments in mortgage loans on real estate; and

(d) real estate,

and may be net of the taxes and other expenses affecting any such sales.

§42 Net income 42. This shall be the total of lines 40 and 41.

PART II

Additional instructions for Insurers carrying on general business only

Instructions

[Note: The numerals in bold type refer to the numbers of the line of statutory statement of income]

§1 Gross premiums written

1. These shall be the sum of direct premiums written and reinsurance premiums assumed (net of return premiums in each case).

Where reinsurance premiums are reported as a net amount (on either a written or an earned basis), that amount may, where further details are not available, be included as gross premiums written.

§2 Reinsurance premiums ceded

2. These shall be premiums (less return premiums) arising from any reinsurance contract under which part of the liability of the insurer under direct policies or assumed reinsurance is transferred to reinsurers.

§3 Net premiums written

3. This shall be arrived at by subtracting line 2 from line 1.

§4 Increase (decrease) in 4. This shall be the net increase (decrease) in the unearned premiums from the end


APPLEBY

unearned premiums of the immediately preceding financial year.

§5 Net premiums earned 5. This shall be the aggregate of lines 3 and 4.

§6 Other insurance income

6. This shall be the aggregate of all other income (such as commission and brokerage income) directly related to underwriting general business.

§7 7. This shall be the total of lines 5 and 6.

§8 Net losses incurred and net loss expenses incurred

8. These shall consist of net losses and net loss expenses actually paid during the relevant year plus (minus) the increase (decrease) in the reserve shown on line 17 of the statutory balance sheet over that of the immediately preceding financial year.

§9 Commissions and brokerage

9. This shall be the aggregate of compensation paid or payable to agents or brokers in return for business procured by them for the insurer in the relevant year in respect of general business.


§10 General and administrative

10. These shall be general and administrative expenses other than those described in line 11.

§11 Personnel costs 11. These shall be the aggregate amount of salaries, wages and benefits, including taxes applicable to salaries and wages.

§12 Other 12. These shall be underwriting expenses not included in lines 10 and 11.

§13 13. This shall be the total of lines 8 to 12 inclusive.

§14 Underwriting profit (loss)

14. This shall be arrived at by subtracting line 13 from line 7 (or vice versa).

§17 General business investment income — net

17. Investment income may be shown net of with-holding tax and of any other directly related expenses, but shall not include realized gains or losses shown on line 41 of the statutory statement of income.

§18 Income before the undernoted items

18. This shall be the total of lines 16 and 17.

PART III

Additional instructions for insurers carrying on long-term business only

Instructions

[Note: The numerals in bold type refer to the numbers of the line of statutory statement of income

§19 Premiums and other considerations

19. These shall be gross premiums and other considerations, less amounts ceded under contracts of reinsurance during the relevant year, net of related taxes.

This income shall be disclosed severally in the following categories—

(a) life;

(b) annuities;

(c) accident and health;

(d) the total of (a) to (c) inclusive.

§20 Long-term business investment income — net

20. This income may be shown net of with-holding tax and any other directly related expenses, but shall not include realized gains or losses shown on line 41 of the statutory statement of income.

§21 Other insurance income

21. This shall be the aggregate of all other income, such as commission and brokerage income, directly related to underwriting long-term business.


APPLEBY


§23 Claims — life 23. This shall be the amount of claims incurred under life insurance policies (in respect, for example, of death or disability) during the relevant year, but shall not include claims ceded under reinsurance contracts.

Surrenders, maturities, annuities and accident and health benefits which are disclosed in lines 25, 26, 27 or 28 shall not be included.

§24 Policyholders' dividends

24. These shall be amounts distributed or credited during the relevant year to policyholders with participating life policies.

§25 Surrenders 25. This shall be amounts incurred during the relevant year as a result of the surrender by policyholders, either for cash or in exchange for some other consideration, of policies with cash surrender values.

§26 Maturities 26. These shall be amounts incurred as a result of the maturing during the relevant year, after a specified period of time, of any endowment policy before the death of the insured.

Amounts paid as a result of the death of an insured that is covered by an endowment policy shall be included in line 23.

§27 Annuities 27. These shall be amounts incurred during the relevant year under the terms of any annuity contract.

§28 Accident and health benefits

28. These shall be amounts incurred in respect of claims under accident and health contracts, being claims arising out of incidents occurring during the relevant year.

§29 Commissions 29. These shall be the aggregate amounts of compensation paid or payable to agents or brokers in return for business procured by them for the insurer in the relevant year in respect of long-term business.

§30 Other 30. These shall include any expenses related to long-term business during the relevant year that are not included in any of lines 23 to 29 inclusive or in line 32.


§32 Operating expenses 32. These shall include the administrative and other general expenses of operating the insurer's long-term business during the relevant year.

§33 33. This shall be the gain (or loss) arrived at by deducting the aggregate of lines 31 and 32 from the amount shown on line 22 (or vice versa).

§34 Increase (decrease) in policy reserves

34. This shall be the increase or decrease from the end of the immediately preceding financial year in policy reserves — life (line 22 of the statutory balance sheet), policy reserves — accident and health (line 23 of the statutory balance sheet), and, if applicable, that portion of other insurance reserves — long-term business (line 26 of the statutory balance sheet) which is actuarially determined.

The increases (decreases) in the said policy reserves shall be disclosed severally in the following categories—

(a) life;

(b) annuities;

(c) accident and health;

(d) the total of (a) to (c) inclusive.

§35 Income before the undernoted items

35. This shall be the net total of lines 33 and 34.


APPLEBY

SCHEDULE V (Reg. 9(4))

Instructions affecting the statutory statement of capital and surplus

Instructions

[Note: The numerals in bold type and letters in bold type in parentheses refer to the numbers of the line of statutory statement of capital and surplus]

§1(a) Capital stock 1(a). This shall comprise— Modified by BR 38/1981

(a) where shares have a par value, the par value;

(b) where shares have no par value, the stated value,

of shares issued and called.

Where shares have only been partially called, only the called portion shall be included.

Where any capital stock has been called but not received, a corresponding receivable shall be reflected in the statutory balance sheet.

In this Schedule "stated value", in relation to shares in an insurer, means the value attributed to the shares in the books of the insurer.

§1(b) Contributed surplus

(b). This shall comprise— Modified by BR 38/1981

(a) any share premium, that is to say—

(i) where shares have a par value, the excess of any proceeds received or receivable over the par value;

(ii) where shares have no par value, the excess of proceeds received or receivable over the stated value,

of shares issued and called.

Where shares have only been partially called, only the said excess on the called portion shall be included;

(b) any credit resulting from the redemption or conversion of any shares at less than the amounts set up in respect of those shares as capital stock;

(c) any other capital contribution made to the insurer by any shareholder, not being a contribution required to be set up as capital stock.

Where any contributed surplus amount has been called but not received, a corresponding receivable shall be reflected in the statutory balance sheet.

§1(c) Any other fixed capital

(c). This shall comprise any other fixed capital approved by the Authority which has not been allocated to line 1(a) or 1(b), and must take into account any amount required by the instruction in Part I of Schedule III relating to line 14 or line 37 of the statutory balance sheet to be credited to, or, as the case may be, charged against, capital.

Modified by: BR 38/1981 BR 29/1989 2001 : 27 2001 : 33

§1(d) Total statutory capital

(d). This shall be the total of lines 1(a), 1(b) and 1(c).

§2(a) Statutory surplus — beginning of year

2(a). Statutory surplus — beginning of the year means the statutory surplus as at the end of the immediately preceding financial year as computed in accordance with these Regulations.


§2(b) Income for the year

(b). This shall be the amount described in line 42 of the statutory statement of income.

§2(c) Dividends paid and payable

(c). This shall comprise—

(a) all dividends declared during the relevant year, being dividends payable to shareholders in the insurer during that year, whether those dividends were or were not in fact so paid before the end of the relevant year;

(b) any provision made for the payment during the relevant year of cumulative dividends in respect of shares of any class, being dividends due to have been paid before the commencement of the relevant year.

§2(d) Change in unrealized appreciation (depreciation) of investments

(d). This shall comprise any increase (decrease) occurring since the end of the immediately preceding financial year in the value of quoted investments (line 2 of the statutory balance sheet), to the extent that that increase (decrease) is not reflected in the statutory statement of income.

§2(e) Change in non-admitted assets

(e). This shall comprise any (increase) or decrease occurring since the end of the immediately preceding financial year in the value of non-admitted assets.

§2(f) Change in appraisal of real estate

(f). This shall comprise any increase (or decrease) occurring since the end of the immediately preceding financial year in the value of real estate carried at appraisal value (see paragraph (B) of the requirement in Part II of Schedule II relating to line 7 of the statutory balance sheet).

§2(g) Change in any other statutory surplus

(g). This shall comprise any increase (or decrease) occurring since the end of the immediately preceding financial year in the value of unquoted investments, investments in and advances to affiliates and investments in mortgage loans on real estate (lines 3, 4 and 5 respectively of the statutory balance sheet), to the extent that that increase (decrease) is not reflected in the statutory statement of income.

§2(h) Statutory surplus — end of year

(h). This shall be the aggregate of lines 2(a), 2(b), 2(c), 2(d), 2(e), 2(f) and 2(g).

§3 Total statutory capital and surplus

3. This shall be the total of lines 1(d) and 2(h).

[Amended by

Insurance Accounts Amendment Regulations 1981 BR 38/1981






Insurance Accounts Amendment Regulations 2005 (BR 41-2005) BR 41/2005]

APPLEBY

INSURANCE RETURNS AND SOLVENCY REGULATIONS 1980 (Consolidated by Appleby as at 16 September 2005)


BR 16/1980

INSURANCE RETURNS AND SOLVENCY REGULATIONS 1980

[made under sections 18 and 53 of the Insurance Act 1978 [title 17 item 49] and brought into operation on 1 January 1980]

ARRANGEMENT OF REGULATIONS

1 Citation

2 Interpretation

3 Insurers to make statutory financial return in accordance with these Regulations

4 Return to relate to relevant year

5 Content of statutory financial return

6 Cover sheet

7 Auditor's report

8 General business solvency certificate

8A Loss reserve opinion

9 Long term business solvency certificate

10 Minimum margin of solvency for general business

11 Minimum liquidity ratio for general business

12 Minimum margin of solvency for long-term business

13 Declaration of statutory ratios

14 Actuary's certificate

14A Schedule of ceded reinsurance

15 deleted

16 Requirements relating to preparation of returns generally

17 Offences

18 Commencement omitted

SCHEDULE I General business solvency margin

SCHEDULE II Calculation of statutory ratios

§1 Citation 1 These Regulations may be cited as the Insurance Returns and Solvency Regulations 1980.

§2 Interpretation 2 In these Regulations— Modified by BR 42/2005

"accounts" means financial accounts;

"the Act" means the Insurance Act 1978 [title 17 item 49]; Inserted by BR 30/1989

"affiliate" has the same meaning as in the Insurance Accounts Regulations 1980 [title 17 item 49(a)];

applebyglobal.com

APPLEBY


APPLEBY

"composite" and "section 24(6) composite" have the same meanings as in the Insurance Accounts Regulations 1980 [title 17 item 49(a)];

"financial return" or "return" means statutory financial return;

"relevant year" has the meaning assigned thereto in regulation 4(2);

"statutory financial statement", "statutory balance sheet", "statutory statement of income", "statutory statement of capital and surplus" and "statutory open year business revenue statement" have the same meanings as in the Insurance Accounts Regulations 1980;

"regulations" means regulations made under the Act.

"unrelated business", in relation to an insurer, means insurance business consisting of insuring risks of persons who are not shareholders in, or affiliates of, the insurer; and "related business", in relation to an insurer, means insurance business which is not unrelated business.


§3 Insurers to make statutory financial return in accordance with these Regulations

3 Except as otherwise allowed by a direction made under section 56 of the Act affecting any insurer, the form of statutory financial return that every insurer is to send to the Authority pursuant to section 18(1) of the Act is the form that is prescribed in these Regulations; and, except as aforesaid, it shall be the duty of every insurer to send to the Authority pursuant to section 18(1) of the Act a return in that form.

Modified by BR 39/1981 2001 : 27 2001 : 33

§4 Return to relate to relevant year

4 (1) Every return shall relate to the relevant year.

(2) In these Regulations "relevant year", in relation to a return, means the financial year to which the statutory financial statements relate which are required to be available or filed by section 17 of the Act.


§5 Content of statutory financial return

5 (1) The statutory financial return shall consist of the following documents—

(a) in every case—

(i) a cover sheet;

(ii) an auditor's report in pursuance of section 16 of the Act; and

(iii) a declaration of the statutory ratios;

(b) where the insurer carried on general business in the relevant year, a solvency certificate within the meaning of section 33(5) of the Act (in these Regulations called a "general business solvency certificate") in addition;

(bb) an opinion of a loss reserve specialist where such is required under⎯ Inserted by BR 30/1989 Substituted by 1995 : 20

(i) section 18B of the Act, or

(ii) the instructions in Part II of Schedule III to the Insurance Accounts Regulations 1980, relating to line 17 of the statutory balance sheet, in which case it shall be accompanied by statutory financial statements and the notes to those statements,

in addition;


APPLEBY

(c) where the insurer carried on long-term business in the relevant year—

(i) a long-term business solvency certificate; and

(ii) an actuary's certificate in pursuance of section 27 of the Act,

in addition; and

(d) in the case of a Class 4 insurer, a schedule of ceded reinsurance, in addition.

(2) Regulations 6, 7, 8, 8A, 9, 13, 14 and 14A shall have effect as to the form and content of the cover sheet, the auditor's report, the general business solvency certificate, the loss reserve certificate, the long-term business solvency certificate, the declaration of the statutory ratios, the actuary's certificate and the schedule of ceded reinsurance respectively.

Modified by: BR 30/1989 1995 : 20

§6 Cover sheet 6 The cover sheet shall—

(a) bear the name of the insurer and the title "Statutory Financial Return";

(aa) state the class of registration; Inserted by BR 42/2005

(ab) state the conditions, if any, which have been imposed on that insurer’s registration under section 4 of the Act;


(ac) state the particulars, if any, of any direction issued by the Authority under section 56 of the Act;


(b) state the period covered by the return;

(c) state the nature of the insurance business carried on by the insurer, that is to say, it shall state—


(i) whether the insurance business carried on is general business or long-term business or both;

(ii) whether, where the insurer is a composite, it is a section 24(6) composite or not;

(iii) where general business is carried on—

(aa) the classes of related and unrelated business; and

(bb) the amounts of gross premium written in respect of each such class;

(iv) whether or not annual aggregate stop loss reinsurance is in effect and, if such reinsurance is in effect, the maximum annual aggregate net losses retained in respect of each class of business;

(v) any other information required to described the nature of the insurer's business;

(d) state the currency in which amounts are shown in the insurer's statutory financial statements and whether that currency is the currency in which those amounts are required by of regulation 10(2) of the Insurance Accounts Regulations 1980 [title 17 item 49(a)] to be shown;


APPLEBY

(e) state whether a statutory open year business revenue statement was annexed to the insurer's statutory statement of income and, if so, to what class or classes of the insurer's general business that first-mentioned statement relates.

§7 Auditor's report 7 (1) The auditor's report shall be signed by the insurer's approved auditor and addressed to the Authority, and shall state—

Modified by 2001 : 27 2001 : 33

(a) that the auditor has carried out a proper examination of the insurer's statutory financial statements, and that that examination was conducted, and the auditor's report has been prepared, in accordance with an auditing standard recognised by the Authority;


(b) whether in his opinion the statutory financial statements have been prepared in accordance with the requirements of the Act and of any applicable regulations;

(c) whether in his opinion—

(i) the solvency certificate complies, or, where the case requires, the solvency certificates comply, with the requirements of these Regulations; and

(ii) it was reasonable for the persons signing such a certificate to have arrived at the opinions expressed in the certificate;

(d) whether in his opinion the declaration of the statutory ratios complies with the requirements of these Regulations.

(2) Where any event specified in paragraph (3) occurs in relation to an audit, the auditor shall qualify his report accordingly and include in his report such observations, whether of fact or opinion, as he considers necessary for bringing the nature and effect of the qualifications to the attention of the Authority.

Modified by 2001 : 27 2001 : 33

(3) The events referred to in paragraph (2) are—

(a) there were deficiencies in the audit consisting of—

(i) inability of the auditor to obtain essential information; or

(ii) restrictions on the scope of the audit; or

(iii) some other deficiency or deficiencies;

(b) the auditor disagreed with any valuation made in the statutory financial statements;

(c) in some respect or respects the statutory financial statements or the certificates of solvency or the declaration of the statutory ratios do not in his opinion comply with the requirements of the Act or any applicable regulations;

(d) the auditor considered an opinion or opinions expressed in a solvency certificate unreasonable; and

(e) the auditor considered that there was a significant doubt as to the insurer's ability to continue as a going concern.


§8 General business solvency certificate

8 (1) A general business solvency certificate shall relate to the general business of the insurer and shall be signed—

(a) by at least two directors of the insurer (of whom one must be a


APPLEBY

director resident in Bermuda if the insurer has a director so resident); and

(b) by the insurer's principal representative in Bermuda. Modified by BR 39/1981

(2) The said certificate shall state— Modified by BR 30/1989

(a) whether or not the insurer has prepared statutory financial statements in respect of the relevant year;

(b) whether or not the said statements are available at the insurer's principal office in Bermuda pursuant to section 17(1) or, as the case may be, have been filed pursuant to section 17(3) of the Act;


(bb) whether or not the insurer has complied with every condition attached to its certificate of registration;


(c) the aggregate value of the insurer's assets as shown in the statutory balance sheet for the relevant year, in this sub-paragraph called "the statutory balance sheet assets value", and whether or not in the opinion of those signing the certificate—

(i) the statutory balance sheet assets value was determined in accordance with the requirements of the Act and of any applicable regulations;

(ii) the value of the insurer's assets at the end of the relevant year was in the aggregate at least equal to the statutory balance sheet assets value;

(d) whether or not in the opinion of those signing the certificate the aggregate amount of the insurer's liabilities at the end of the relevant year (after taking into account all prospective and contingent liabilities, but not liabilities in respect of share capital) is not more than the aggregate amount of the liabilities as shown in the insurer's statutory balance sheet for that year;

(e) the following amounts as shown in the insurer's statutory statement of income for the relevant year—

(i) the aggregate amount of the gross premiums written;

(ii) the aggregate amount of the reinsurance premiums ceded;

(iii) the aggregate amount of the net premiums written, including the aggregate amount of net premiums shown in the statutory open year business revenue statement (if such a statement was annexed to the statutory statement of income);

(f) in the case of an insurer which annexed a statutory open year business revenue statement to its statutory statement of income—

(i) whether or not, in the opinion of those signing the certificate, the fund carried forward in that statement in relation to business transacted in the relevant year is sufficient to meet all the liabilities outstanding at the end of that year in relation to that business (including liabilities in respect of risks to be borne by the insurer after the end of that year in relation to that business);

(ii) whether or not, in their opinion, the total of the funds carried forward in that statement in relation to business transacted in the


APPLEBY

financial year immediately preceding the relevant year is sufficient to meet all the liabilities outstanding at the end of the relevant year in relation to that business;

(iii) if funds are carried forward in that statement in relation to business transacted before the beginning of the financial year immediately preceding the relevant year, whether or not, in their opinion, the total of those funds is sufficient to meet all the liabilities outstanding at the end of the relevant year in relation to that business; and

(iv) if funds are not carried forward in that statement in relation to the business referred to in division (iii) of this sub-paragraph, whether or not, in their opinion, the liabilities referred to in that division have been adequately reinsured, and the aggregate amount of premiums required to secure such reinsurance;

(g) whether any accounts of the insurer for the relevant year have been audited for any purpose other than the purposes of these Regulations;

(h) whether or not the minimum liquidity ratio applicable to the insurer for the relevant year was met;


(i) the amount prescribed by regulation 10 as the general business solvency margin, and whether it was met;


(j) the aggregate amount of the statutory capital and surplus as shown in the insurer's statutory statement of capital and surplus for the relevant year;

(k) the currency in which amounts in the insurer's statutory financial statements for the relevant year have been shown;


(l) the rate of exchange used, in compliance with paragraphs (2) and (3) of regulation 16, for the purposes of any statement called for by this regulation;


(m) if any question in sub-paragraph (bb), (h) or (i) of this paragraph has been answered in the negative, whether or not the insurer has taken corrective action in any case and, where the insurer has taken such action, describe the action in a statement attached to the certificate.


§8A Loss reserve opinion 8A (1) A loss reserve opinion shall relate to the general business of the insurer and shall be signed and dated by a loss reserve specialist.

Inserted by BR 30/1989 Substituted by 1995 : 20

(2) In such an opinion the loss reserve specialist shall state to what extent the instructions in Part II of Schedule III to the Insurance Accounts Regulations 1980 relating to line 17 of the statutory balance sheet, in so far as those instructions call for the opinion of a loss reserve specialist, have been complied with.

§9 Long term business solvency certificate

9 (1) A long-term business solvency certificate shall relate to the long-term business of the insurer and shall be signed—

(a) by at least two directors of the insurer (of whom one must be a director resident in Bermuda if the insurer has a director so resident); and



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(2) The said certificate shall state—

(a) whether or not the insurer has prepared statutory financial statements in respect of the relevant year;

(b) whether or not the said statements are available at the insurer's principal office in Bermuda pursuant to section 17(1) of the Act;

(bb) whether or not the insurer has complied with every condition to its certificate of registration;


(c) the aggregate value of the insurer's assets as shown in the statutory balance sheet for the relevant year, in this sub-paragraph called "the statutory balance sheet assets value", and whether or not in the opinion of those signing the certificate—

(i) the statutory balance sheet assets value was determined in accordance with the requirements of the Act and of any applicable regulations;

(ii) the value of the insurer's assets at the end of the relevant year was in the aggregate at least equal to the statutory balance sheet assets value;

(d) whether or not in the opinion of those signing the certificate the aggregate amount of the insurer's liabilities at the end of the relevant year (after taking into account all prospective and contingent liabilities, but not liabilities in respect of share capital) is not more than the aggregate amount of the liabilities as shown in the insurer's statutory balance sheet for that year;

(e) the minimum long-term business solvency margin prescribed by regulation 12(1)(b), and whether that margin was met;

(f) whether any accounts of the insurer for the relevant year have been audited for any purpose other than the purposes of these Regulations;

(g) the aggregate amount of the statutory capital and surplus as shown in the insurer's statutory statement of capital and surplus for the relevant year;

(h) the currency in which amounts in the insurer's statutory financial statements for the relevant year have been shown;


(hh) the rate of exchange used, in compliance with paragraphs (2) and (3) of regulation 16, for the purposes of any statement called for by this regulation;


(i) the aggregate amount of the premiums and other considerations shown on line 19(d) of the insurer's statutory statement of income for the relevant year;

(j) if any question in sub-paragraph (bb) or (e) of this paragraph has been answered in the negative, whether or not the insurer has taken corrective action in any case and, where the insurer has taken such action, described the action in a statement attached to the certificate.


§10 Minimum margin of solvency for general business

10 (1) For the purposes of section 6(1) of the Act, the prescribed amount by which the value of the general business assets of an insurer must exceed its general business liabilities is the greatest of figure A, figure B and figure C, where those letters represent values calculated, in relation to that insurer, in accordance with Schedule I.



APPLEBY

(2) Modified by BR 30/1989 deleted by 1995:20

(2A) Modified by BR 30/1989 deleted by 1995:20

(3) In this regulation—

"general business assets" general business liabilities" respectively mean assets and liabilities established in conformity with the requirements of the Insurance Accounts Regulations 1980 [title 17 item 49(a)] for the statutory balance sheet of an insurer carrying on general business;

"insurer" includes, in relation to section 6 of the Act, a body applying for registration as an insurer under the Act.

§11 Minimum liquidity ratio for general business

11 (1) The minimum proportion that the liquid assets of an insurer carrying on general business may bear to such an insurer's liabilities (in these Regulations called "the minimum liquidity ratio") shall be that set forth in this regulation.

(2) The value of the relevant assets of an insurer carrying on general business shall be not less than seventy-five per centum of the amount of its relevant liabilities, unless the insurer is a section 24(6) composite.

(3) The value of the relevant assets of a section 24(6) composite shall be not less than one hundred per centum of the amount of its relevant liabilities.


"relevant assets" means the assets required by the Insurance Accounts Regulations 1980 [title 17 item 49(a)] to be shown on lines 1, 2, 3(a), 5(a), 9, 10, 11 and 12—

(a) where the insurer is not a section 24(6) composite, of the insurer's statutory balance sheet for general business;

(b) where the insurer is a section 24 (6) composite, of the insurer's statutory balance sheet,

including any other assets which the Authority, on application in any particular case made to him with reasons, accepts for the purposes of this definition in that case;

Modified by BR 39/1981 2001 : 29 2001 : 33

"relevant liabilities" means, in relation to an insurer, the aggregate of the insurer's liabilities required by the Insurance Accounts Regulations 1980 [title 17 item 49(a)] to be show on lines 19 and 38 of the statutory balance sheet less the aggregate of the insurer's liabilities required by those Regulations to be shown on lines 31(b), 36 and 37 thereof.

§12 Minimum margin of solvency for long-term business

12 (1) The amount of $250,000 dollars is hereby prescribed—

(a) for the purposes of section 6(1) of the Act (except where at the time of the application for registration the insurer has not yet completed its first financial year), as the prescribed amount; and


APPLEBY

(b) for the purposes of the statement called for by regulation 9(2)(e), as the margin (in that sub-paragraph referred to as the minimum long-term business solvency margin),

by which the value of the long-term business assets of an insurer carrying on long-term business must exceed the amount of its long-term business liabilities.


"long-term business assets" and "long-term business liabilities" respectively mean assets and liabilities established in conformity with the requirements of the Insurance Accounts Regulations 1980 for the statutory balance sheet of an insurer carrying on long-term business;

"insurer" includes, in relation to section 6 of the Act, a body applying for registration as an insurer under the Act.

§13 Declaration of statutory ratios

13 (1) The declaration of the statutory ratios shall set forth the following ratios (in these Regulations called "the statutory ratios")—

(a) the premiums to statutory capital and surplus ratio;

(b) the five-year operating ratio;

(c) the change in statutory capital and surplus ratio. Modified by BR 25/1985

(2) The said declaration shall be dated and shall be signed—

(a) by at least two directors of the insurer (of whom one must be a director resident in Bermuda if the insurer has a director so resident); and


(3) The said declaration shall—

(a) bear the name of the insurer and the title "Declaration of the Statutory Ratios";

(b) specify the amount of each such ratio calculated in accordance with the rules set forth in Schedule II.

§14 Actuary's certificate 14 (1) The actuary's certificate shall state whether or not, in the opinion of the insurer's approved actuary, the aggregate amount of the liabilities of the insurer in relation to long-term business as at the end of the relevant year exceeded the aggregate amount of those liabilities as shown in the statutory balance sheet.

(2) The said certificate shall be signed by the insurer's approved actuary and shall be dated.

§14A Schedule of ceded reinsurance

14A The schedule of ceded reinsurance shall be divided into separate entries dealing with each reinsurer and each entry shall include the following information relating to a reinsurer⎯


(a) the name of the reinsurer;

(b) the rating of the reinsurer (if any) and the name of the rating agency;

(c) the jurisdiction of its incorporation;

(d) the amount of the reinsurance premiums ceded to it during the relevant year;


APPLEBY

(e) the amount of reinsurance recoverable from it (lines 11, 12, 17 and 18 of the statutory balance sheet);

(f) the amount of reinsurance balances payable to it (lines 28, 29, 33 and 34 of the statutory balance sheet);

(g) the amount of net reinsurance recoverable from it (that is, the figure required by paragraph (e) less that required by paragraph (f));

(h) the amount of net reinsurance recoverable from it which has been due for less than 180 days; and

(i) the remainder of net reinsurance recoverable from it (that is, the figure required by paragraph (g) less that required by paragraph (h)).

15 Deleted by BR 39/1981

§16 Requirements relating to preparation of returns generally

16 (1) Every statutory financial return and any document annexed to such a return shall be prepared in the English language.

(2) All amounts which are shown in any such return or document as aforesaid shall be shown in the currency in which pursuant to regulation 10(2) of the Insurance Accounts Regulations 1980 [title 17 item 49(a)] amounts in any account of an insurer are to be shown; but the Bermudian equivalent of every such amount must be stated next to that amount in every case where that amount is an amount expressed in a foreign currency (in this regulation called a "foreign currency amount").

(3) For the purposes of paragraph (2), the Bermudian equivalent of a foreign currency amount shall be the Bermudian dollar equivalent of that foreign currency amount as converted into Bermudian dollars at the rate of exchange used by any licensed bank in Bermuda in relation to purchases by that Bank of that foreign currency on the last day of the relevant year; and the person preparing the return or document in question shall state that rate either in the return or document itself or in some other document made available to the Authority.

Modified by 2001 : 27 2001 : 33

§17 Offences 17 (1) revoked by 1995:20

(2) Any person who, in or in relation to a return or a document annexed to a return, makes, or joins in making, any statement which he knows to be false or does not believe to be true commits an offence against these Regulations; and in this paragraph "make a statement", in relation to any statement made, includes a wilful omission to state something that is material.

(3) If, for the purposes of any provision of these Regulations (being a provision requiring or allowing for a statement to be made) either—

(a) any insurer; or

(b) any director or officer or employee of an insurer; or

(c) any approved auditor,

makes a statement which owing to its or his gross negligence in making the statement is wrong, or grossly misleading, in a material respect, it or he commits an offence against these Regulations.


SCHEDULE I (Reg . 10(1)) Modified b: BR 39/1981


APPLEBY

GENERAL BUSINESS SOLVENCY MARGIN BR 30/1989

Figure A

1 For the purposes of regulation 10, figure A has the following value in relation to the class of insurer indicated⎯

Class 1 $120,000

Class 2 $250,000

Class 3 $1,000,000

Class 4 $100,000,000.

Figure B

2 (1) For the purposes of regulation 10, sub-paragraphs (2) and (3) set out the method of calculating figure B in relation to Class 1, Class 2 and Class 3 insurers, and sub-paragraph (4) in relation to Class 4 insurers.

(2) Where the net premiums—

(a) written by a Class 1, Class 2 or Class 3 insurer in its current financial year, or

(b) projected to be written by an insurer, on application for registration as a Class 1, Class 2 or Class 3 insurer, in its first financial year,

do not or (as the case may be) are not projected to exceed $6,000,000, figure B shall be calculated as 20% of those net premiums.

(3) Where the net premiums—

(a) written by a Class 1, Class 2 or Class 3 insurer in its current financial year, or

(b) projected to be written by an insurer, on application for registration as a Class 1, Class 2 or Class 3 insurer, in its first financial year,

do or (as the case may be) are projected to exceed $6,000,000, figure B shall be calculated as $1,200,000 plus the following percentage of the net premiums written which exceed $6,000,000 in relation to the class of insurer indicated⎯

Class 1 10%

Class 2 10%

Class 3 15%.

(4) Figure B shall be calculated as 50% of the net premiums written by a Class 4 insurer in its current financial year or projected to be written by an insurer on application for registration as a Class 4 insurer.

(5) In this paragraph, "net premiums written" in relation to any financial year means⎯

(a) in relation to a Class 1, Class 2 or Class 3 insurer, the net amount, after deductions of any premiums ceded by the insurer for reinsurance, of the premiums written by the insurer in that year in respect of general business; and


APPLEBY

(b) in relation to a Class 4 insurer, the net amount, after deductions of any premiums ceded by the insurer for reinsurance (not exceeding 25% of gross premiums written), of the premiums written by the insurer in that year in respect of general business,

and "net premiums projected to be written" has a corresponding meaning.

Figure C

3 For the purposes of regulation 10, figure C shall be calculated as the following percentage of the aggregate⎯

(a) of the amounts shown by the insurer in completing lines 17 and 18 of Form 1 in the Insurance Accounts Regulations 1980, or

(b) of those amounts as projected by the insurer on application for registration,

in relation to the class of insurer indicated⎯

Class 1 10%

Class 2 10%

Class 3 15%

Class 4 15%.".

SCHEDULE II (Reg . 13(3)(b))

Calculation of the Statutory Ratios

A The Premiums to statutory capital and surplus ratio

1 The above ratio shall describe the proportion that net premiums written by the insurer during the relevant year bear to the insurer's statutory capital and surplus as at the end of that year.

2 For the purposes of the said ratio—

"net premiums written" means the amount shown on line 3 of the insurer's statutory statement of income, including the aggregate amount of net premiums shown in the insurer's statutory open year business revenue statement if the insurer annexed such a statement to its statutory statement of income;

"statutory capital and surplus" means the amount shown on line 3 of the insurer's statutory statement of capital and surplus less, in the case of a composite, —


(a) the amount of $250,000; or

(b) the amount in fact maintained by the insurer as its margin of solvency for long-term business, whichever of those amounts is greater,

in each case as respects the relevant year.

3 The said ratio shall be the relation of net premiums written to capital and surplus expressed mathematically as a ratio, with capital and surplus reduced to 1.

B The five-year operating ratio

1 The above ratio shall describe the proportion that the insurer's losses and expenses as a percentage of premiums expressed cumulatively for the period of five consecutive years including the relevant year bear to the insurer's investment income also so



APPLEBY

expressed.

2 (1) For the purposes of the said ratio— Modified by BR 39/1981

"expenses" means the aggregate of the amounts shown on lines 9, 10, 11 and 12, less the amount shown on line 6, of the insurer's statutory statement of income;";


"net general business investment income" means the amount shown on line 17 of the statutory statement of income;

"net losses incurred and net loss expenses incurred" or "losses" means the amount shown on line 8 of the statutory statement of income;

"net premiums earned" means the amount shown on line 5 of the statutory statement of income;

"net premiums written" means the amount shown on line 3 of the statutory statement of income;

(2) The reference in subparagraph 1 of this paragraph to a period of five years is, subject to division (3) of this sub-paragraph, a reference to the relevant period of five years during which the insurer was registered under the Act.


(3) Where at any relevant time an insurer was so registered for a number of years less than five, this paragraph applies to that number of years instead of five, and shall be construed mutatis mutandis accordingly.


3 The said ratio shall be the sum of the loss ratio and the expense ratio less the investment income ratio. For the purposes of the above sum —


(a) the loss ratio is the relation of —

(i) net losses incurred and net loss expenses incurred; to

(ii) net premiums earned, expressed mathematically as a ratio, with net premiums earned reduced to 1;

(b) the expense ratio is the relation of —

(i) expenses; to

(ii) net premiums written,

expressed mathematically as a ratio, with net premiums written reduced to 1;

(c) the investment income ratio is the relation of —

(i) net general business investment income; to

(ii) net premiums earned,

expressed mathematically as a ratio, with net premiums earned reduced to 1.

4 The five-year operating ratio shall also be expressed as a percentage.

C The change in statutory capital and surplus ratio Replaced by BR 25/1985

1 The above ratio shall describe the proportion that the insurer's statutory capital and surplus as at the end of the immediately preceding financial year ("statutory capital and surplus 1") bears to the difference between statutory capital and surplus 1 and the insurer's statutory capital and surplus as at the end of the relevant year ("statutory capital


and surplus 2").

2 For the purposes of the said ratio—

"statutory capital and surplus 1" means the amount shown, on line 3 of the insurer's statutory statement of capital and surplus for the relevant year, as the insurer's total statutory capital and surplus for the financial year immediately preceding the relevant year;

"statutory capital and surplus 2" means the amount shown on line 3 of the insurer's statutory statement of capital and surplus for the relevant year.

3 The said ratio shall be the relation of —

(a) the difference between statutory capital and surplus 2 and statutory capital and surplus 1; to

(b) statutory capital and surplus 1, expressed mathematically as a ratio, with statutory capital and surplus 1 reduced to 1.

4 The above ratio shall also be expressed as a percentage.

[Amended by

Insurance Returns and Solvency Amendment Regulations 1981 BR 39/1981






Insurance Returns and Solvency Amendment Regulations 2005 BR 42/2005]

APPLEBY

LIFE INSURANCE ACT 1978 (Consolidated by Appleby as at 20 February 2003)

BERMUDA 1978 : 25

LIFE INSURANCE ACT 1978


1 Interpretation

2 Application

3 Insurer to issue policy

4 Contents of policy

5 Contents of group policy

6 Contents of group certificate

7 Insurable interest

8 Insurable interest; definition

9 Contract taking effect

10 Default in paying premium

11 Payment of premiums

12 Duty to disclose

13 Incontestability

14 Pre-existing conditions

15 Non-disclosure by insurer

16 Age of insured

17 Mis-statement of age in group insurance

18 Effect of suicide

19 Reinstatement

20 Designation of beneficiary

21 Designation of beneficiary irrevocably

22 Designation in invalid will

23 Trustee for beneficiary

24 Beneficiary predeceasing life insured

25 Right to sue

26 Insurance money free from creditors

27 Insured dealing with contract

28 Insured entitled to dividends

29 Transfer of ownership

30 Assignment of contract

31 Contract may be unassignable

32 Rights of group life insured normally assignable

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APPLEBY


APPLEBY

33 Group life insured enforcing rights

34 Proof of claim and place of payment

35 Premiums paid with intent to defraud

36 Limitation of action

37 Documents affecting title

38 Declaration as to sufficiency of proof

39 Declaration as to presumption of death

40 Power of court

41 Court may make order

42 Stay of proceedings

43 Payment into court

44 Insurance money payable in instalments

45 Insurer holding insurance money

46 Power of court to award compensation

47 Saving

48 Repeal omitted

[13 June 1978]


§1 Interpretation 1 In this Act, except where the context otherwise requires—

"accident insurance" means insurance by which the insurer undertakes, otherwise than incidentally to some other class of insurance, to pay insurance money in the event of accident to the person insured but does not include insurance by which the insurer undertakes to pay insurance money both in the event of death by accident and in the event of death from any other cause;

"accidental death insurance" means insurance undertaken by an insurer as part of a contract of life insurance whereby the insurer undertakes to pay an additional amount of insurance money in the event of death by accident of the person whose life is insured;

"application" means an application for insurance or for the reinstatement of insurance;

"beneficiary" means a person, other than the insured or his estate representative, to whom or for whose benefit insurance money is made payable in a contract or by a declaration;

"contract" means a contract of life insurance,

"Court" means the Supreme Court;

"creditor's group insurance" means insurance effected by a creditor in respect of the lives of his debtors whereby the lives of the debtors are insured severally under a single contract;

"declaration" means an instrument signed by the insured —


APPLEBY

(i) with respect to which an endorsement is made on the policy; or

(ii) that identifies the contract; or

(iii) that describes the insurance, insurance fund, insurance money or a part thereof,

in which he designates, or alters or revokes the designation of, his personal representative or a beneficiary as one to whom or for whose benefit insurance money is to be payable;

"disability insurance" means insurance undertaken by an insurer as part of a contract of life insurance whereby the insurer undertakes to pay insurance money or to provide other benefits in the event that the person whose life is insured becomes disabled as a result of bodily injury or disease;

"family insurance" means insurance whereby the lives of the insured and one or more persons related to him by blood, marriage or adoption and insured under a simple contract between an insurer and an insured;

"fraternal society" means a society, order or association incorporated for the purpose of making with its members only, and not for profit, contracts of life, accident or sickness insurance in accordance with its constitution, bye-laws and rules and any applicable statutory provision;

"group insurance" means insurance, other than creditor's group insurance and family insurance, whereby the lives of a number of persons are insured severally under a single contract between an insurer and an employer or other person;

"group life insured" means a person whose life is insured by a contract of group insurance but does not include a person whose life is insured under the contract as a person dependent upon, or related to, him;

"insurance money" means the amount payable by an insurer under a contract, and includes all benefits, surplus, profits, dividends, bonuses, and annuities payable under the contract;

"insured" —

(i) except as provided in paragraph (ii) means the person who makes a contract with an insurer; and

(ii) in the case of group insurance when the right of the group lives insured to designate persons to receive insurance money is not removed or restricted means in relation to the designation of beneficiaries or other person to receive insurance money or in relation to the status of beneficiaries, the group life insured;

"insurer" means the person who undertakes or agrees or offers to undertake a contract;

"life insurance" means insurance whereby an insurer undertakes to pay insurance money, —

(i) on death; or

(ii) on the happening of an event or contingency dependent on human life; or

(iii) at a fixed or determinable future time; or

(iv) for a term dependent on human life,


APPLEBY

and, without restricting the generality of the foregoing, includes accidental death insurance but not accident insurance;

"will" includes codicil.

§2 Application 2 (1) This Act applies —

(a) only to contracts made after its commencement; and

(b) to all contracts made in Bermuda unless the parties agree that some other law shall apply.

(2) Where the person who would have been entitled to the payment of insurance money, if the money had become payable immediately prior to 13 June 1978 was the object of a trust within the meaning of section 15 of the Married Women's Property Act 1901, as it existed immediately prior to that day, that person shall be deemed to have been designated a beneficiary irrevocably, and the insured may not, except in accordance with this Act —

(a) alter or revoke the designation of that beneficiary; or

(b) assign, exercise rights under or in respect of, surrender or otherwise deal with the contract,

but this subsection does not apply after the time at which the insurance money becomes payable wholly to a person other than a person deemed to be designated a beneficiary irrevocably.

§3 Insurer to issue policy

3 (1) An insurer entering into a contract shall issue a policy.

(2) Subject to subsection (3), the provisions in —

(a) the application;

(b) the policy;

(c) any document attached to the policy when issued;

(d) any amendment to the contract agreed upon in writing after the policy is issued; and

(e) in the case of group insurance and creditor's group insurance any information in writing material to the insurance that is furnished to the insurer pursuant to the policy or the application,

shall constitute the entire contract.

(3) In the case of a contract made by a fraternal society, the policy, the Act or instrument of incorporation of the society, its constitution, bye-laws and rules, and the amendments made from time to time to any of them, the application for the contract and the medical statement of the applicant shall constitute the entire contract.

(4) An insurer shall, upon request, furnish to the insured or to a claimant under the contract a copy of the application.

§4 Contents of policy 4 (1) This section does not apply to a contract —

(a) of group insurance; or

(b) of creditor's group insurance; or

(c) made by a fraternal society.

(2) An insurer shall set forth the following particulars the policy:


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1 The name or a sufficient description of the insured and of the person whose life is insured.

2 The amount, or the method of determining the amount, of the insurance money payable, and the conditions under which it becomes payable.

3 The amount, or the method of determining the amount of the premium and the period of grace, if any, within which it may be paid.

4 Whether the contract provides for participation in a distribution of surplus or profits that may be declared by the insurer.

5 The conditions upon which the contract may be reinstated if it lapses.

6 The options, if any —

(a) of surrendering the contract for cash;

(b) of obtaining a loan or an advance payment of the insurance money; and

(c) of obtaining paid-up or extended insurance.

§5 Contents of group policy

5 In the case of a contract of group insurance or of creditor's group insurance, an insurer shall set forth the following particulars in the policy:

1 The name or a sufficient description of the insured.

2 The method of determining the persons whose lives are insured.

3 The amount, or the method of determining the amount, of the insurance money payable, and the conditions under which it becomes payable.

4 Any removal or restriction of the right of the group lives insured to designate a beneficiary and where such restrictions exist, a description of the persons eligible to receive the money.

5 The period of grace, if any, within which the premium may be paid.

6 Whether the contract provides for participation in a distribution of surplus or profits that may be declared by the insurer.

§6 Contents of group certificate

6 In the case of a contract of group insurance, an insurer shall issue, for delivery by the insured to each group life insured, a certificate or other document in which are set forth the following particulars:

1 The name of the insurer and an identification of the contract.

2 The amount, or the method of determining the amount, of insurance on the group life insured and on any person whose life is insured under the contract dependent upon, or related to, him.

3 The circumstances in which the insurance terminates and the rights, if any, upon such termination, of the group life insured or of any person whose life is insured under the contract as a person dependent upon, or related to, him.

§7 Insurable interest 7 (1) Subject to subsection (2), where at the time a contract would otherwise take effect the insured has no insurable interest in the person whose life is insured the contract is void.


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(2) A contract is not void for lack of insurable interest—

(a) if it is a contract of group insurance; or

(b) if the person whose life is insured has consented in writing to the insurance being placed on his life.

(3) Where the person whose life is insured is under the age of sixteen years, consent to insurance being placed on his life may be given by one of his parents or by a person standing in loco parentis to him.

§8 Insurable interest; definition

8 Without restricting the meaning of "insurable interest", a person has an insurable interest in his own life and in the life of —

(a) a child or grandchild; Modified by 2002:36

(b) his spouse or a parent;

(c) any person upon whom he is wholly or in part dependent, for, or from whom he is receiving support or education;

(d) his employee; and

(e) any person in the duration of whose life he has a pecuniary interest.

§9 Contract taking effect

9 (1) Subject to any provision to the contrary in the application or the policy, a contract does not take effect unless —

(a) the policy is delivered to an insured, his assign or agent, or to a beneficiary; or

(b) payment of the first premium is made to the insurer or its authorized agent; and

(c) no change has taken place in the insurability of the life to be insured between the time the application was completed and the time the policy was delivered.

(2) Where a policy is issued on the terms applied for and is delivered to an agent of the insurer for unconditional delivery to a person referred to in subsection (1)(a), it shall be deemed, but not to the prejudice of the insured, to have been delivered to the insured.

§10 Default in paying premium

10 (1) Where a cheque or other bill of exchange, or a promissory note or other written promise to pay, is given for the whole or part of a premium and payment is not made according to its tenor, the premium or part thereof shall be deemed not to have been paid.

(2) Where a remittance for or on account of a premium is sent in a registered letter to an insurer and is received by him, the remittance shall be deemed to have been received at the time of the registration of the letter.

§11 Payment of premiums

11 (1) Except in the case of group insurance, an assignee of a contract, a beneficiary or a person acting on behalf of one of them or of the insured may pay any premium that the insured is entitled to pay.

(2) Where a premium, other than the initial premium, is not paid at the time it is due, the premium may be paid within a period of grace of —

(a) twenty-eight days from and excluding the day on which the premium is due; or

(b) the number of days, if any, specified in the contract for payment of


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an overdue premium,

whichever is the longer period.

(3) Where the happening of the event upon which the insurance money becomes payable occurs on the due date or during the period of grace and before the overdue premium is paid, the contract shall be deemed to be in effect as if the premium had been paid at the time it was due, but except in the case of group insurance or creditor's group insurance the amount of the premium, together with interest, if any, at the rate specified in the contract, but not exceeding the statutory rate as fixed by the Interest and Credit Charges (Regulation) Act 1975 [Title 17 item 22], and any instalments of premium payable for the balance of the current policy year may be deducted from the insurance money.

§12 Duty to disclose 12 (1) An applicant for insurance, a person whose life is to be insured and a person who consents to the insurance shall each disclose to the insurer in the application, on a medical examination, if any, and in any written statements or answers furnished as evidence of insurability, every fact which within his knowledge and belief is material to the insurance and is not so disclosed by any of the others.

(2) Subject to section 13, a failure to disclose, or a misrepresentation of, such a fact renders the contract voidable by the insurer.

§13 Incontestability 13 (1) This section does not apply to a mis-statement of age.

(2) Subject to subsections (3) and (4), where a contract has been in effect for two years during the lifetime of the person whose life is insured, a failure to disclose or a mis-representation of a fact required to be disclosed by section 12 does not, in the absence of fraud, render the contract voidable.

(3) In the case of a contract of group insurance or creditor’s group insurance, a failure to disclose or a mis-representation of such a fact in respect of a person whose life is insured under the contract does not render the contract voidable, but, if evidence of insurability is specifically requested by the insurer, the insurance in respect of that person is voidable by the insurer unless it has been in effect for two years during the lifetime of that person, in which event it is not, in absence of fraud, voidable.

(4) In the case of disability insurance, when a claim arises from a disability beginning before a contract, including renewals thereof, has been in force for two years with respect to the person in respect of whom the claim is made, subsection (2) does not apply to that claim.

§14 Pre-existing conditions

14 Where a contract contains a general exception or reduction relating to disability insurance with respect to pre-existing disease or physical conditions and the person in respect of whom the disability insurance exists suffers or has suffered from a disease or physical condition that existed before the date the disability insurance came into force with respect to that person and the disease or physical condition is not by name or specific description excluded from the insurance respecting that person —

(a) the prior existence of the disease or physical condition is not except in the case of fraud, available as a defence against liability in whole or in part for a loss incurred or a disability beginning after the disability insurance including renewals thereof, has been in force continuously with respect to that person for two years prior to the date of the loss incurred or the commencement of the disability; and

(b) the existence of the disease or physical condition is not, except in the case of fraud, available as a defence against liability in whole or in part if the disease or physical condition was disclosed in the application for the disability insurance.


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§15 Non-disclosure by insurer

15 Where an insurer fails to disclose or misrepresents a fact material to the contract, the contract is voidable by the insured, but, in the absence of fraud, the contract is not by reason of such failure or mis-representation voidable after the contract has been in effect for two years.

§16 Age of insured 16 (1) This section does not apply to a contract of group insurance or of creditor's group insurance.

(2) Subject to subsection (3), where the age of a person whose life is insured is mis-stated to the insurer, the insurance money provided by the contract shall be increased or decreased to the amount that would have been provided for the same premium at the correct age.

(3) Where a contract limits the insurable age and the correct age of the person whose life is insured at the date of the application exceeds the age so limited, the contract is, during the lifetime of that person but not later than five years from the date the contract takes effect, voidable by the insurer within sixty days after the insurer discovers the error.

§17 Mis-statement of age in group insurance

17 In the case of a contract of group insurance or of creditor's group insurance, a mis-statement to the insurer of the age of a person whose life is insured does not of itself render the contract voidable, and the provisions, if any, of the contract with respect to age or mis-statement of age apply.

§18 Effect of suicide 18 (1) Where a contract contains an undertaking, express or implied, that insurance money will be paid if a person whose life is insured commits suicide, the undertaking is lawful and enforceable.

(2) Where a contract provides that in case a person whose life is insured commits suicide within a certain period of time the contract is void or the amount payable under it is reduced, if the contract lapses and is subsequently reinstated on one or more occasions, the period of time commences to run from the date of the latest reinstatement.

§19 Reinstatement 19 (1) This section does not apply to a contract of group insurance or of creditor's group insurance or to a contract made by a fraternal society.

(2) Where a contract lapses and the insured within two years applies for reinstatement of the contract, if within that time he —

(a) pays the overdue premiums and other indebtedness under the contract to the insurer, together with interest at the rate specified in the contract, but not exceeding the statutory rate as fixed by the Interest and Credit Charges (Regulation) Act 1975 [title 17 item 22], compounded annually; and

(b) produces —

(i) evidence which satisfies the insurer as to the good health; and

(ii) other evidence which satisfies the insurer as to other aspects of the insurability,

of the person whose life was insured,

the insurer shall reinstate the contract.

(3) Subsection (2) does not apply where the cash surrender value has been paid or an option of taking paid-up or extended insurance has been exercised.

(4) Sections 12, 13, 14 and 15 shall apply mutatis mutandis to a failure at the


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time of reinstatement of a contract to disclose, or a mis-representation at that time, and the period of two years to which reference is made in sections 13, 14 and 15 shall commence to run in respect of a reinstatement from the date of the reinstatement:

Provided that the contract shall be voidable on account of fraud at any time before or after reinstatement.

§20 Designation of beneficiary

20 (1) Subject to subsection (4) an insured may in a contract or by a declaration filed with the insurer designate himself, his estate representative or a beneficiary to receive insurance money.

(2) Subject to section 21, the insured may from time to time alter or revoke the designation by a declaration filed with the insurer.

(3) A designation in favour of "heirs", "next of kin" or "estate", or the use of words of like import in a designation, shall be deemed to be a designation of the estate representative of the insured.

(4) A provision in a group insurance policy which removes or restricts the right of a group life insured to make a designation is valid.

(5) When a beneficiary is designated by the insured as "wife" or "husband" then the designation shall mean the wife or husband, as the case may be, at the time of the happening of the event upon which the insurance money becomes payable.

(6) When a beneficiary is designated by the insured as a "wife" or "husband" and is further identified by name then the designation shall mean that particular person whether or not that person is still the wife or husband at the time of the happening of the event upon which the insurance money becomes payable.

(7) When a beneficiary is designated by the insured as a child and is further identified by name then the designation shall mean that particular child.

§21 Designation of beneficiary irrevocably

21 (1) An insured may in a contract, or by a declaration other than a declaration that is part of a will, filed with the insurer during the lifetime of the person whose life is insured designate by name a beneficiary irrevocably and in that event during the lifetime of the beneficiary, while the designation is in effect, may not alter or revoke the designation without the consent of the beneficiary and the interest of the beneficiary in the insurance money is not subject to the control of the insured or of his creditors and does not form part of the estate of the insured.

(2) Where the insured purports to designate a beneficiary irrevocably in a will or in a declaration that is not filed as provided in sub-section (1), the designation has the same effect as if the insured had not purported to make it irrevocable.

§22 Designation in invalid will

22 (1) A designation in an instrument purporting to be a will is not ineffective by reason only of the fact that the instrument is invalid as a will or that the designation is invalid as a bequest under the will.

(2) A designation in a will is of no effect against a designation made later than the making of the will.

(3) Where a designation is contained in a will, if subsequently the will is revoked by operation of law or otherwise, the designation is thereby revoked.

(4) Where a designation is contained in an instrument that purports to be a will, if subsequently the instrument if valid as a will would be revoked by operation of law or otherwise, the designation is thereby revoked.

§23 Trustee for beneficiary

23 (1) An insured may notwithstanding section 21 (1) in a contract or by a declaration appoint a trustee for a beneficiary and may alter or revoke the appointment by a declaration.


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(2) A payment made by an insurer to a trustee for a beneficiary discharges the insurer to the extent of the payment.

§24 Beneficiary predeceasing life insured

24 (1) Where a beneficiary predeceases the person whose life is insured, and no disposition of the share of the deceased beneficiary in the insurance money is provided in the contract or by a declaration, the share is payable —

(a) to the surviving beneficiary; or

(b) if there is more than one surviving beneficiary, to the surviving beneficiaries in equal shares; or

(c) if there is no surviving beneficiary, to the insured or his estate representative.

(2) Where two or more beneficiaries are designated otherwise than alternatively, but no division of the insurance money is made, the insurance money is payable to them in equal shares.

§25 Right to sue 25 A beneficiary may enforce in his own name, and a trustee appointed pursuant to section 23 may enforce as trustee, the payment of insurance money made payable to him in the contract or by a declaration and in accordance with the provisions thereof, but the insurer may set up any defence that it could have set up against the insured or his estate representative.

§26 Insurance money free from creditors

26 (1) Where a beneficiary is designated, the insurance money, from the time of the happening of the event upon which the insurance money becomes payable, is not part of the estate of the insured and is not subject to the claims of the creditors of the insured.

(2) While a designation in favour of a child or grandchild as defined in section 8 or a spouse or parent of a person whose life is insured, or any of them, is in effect, the rights and interests of the insured in the insurance money and in the contract are exempt from execution or seizure.

§27 Insured dealing with contract

27 Notwithstanding the designation of a beneficiary the insured may assign, exercise rights under or in respect of, surrender or otherwise deal with the contract as provided therein or as provided in this Act or as may be agreed with the insurer; but not so as to affect the rights of a beneficiary designated irrevocably unless the beneficiary has reached the age of majority and has consented.

§28 Insured entitled to dividends

28 (1) Notwithstanding the designation of a beneficiary irrevocably, the insured is entitled during the lifetime of the person whose life is insured to the dividends or bonuses declared on a contract and to the premiums paid in advance thereon unless the contract otherwise provides.

(2) Unless the insured otherwise directs, the insurer may apply the dividends or bonuses declared on the contract for the purpose of keeping the contract in force.

(3) Subject to the contract and to any direction by the insured to the contrary, dividends, bonuses and premiums paid in advance but unused held to the credit of the insured shall, upon the happening of the event upon which the insurance money becomes payable, be added to and form part of the insurance money then payable.

§29 Transfer of ownership

29 (1) Where in a contract or in an agreement in writing between an insurer and an insured it is provided that a person named in the contract or in the agreement has, upon the death of the insured, the rights and interests of the insured in the contract—

(a) the rights and interests of the insured in the contract do not, upon the death of the insured, form part of his estate; and


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(b) upon the death of the insured, the person named in the contract or in the agreement has the rights and interests given to the insured by the contract and by this Act and shall be deemed to be the insured.

(2) Where the contract or agreement provides that two or more persons named in the contract or in the agreement shall, upon the death of the insured, have successively, on the death of each of them, the rights and interests of the insured in the contract, this section applies successively, mutatis mutandis, to each of such persons and to his rights and interests in the contract.

(3) Notwithstanding any nomination made pursuant to this section, the insured may, prior to his death, assign, exercise rights under or in respect of, surrender or otherwise deal with the contracts as if the nomination had not been made, and may alter or revoke the nomination by agreement in writing with the insurer.

§30 Assignment of contract

30 (1) Where an assignee of a contract gives notice in writing of the assignment to the insurer, he has priority of interest as against—

(a) any assignee other than one who gave notice earlier in like manner; and

(b) a beneficiary other than one designated irrevocably as provided in section 21 prior to the time the assignee gave notice to the insurer of the assignment in the manner prescribed in this subsection.

(2) Where a contract is assigned as security, rights under the contract are affected only to the extent necessary to give effect to the rights and interests of the assignee.

(3) Where a contract is assigned unconditionally and otherwise than as security, the assignee has all the rights and interests given to the insured by the contract and by this Act and shall be deemed to be the insured and any subsisting designation of a beneficiary not made irrevocably is revoked.

§31 Contract may be unassignable

31 A provision in a contract to the effect that the rights or interests of the insured, or, in the case of group insurance, the group life insured, are not assignable is valid.

§32 Rights of group life insured normally assignable

32 Subject to section 31 the rights and interests of a group life insured given to him under a contract or under this Act are assignable and if they are assigned unconditionally and otherwise than as security the assignee shall be deemed to be the group life insured and any subsisting designation of a beneficiary not made irrevocably is revoked.

§33 Group life insured enforcing rights

33 A group life insured may enforce in his own name and for his own benefit a right given to him under a contract, subject to any defence available to the insurer against him or against the insured.

§34 Proof of claim and place of payment

34 (1) When an insurer receives sufficient evidence of the happening of the event upon which the insurance money becomes payable and of —

(a) the cause and circumstances upon which insurance money becomes payable;

(b) the age of the person whose life is insured;

(c) the right of the claimant to receive payment; and

(d) the name and age of the beneficiary, if there is a beneficiary,

he shall, within thirty days after receiving the evidence and proof, pay the insurance money to the person entitled thereto.

(2) Insurance money is payable in Bermuda unless the contract otherwise


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provides.

§35 Premiums paid with intent to defraud

35 Notwithstanding any other provision of this Act if it can be shown that a contract was effected and the premiums paid with intent to defraud creditors of the insured, they shall be entitled to receive, out of the money payable under the contract a sum equal to the premiums paid.

§36 Limitation of action

36 (1) Subject to subsection (2), an action or proceeding against an insurer for the recovery of insurance money shall not be commenced more than one year after the payment of the insurance money has been refused by the insurer or more than six years after the happening of the event upon which the insurance money becomes payable, whichever period first expires.

(2) Where a declaration has been made under section 39, an action or proceeding to which reference is made in subsection (1) shall not be commenced more than one year after the date of the declaration.

§37 Documents affecting title

37 (1) Until an insurer receives an instrument including a will or an order of a court affecting the right to receive insurance money, or a copy receivable in evidence in court of any such instrument or order, it may make payment of the insurance money and shall be as fully discharged to the extent of the amount paid as if there were no such instrument or order.

(2) Subsection (1) does not affect the rights or interests of any person other than the insurer.

§38 Declaration as to sufficiency of proof

38 Where an insurer admits the validity of the insurance but there is a question respecting the evidence or proof required by section 34 and no other question is in issue except a question under section 39, the insurer or the claimant may, before or after action is brought and upon at least thirty days notice, apply to the Court for a declaration as to the adequacy of the evidence or proof furnished, and the Court may make the declaration or may direct what further evidence or proof shall be furnished and on the furnishing thereof may make the declaration or, in special circumstances, may dispense with further evidence or proof.

§39 Declaration as to presumption of death

39 Where a claimant alleges that the person whose life is insured should be presumed to be dead by reason of his not having been heard of for seven years and there is no other question in issue except a question under section 38, the insurer or the claimant may, before or after action is brought and upon at least thirty days notice, apply to the Court for a declaration as to presumption of the death and the court may make the declaration.

§40 Power of court 40 Where the court finds that the evidence furnished under section 34 is not sufficient or that a presumption of death is not established, it may order that the matters in issue be decided in an action brought or to be brought, or may make such other order as it deems just respecting further evidence to be furnished by the claimant, publication of advertisements, further inquiry or any other matter or respecting costs.

§41 Court may make order

41 (1) Upon making a declaration under section 38 or 39, the Court may make such order respecting the payment of the insurance money as it deems just and an order made under this subsection is binding upon the applicant and upon all persons to whom notice of the application has been given.

(2) A payment made under an order made under subsection (1) discharges the insurer to the extent of the amount paid.

§42 Stay of proceedings

42 Unless the Court otherwise orders, an application made under section 38 or 39 operates as a stay of any pending action with respect to the insurance money.

§43 Payment into court

43 (1) Where an insurer does not within thirty days after receipt of the evidence


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and proof required by section 35 pay the insurance money to some person competent to receive it or into court, the Court may, upon application of any person, order that the insurance money or any part thereof be paid into court, or may make such other order as to the distribution of the money as it deems just.

(2) When an insurer admits liability for insurance money and he is unable to obtain an adequate and sufficient discharge because —

(a) there are adverse claimants; or

(b) the whereabouts of a person entitled is unknown; or

(c) there is no person capable of giving and authorized to give a valid discharge therefor, who is willing to do so,

the insurer may pay the insurance money into court at any time after thirty days from the date of the happening of the event upon which the insurance money becomes payable.

(3) A receipt from the Court shall be sufficient discharge to the insurer for the money paid into court under subsection (1) and (2).

(4) When money is paid into court under this Act it shall, subject to rules of court, be dealt with according to the orders of the Court.

(5) Subject to rules of court the Court may on the application of any interested person make such order as to distribution of money paid into court under this Act as it thinks just.

(6) Rules of court made under this Act shall not be subject to Parliamentary scrutiny under section 6 of the Statutory Instruments Act 1977

§44 Insurance money payable in instalments

44 (1) Subject to subsections (2) and (3), where insurance money is payable in instalments and a contract, or an instrument signed by the insured and delivered to the insurer, provides that a beneficiary has not the right to commute the instalments or to alienate or assign his interest therein, the insurer shall not, unless the insured subsequently directs otherwise in writing, commute the instalments or pay them to any person other than the beneficiary, and the instalments are not, in the hands of the insurer, subject to any legal process except an action to recover the value of necessaries supplied to the beneficiary or his minor children.

(2) Subject to subsection (3) the Court may from time to time upon the application of the beneficiary and upon at least ten days notice, declare that in view of special circumstances, the beneficiary shall have the right to —

(a) commute instalments of insurance money and when a basis for commutation is not provided in the contract and the applicant and the insurer are unable to agree upon a basis, it shall be fixed by the Court having regard to all the material circumstances;

(b) alienate or assign his interest in the insurance money.

(3) Subsection (2)(a) shall not apply to payments under an annuity contract or under a group insurance contract in which the right of the group lives insured to designate persons to receive the insurance money is removed or restricted and the insurance money is payable to the persons described therein.

(4) After the death of the beneficiary subsection (1) shall not apply.

(5) In this section, "instalments" includes insurance money held by the insurer under section 45.

§45 Insurer holding 45 (1) An insurer may hold insurance money —


insurance money

(a) subject to the order of an insured or the person to whom it is payable; or

(b) upon trusts or other agreements for the benefit of the insured or the person to whom it is payable, as provided in the contract, by an agreement in writing to which it is a party, or by a declaration, with interest at a rate agreed upon therein or, where no rate is agreed upon, at the rate declared from time to time by the insurer in respect of insurance money so held by the insurer.

(2) The insurer is not bound to hold insurance money as provided in subsection (1) under the terms of a declaration to which the insurer has not agreed in writing.

§46 Power of court to award compensation

46 When in any proceedings the Court grants specific performance of any contract or any other relief to an insurer, an insured, a beneficiary or any person acting on their behalf it may in addition award that party compensation for any loss he has sustained by reason of any breach of the provisions of this Act against whom the order of specific performance or other relief has been granted or awarded.

§47 Saving 47 (1) Nothing in this Act shall apply to any superannuation or pension scheme established by an employer for the benefit of his employees:

Provided that where any person would have been entitled to the payment of any money under such a scheme, if the money had become payable immediately prior to 13 June 1978, then section 2(2) shall apply as if the money payable was insurance money; and

Provided further the provisions of sections 20 and 21 shall apply to an employee as if the employee was an insured in respect of any money payable on his death.

(2) For the purpose of subsection (1) the Government shall be bound in the same way as any other employer.

(3) Nothing in this Act shall apply to compensation payable under the Workmen's Compensation Act 1965 [title 18 item 3].

§48 Repeal 48 omitted

[Amended by

Children Amendment Act 20002 2002 : 36]

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RULES OF THE SUPREME COURT 1985 – ORDER 115 (Consolidated by Appleby as at 28 February 2003)

ORDER 115

PROCEEDINGS UNDER THE LIFE INSURANCE ACT 1978

§115/1 Payment into court by insurance companies

1 Where an insurance company pays money into court under section 43(2) of the Life Insurance Act 1978 [title 17 item 50] (hereinafter in this Order referred to as "the Act") it shall at the time it pays the money into court file an affidavit or affidavits setting forth—

(a) a short description of the insurance policy;

(b) the names and addresses of the persons whom it believes may be interested in the insurance money and where an address is unknown so stating and stating the last known address;

(c) the person or persons whom it believes may be entitled to the insurance money setting out its reasons for such belief;

(d) the reason why it has not paid the insurance money and why it believes it will not be able to get an adequate and sufficient discharge;

(e) the manner in which it has made known that it is paying the insurance money into court; and

(f) the place where it may be served with notice of any proceedings.

§115/2 Notice to be given of payment into court

2 An insurance company that pays insurance money into court shall forthwith give notice thereof by registered letter to the persons named in its affidavit whom it believes may be interested in the insurance money.

§115/3 Interested persons may apply to the Court

3 Any person believing himself to be entitled to any insurance money that has been paid into court under section 43 of the Act may apply within ninety days of the payment being made to the Court for the money to be paid to him and shall file an affidavit stating the grounds upon which he bases his claims and may support that affidavit with the affidavits of other persons.

§115/4 Copies of applications to be sent to interested parties

4 Any person applying to the Court for insurance money to be paid to him under rule 3 shall forthwith send by registered post copies of his application and any affidavits filed by him to the insurance company and to all the persons named by the insurance company as being likely to be interested in the insurance money and to any other person whom he believes is likely to be interested in the money.

115/5 Money to be paid to sole claimant

5 If ninety days after any insurance money is paid into court only one person has applied under rule 3 for the money to be paid to him the Court shall make an order that the money shall be paid to that person unless it has reason to believe that such an order would not be just.

§115/6 Summons for directions to issue where more than one claimant

6 If more than one person has within ninety days applied under rule 3 to the Court for insurance money to be paid to him the Registrar shall within the next twenty days himself issue a summons for directions addressed to the insurance company and all persons who have applied for the insurance money to be paid to them and shall fix the date of the hearing of the summons bearing in mind the address of any claimant living outside Bermuda.

§115/7 Order 25 to apply

7 Order 25 shall apply mutatis mutandis to a summons for directions under these rules.

§115/8 Application for money to be paid

8 Any person who applies under section 43(1) of the Act for an order that insurance money be paid into court shall file with his application an affidavit setting

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RULES OF THE SUPREME COURT 1985 – ORDER 115 (Consolidated by Appleby as at 28 February 2003)

into court forth—

(a) the name and address of the insurance company;

(b) a short description of the policy;

(c) the names and addresses of the persons likely to be interested in the insurance money and where an address is unknown so stating and stating the last known address;

(d) the person he believes to be entitled to the insurance money; and

(e) the reason why he wishes the money paid into court.

§115/9 Notice of applications under section 43(1) to be given

9 Any person who makes an application under section 43(1) of the Act shall at the same time as he files an application under rule 8 give notice of such application by registered post to the insurance company and to the persons he has named in his affidavit as likely to be interested in the insurance money.

§115/10 Summons for directions to be applied for if money not paid into court

10 If within twenty-one days the insurance company does not pay the money into court he shall issue a summons for directions which shall be served by registered post on the insurance company and on all the persons to whom he has given notice of his application and Order 25 shall apply mutatis mutandis to such a summons.

§115/11 Procedure if money is paid into court

11 If the insurance money is paid into court by the insurance company then subject to any special directions by the Court the procedure shall be the same as if the money had been paid into court under section 43(2) of the Act.

APPLEBY

NON-RESIDENT INSURANCE UNDERTAKINGS ACT 1967 (Consolidated by Appleby as at 3 March 2003)

APPLEBY

BERMUDA 1967 : 75

NON-RESIDENT INSURANCE UNDERTAKINGS ACT 1967


1 Interpretation

2 Permit to carry on business

3 Grant of permit

4 Accountant-General may grant relief

5 Revocation of permit

6 Application of Companies Act 1981 section 150A provisions

7 Offences

8 Saving for policies existing on 30 March 1967

9 This Act to prevail over incorporating Act or permission


[21 March 1967]


§1 Interpretation 1 In this Act — Modified by 1968 : 140

"non-resident insurance undertaking" means any undertaking conducting insurance business of any kind other than—

(a) a company incorporated in Bermuda under any Act; or Modified by 1984 : 36

(b) any other person or body of persons, ordinarily resident in Bermuda,

conducting insurance business from a place of business in Bermuda as principals to the insurance business undertaken in Bermuda and authorised by law so to do;

"insurance business" includes making out or executing policies of insurance or insurance contracts receiving any premium or giving credit therefor or receiving any other consideration therefor, paying out any sums under a policy of insurance or insurance contracts and entering into or inducing or attempting to induce any person to enter into or take out any policy of insurance or insurance contract by advertisement or otherwise;

"the Minister" means the Minister of Finance or such other Minister as may be appointed to administer this Act.


§2 Permit to carry on business

2 (1) Any person who conducts insurance business in Bermuda as manager of or agent for or otherwise on behalf of a non-resident insurance undertaking except under the authority and in accordance with the conditions of a permit issued to that non-resident insurance undertaking, or to some person in Bermuda on its behalf, commits an offence against this Act:

Punishment on summary conviction: imprisonment for 1 month or a fine of $15,000 or both such imprisonment and fine.

Punishment on summary conviction in respect of a second or subsequent offence: imprisonment for 6 months or a fine of $30,000 or both such imprisonment and fine.


APPLEBY

(2) The Act shall not apply to any non-resident insurance undertaking the whole of whose insurance business is conducted with persons normally resident outside Bermuda and relates solely to persons, property and risks outside Bermuda.

(3) Collectively, all members of the Society of Lloyd's of London and any insurance undertaking operating on the same basis shall, for the purposes of the Act, be deemed to be a single non-resident insurance undertaking irrespective of the combination in which such members underwrite any particular insurance risk.

§3 Grant of permit 3 (1) The Minister may grant a permit under this Act upon application in writing made by, or on behalf of, the non-resident insurance undertaking and such a permit shall not be issued to the non-resident insurance undertaking or person acting on its behalf until there is produced to the Minister a receipt of the Accountant General that $10,000 has been paid to him by, or on behalf of, the non-resident insurance undertaking.

Modified by: 1981 : 4 1984 : 36 1987 : 45 1990 : 12

(2) A permit granted by the Minister under this section—

(a) shall contain a condition that on or before the 31st day of March in each year subsequent to the year of issue thereof the non-resident insurance undertaking or any person acting on its behalf, shall pay to the Accountant General the sum $10,000 and such a condition shall be specified in the permit; and

(b) may be limited in duration to a time specified in the permit; and

(c) may be granted subject to such other conditions or limitations as the Minister may think fit to impose and as are specified in the permit,

and any person conducting insurance business on behalf of any non-resident insurance undertaking who fails to comply with any condition or limitation specified in the permit relating to that non-resident insurance undertaking commits an offence against this Act:

Punishment on summary conviction: imprisonment for 1 month or a fine of $15,000 or both such imprisonment and fine.

Punishment on summary conviction in respect of a second or subsequent offence: imprisonment for 6 months or a fine of $30,000 or both such imprisonment and fine.

§4 Accountant-General may grant relief

4 Notwithstanding section 3(2) it shall be lawful for the Accountant General, in any case where a non-resident insurance undertaking has not made payment or where payment has not been made on its behalf in accordance with the condition specified in section 3(2)(a) and the Accountant General is satisfied that such non-payment is not due to wilful neglect or default, to accept payment of the sum due together with a penalty of $1,000 as constituting compliance with that condition and on receipt thereof the non-resident insurance undertaking shall for all purposes be deemed to have complied therewith.

Modified by: 1981 : 4 1987 : 45

§5 Revocation of permit 5 (1) Where it appears to the Minister that the manager or agent or other person acting on behalf of a non-resident insurance undertaking is conducting the business on behalf of that non-resident insurance undertaking in contravention of any of the conditions contained in the permit relating to that non-resident insurance undertaking, the Minister may revoke that permit:


Provided that, before so revoking any such permit, the Minister shall cause a notice to be served on such persons conducting business on behalf of that non-resident insurance undertaking as appears to the Minister equitable and shall take into account any representations made by or on behalf of those persons.

(2) Notice of any revocation pursuant to this section shall be published in the Gazette and in at least one other newspaper circulating in Bermuda.

§6 Application of 6 (1) Part XI of the Companies Act 1981 [title 17 item 5], other than those Modified by


APPLEBY

Companies Act 1981 section 150A provisions

sections specified in section 150A of the Companies Act 1981, shall not apply to a non-resident insurance undertaking to which this Act applies.

1984 : 36

[section 150A states "Sections 136A, 137(2) and (3), 138, 142, 144, 145, 146, 147 and 151 shall apply to non-resident insurance undertakings as if they were permit companies."]

(2) Nothing in this Act shall derogate from or abridge any power expressly conferred upon a non-resident insurance undertaking by or under any private Act.

§7 Offences 7 Offences against this Act shall be prosecuted before a court of summary jurisdiction.


§8 Saving for policies existing on 30 March 1967

8 Nothing in this Act shall affect any policy of insurance or insurance contract made out or executed before 31 March 1967, or the conducting of any insurance business in relation to any such policy of insurance or insurance contract after 30 March 1967.

§9 This Act to prevail over incorporating Act or permission

9 Capacity to conduct insurance business conferred on any company under its incorporating Act or permission to engage in gainful occupation granted to any person under the Bermuda Immigration and Protection Act 1956 [title 5 item 16] shall not constitute permission to conduct such business in contravention of this Act.



NON-RESIDENT INSURANCE UNDERTAKINGS (LONG-TERM INSURERS) INVESTMENT IN BERMUDA ORDER 1985 (Consolidated by Appleby as at 4 March 2003)

APPLEBY


BR 36/1985

NON-RESIDENT INSURANCE UNDERTAKINGS (LONG-TERM INSURERS) INVESTMENT IN BERMUDA ORDER 1985

[made under section 20 of the Insurance Act 1978 [title 17 item 49] and brought into operation on 31 December 1987 by BR 66/1987]

ARRANGEMENT OF ORDER

1 Citation

2 Interpretation

3 Approved assets

4 Investment in Bermuda

5 Commencement

omitted

§1 Citation 1 This Order may be cited as the Non-Resident Insurance Undertakings (Long-Term Insurers) Investment in Bermuda Order 1985.

§2 Interpretation 2 In this Order—

"Bermuda Housing Corporation" means the Corporation referred to in the Bermuda Housing Act 1980 [title 29 item 1];

"Non-Resident Insurance Undertaking" has the meaning assigned to that expression in section 1 of the Non-Resident Insurance Undertakings Act 1967 [title 5 item 17];

"the Act" means the Insurance Act 1978 [title 17 item 49].

§3 Approved assets 3 Every insurer being a Non-Resident Insurance Undertaking carrying on long-term business in Bermuda shall maintain invested in Bermuda during the currency of this Order approved assets of a value (referred to in this Order as "investment asset value") of 30% of the value of the insurer's domestic liabilities being liabilities outstanding on ac-count of the Insurer's long-term business.

§4 Investment in Bermuda

4 The following are approved assets for the purposes of section 20(6) of the Act and this Order—

(a) subject to section 144 of the Companies Act 1981 [title 17 item 5] a mortgage on land in Bermuda;

(b) any loan made to the Bermuda Housing Corporation provided that such loan shall be in an amount in excess of $50,000.00;

(c) with the prior written consent of the Authority, and not otherwise, any other asset in Bermuda.



THE COMPANIES ACT 1981

APPLEBY

PART XII

MUTUAL COMPANIES

§152 Interpretation 152 (1) In this Part unless the context otherwise requires— Modified by 1984 : 36; 1992 : 51

“mutual company” means any company, other than a company limited by shares, or other company having a share capital, whether incorporated before or after 1st July 1983, which is authorised to engage in or carry on as a principal object insurance or re-insurance business of all kinds on the mutual principle.


(2) For the purposes of this Part, a mutual company shall be deemed to engage in or carry on insurance or re-insurance business on the mutual principle where the members thereof who are exposed to some contingency associate themselves together by contributing by way of premiums on the basis that if the contemplated contingency befalls any member he shall receive a compensatory payment.


§153 Mutual companies to create and maintain a reserve fund

153 (1) A mutual company shall create and maintain a reserve fund of not less than an amount approved by the Minister in respect of such company.

(2) The memorandum of a mutual company shall in addition to the requirements of section 7 state the amount of its reserve fund.

(3) The reserve fund of a mutual company shall be treated in all respects as if it were share capital.

§154 Liability of members on a winding up

154 (1) Section 7(3) shall not apply to mutual companies and the liability of a member of such a company in the event of it being wound up shall be limited to the premiums or any unpaid premiums or undischarged portion thereof due to the company on the date of the commencement of the winding up from such member.

(2) For the purposes of this section “premiums” means the premiums, including retrospective premium adjustments or calls payable for insurance issued or effected by a mutual company to, for or on behalf of each member of the company and any capital contribution or other such assessment that is due under the bye-laws or any other contractual obligation with a member of the company.


§155 Apportionment of assets of mutual companies

155 When a mutual company is wound up, after its liabilities have been satisfied the person carrying out the winding up shall either apportion the remaining assets in accordance with the byelaws of the company or if there is no provision in the bye-laws for such apportionment then in such a fair and equitable manner amongst the members of the company as such person may decide.

§155A Criteria for determining membership

155A(1) Subject to subsection (2), a mutual company shall in its bye-laws make provision to establish the criteria by reference to which membership in the company and eligibility therefor shall be determined.



APPLEBY

(2) Without prejudice to the generality of subsection (1) and notwithstanding sub-section (2) of section 152, the following persons shall unless the bye-laws of the company otherwise provide, be members of a mutual company:

(a) any person who is for the time being a provisional director thereof;

(b) any person whose risks are insured, whether directly or indirectly, by the company and who has been accepted by the company as a member; or

(c) any person who provides some part of the funds necessary to establish or maintain the reserve fund of the company.

(3) For the purposes of subsection (2), the reference to a risk of a person being indirectly insured by the company is a reference to that risk being covered by the company by reinsurance through one or more intermediaries.

§156 Act to apply to mutual companies

156 (1) Subject to section 4 the provisions of this Act relating to companies limited by guarantee shall apply to all mutual companies:

Provided that the Minister from time to time may by regulations declare that any provision of this Act shall not apply to mutual companies or that in its application it shall be varied in such manner as shall be set out in the regulations.

(2) Any regulations made by the Minister under subsection (1) shall be subject to affirmative resolution procedure.

(3) For the avoidance of doubt it is declared that ⎯ Inserted by 1999 : 25

(a) sections 104 to 109 apply, with the necessary changes, to mutual companies;

(b) in section 105 to 108 references to “shares” and to “capital” shall be read as if they were references to “membership interests” and to “a reserve fund” respectively.


APPLEBY

PART XIIA

MUTUAL FUND COMPANIES

§156A Interpretation 156A In this Part, unless the context otherwise requires, “mutual fund” means a company limited by shares, or other company having a share capital, and incorporated for the purpose of investing the moneys of its members for their mutual benefit and having the power to redeem or purchase for cancellation its shares without reducing its authorised share capital and stating in its memorandum that it is a mutual fund.

This Part was inserted by 1984 : 36 Modified by 1994 : 22

§156B Redemption and purchase of shares by mutual fund

156B(1) No shares of a mutual fund shall be redeemed or purchased by another mutual fund unless such shares are fully paid.

(2) Repealed Repealed by 2006: 40

§156C Redemption and purchase by mutual fund company of its own shares

156C(1) A mutual fund shall, if authorised by its memorandum or bye-laws, have power to redeem or purchase for cancellation its issued shares at the option of the company or at the option, or on the request of, a member.

Replaced by 1997:21

(2) A mutual fund, on the redemption or purchase of its own shares, may—

(a) repay the capital paid up on such shares out of paid in capital, share premium or other reserves of the company;

(b) pay the premium, if any, out of realised or unrealised profits, share premium or other reserves of the company, on such terms and in such manner and at such price as may be determined having regard to the asset value of such shares as ascertained in accordance with the bye-laws of the mutual fund.

(3) The redemption or purchase of its own shares by a mutual fund shall not be taken as reducing its authorised share capital and a mutual fund shall have power to issue shares equal in aggregate par value to the aggregate par value of the shares so redeemed or purchased as if those shares had never been issued and the issuance of such shares under the power herein contained shall not be taken as increasing the amount of its issued share capital.

(4) The power of a mutual fund referred to in subsection (3) shall be exercisable by the directors of the mutual fund.

§156D Repealed 156D Repealed Repealed by 1992 : 51


APPLEBY

§156E Private Act companies incorporated with certain powers deemed to be mutual funds

156E Every company incorporated by private Act and having the power to redeem or purchase for cancellation its issued shares at the option of, or on the request of, a member shall be deemed for the purposes of this Act to be a mutual fund.

§156F Certain sections do not apply to mutual fund

156F Sections 40, 42, 42A, 42B, 54(1)(b), 65(6) and 66 shall not apply to a mutual fund.

Replaced by 1992 : 51; Modified by 1995 : 33; 2006: 40

§156G Certain companies incorporated after 1 July 1983 deemed to be mutual funds1

156G Every company incorporated after 30 June 1983 and before 12 July 1984 having the power to redeem or purchase for cancellation its issued shares or any class of shares at the option of, or on the request of, a member and which is an open-ended company (as defined in Part II of the Fifth Schedule) shall be deemed for the purposes of this Act to be a mutual fund and to have and always to have had the powers set out in section 156C.

§156H Certification by Minister of fund as United Kingdom class scheme

156H Subject to section 156I, upon application by a mutual fund, the Minister may, in such form as he may determine, certify that the mutual fund is, in his opinion, a United Kingdom class scheme.


§156I Conditions to be satisfied for certification

156I (1) The Minister shall not certify a mutual fund in accordance with section 156H, unless he is satisfied that—


(a) the applicant is a mutual fund within the meaning of this Part;

(b) the applicant is in compliance with this Act;

(c) the custodian of the mutual fund is a bank incorporated in Bermuda;

(d) the manager of the mutual fund is a company incorporated in Bermuda which is separate and apart from the custodian and is in compliance with this Act;

(e) the mutual fund is fit and proper to be approved as a United Kingdom class scheme;

(f) the bye-laws of the mutual fund comply with such requirements as are prescribed;

(g) the members of the mutual fund are entitled to have their shares redeemed or purchased by the fund in accordance with the bye-laws of the fund;

1 Original drafting’s margin note reads “Provisions applicable to certain companies incorporated after appointed day”.


APPLEBY

(h) the officers, directors, manager and custodian of the mutual fund are of good standing and repute, financially sound, and have sufficient qualifications and experience to fulfil properly their respective roles; and

(i) the custodian and manager of the mutual fund are or will, upon certification, be participants in a compensation arrangement.

(2) For the purposes of this section and section 156O(2)—

“compensation arrangement” means an arrangement, approved by the Minister, in which the custodian and manager of a mutual fund are participants, providing for compensation to any member or former member of the mutual fund who has suffered loss as a result of any material breach by the custodian or manager of the fund—

(i) of the bye-laws of the fund; or

(ii) of any provision of this Act;

and where the custodian or manager, as the case may be, is or is likely to be unable otherwise to satisfy any judgement against it for such breach.

§156J Right of member to bring action against custodian or manager for loss suffered as a result of breach of bye-laws

156J A member or a former member of a mutual fund certified under section 156H shall have a right of action against the custodian or manager of the fund, as the case may be, for any loss incurred by him as a result of any material breach of the bye-laws of the fund by the custodian or manager respectively, or as a result of any material breach by the custodian or manager respectively of any provision of this Act, subject to the defences applying to actions for breach of statutory duty.


§156K Power of Minister to require rectification where fund no longer complies with statutory conditions

156K Where the Minister is of the opinion that any of the conditions set forth in section 156I are no longer fulfilled by a mutual fund, he shall immediately notify the mutual fund thereof and may, after affording the mutual fund an opportunity of making representations to him, require rectification thereof within such reasonable time as shall be set out in the said notice, failing which rectification as aforesaid, the Minister may revoke the certification made under section 156H, and so notify the mutual fund and the Secretary of State in the United Kingdom or his designate.


§156L Custodian and manager required to be independent of one another

156L The custodian and manager of a mutual fund certified under section 156H shall in fulfilling their respective duties act independently of one another.


§156M Manager of fund deemed to be an officer of fund2

156M For the purposes of this Act the manager of a mutual fund certified under section 156H shall be deemed to be an officer of such fund whether or not such manager would otherwise be treated as an officer of the fund for the purposes of this Act.


2 Original drafting omitted “be” by mistake.


APPLEBY

§156N Power of directors to amend bye-laws to ensure compliance with prescribed requirements

156N(1) Notwithstanding section 13(5), the directors of a mutual fund certified under section 156H shall have the right to amend the bye-laws of the mutual fund to the extent required to ensure continued compliance of such bye-laws with the requirements prescribed from time to time and no such amendment shall require the approval of the company in general meeting.


(2) Notwithstanding anything in this Act contained, no amendment may be made to the bye-laws of a mutual fund certified under section 156H if the effect thereof would be that the bye-laws of the mutual fund would no longer comply with such requirements as are prescribed from time to time.

§156O Power of Minister to direct custodian or manager of fund to furnish information

156O(1) For the purposes of obtaining any information which the Minister needs to ensure that the provisions of this Part are fulfilled, the Minister may direct the custodian or the manager of a mutual fund certified under section 156H to furnish him with such information in such form and manner and within such time as he may specify.


(2) The custodian and manager of a mutual fund certified under section 156H shall furnish the trustee or administrator of any compensation arrangement with such information as he may require for the proper performance of his duties as such.

§156P Regulations by Minister for Part XII3

156P(1) The Minister may make regulations prescribing anything required or authorised to be prescribed under this Part and generally for the better carrying out of this Part.


(2) Subject to subsection (3), the Minister shall—

(a) cause a copy of all regulations made under this Part to be available at the office of the Registrar of Companies for inspection by any interested person free of charge at any time when the office of the Registrar of Companies is open to the public;

(b) cause to be published in the Gazette a notice briefly describing the nature of any regulations made under this Part, stating the date on which such regulations are to come into operation and that such regulations may be inspected at the office of the Registrar of Companies.

(3) Section 6 of the Statutory Instruments Act 1977 [title 1 item 3] shall not apply to any regulations made under this Part. The provisions of subsection (2) shall be deemed to be deposit for public inspection for the purpose of section 5(1) of that Act.

3 Original drafting’s margin note reads “Regulations”.

MUTUAL COMPANIES (NON-APPLICATION OF COMPANIES ACT) REGULATIONS 1995 (Consolidated by Appleby as at 28 February 2003)

APPLEBY


BR 42/1995

MUTUAL COMPANIES (NON-APPLICATION OF COMPANIES ACT) REGULATIONS 1995

[made under section 156 of the Companies Act 1981 [title 17 item 5] and brought into operation on 2 August 1995]

§1 Citation 1 These Regulations may be cited as the Mutual Companies (Non-Application of Companies Act) Regulations 1995.

§2 Certain sections of Companies Act 1981 not to apply to mutual companies

2 Section 65(6) and section 66 of the Companies Act 1981 [title 17 item 5] shall not apply to a mutual company.

Title 17Laws of Bermuda Item 5(d)

1989 Revision Update #5 as at 31 Aug. 1996 1


BR 52/1995

COMPANIES (FINANCIAL STATEMENTS AND AUDITOR'SREPORT) RULES 1995

[made under section 34 of the Companies Act 1981 [title 17 item 5] andbrought into operation on 31 October 1995]

ARRANGEMENT OF RULES

1 Citation2 Interpretation3 Information to be contained in

financial statements4 Documents to be attached to

financial statements

5 Auditor's Report or Auditor'sStatement

6 Consent of Auditor7 Revocation

Citation1 These Rules may be cited as the Companies (FinancialStatements and Auditor's Report) Rules 1995.

Interpretation2 References in these Rules—

(a) to the Act means the Companies Act 1981 [title 17 item5];

(b) to a company shall, in the case of a unit trust, beconstrued as references to the unit trust;

(c) to the first financial period may, if the directors of thecompany so determine, be construed as the periodending with the second financial year end;


2 Update #5 as at 31 Aug. 1996 1989 Revision

(d) to financial statements, auditor's reports and auditor'sstatement may, in the case of a prospectus in respect ofan offer of a specified series or specified class of shares,if the directors of the company so determine, beconstrued in respect only of the series or class of sharesso specified;

(e) to generally accepted accounting principles mean thegenerally accepted accounting principles referred to insection 84 of the Act; and

(f) to generally accepted auditing standards means thegenerally accepted auditing standards referred to insection 90 of the Act.

Information to be contained in financial statements3 (1) The financial statements of a company required to beattached to a prospectus by section 27(1)(h) of the Act shall—

(a) in the case of a company where the prospectus is to beissued before the earlier of—

(i) the date on which the directors approvedfinancial statements in respect of the company'sfirst financial period for laying before a generalmeeting of the company; or

(ii) six months after the close of the company's firstfinancial period,

consist of a written statement specifying the mattersreferred to in paragraph (2); and

(b) in any other case, shall comply with paragraph (3).

(2) The statement referred to in paragraph (1)(a) shall specifywhether, on the date of issue of the prospectus—

(a) the company has commenced business;

(b) any dividends have been declared or paid;

(c) the directors have approved any financial statements forlaying before a general meeting of the company; and

(d) the auditor has audited any financial statements of thecompany.

(3) The financial statements referred to in paragraph (1)(b)shall—



(a) in the case of a company whose directors have approvedfinancial statements, prepared at a date not more thaneighteen months prior to the date of issue of theprospectus, for laying before a general meeting of thecompany under section 84(1) of the Act, consist of themost recent of such financial statements; and

(b) in any other case, shall consist of—

(i) a balance sheet as of a financial year end whichshall not be more than eighteen months prior tothe date of issue of the prospectus;

(ii) a statement of results of operations for a periodof not less than one year ending on the balancesheet date or, in the case of a company whichhas been incorporated for a period of less than ayear, for the period from such incorporationending on the balance sheet date;

(iii) a statement of retained earnings or deficit for theperiod covered by the statement of results ofoperations;

(iv) a statement of changes in financial position forthe period covered by the statement of results ofoperations;

(v) notes to the financial statements which notesshall include a description of, and identify, thegenerally accepted accounting principles used inthe preparation of the financial statements; and

(vi) such further information as may be required bythe Act and the company's own Act ofincorporation, if any, or its memorandum, andbye-laws.

(4) In the case of a company which is continuously offering itsshares to the public and which, on the date of the issue of the initialprospectus had not commenced business, the financial statementsattached to the initial prospectus shall be deemed to satisfy therequirements of this rule and rule 4 for the purposes of any subsequentprospectus if the date of issue of such prospectus is the earlier of—

(a) six months after the close of the first financial period; or

(b) the date on which financial statements in respect of theclose of such first financial period have been approved



by the directors for laying before a general meeting of thecompany.

Documents to be attached to financial statements4 (1) In the case of a company which is not a mutual fund or aunit trust there shall also be attached to the financial statements of thecompany summary unaudited information in respect of the immediatelypreceding five financial year ends of the company, or in respect of suchshorter period as may be available, and the summary unauditedinformation shall specify, as appropriate—

(a) in respect of balance sheet items—

(i) total assets;

(ii) long term liabilities;

(iii) shareholders' equity;

(iv) share capital in issue by class; and

(v) shareholder's equity per share by class of share;

(b) in respect of statement of results of operations items—

(i) sales or gross income;

(ii) extraordinary items;

(iii) realised gains or losses on investment sales;

(iv) net income; and

(v) earnings per share by class of share; and

(c) in respect of statement of changes in financial positionitems, cash generated from, or used by,—

(i) operating activities;

(ii) investing activities;

(iii) financing activities as they relate to borrowing;

(iv) financing activities as they relate toshareholders' equity; and

(v) dividends paid per share by class of share.

(2) Where—

(a) the financial statements referred to in rule 3(1)(b) havebeen prepared more than six months before the date ofthe issue of the prospectus; or



(b) the financial statements consist of a written statement,prepared in accordance with rule 3(1)(a),

and the company has commenced business, there shall also be attachedto the financial statements, where applicable, unaudited financialstatements containing the matters specified in paragraph (3).

(3) The matters referred to in paragraph (2) are—

(a) balance sheet as of the most recent financial year endunless—

(i) such financial year has been covered by thefinancial statements mentioned in rule 3(1)(b); or

(ii) such financial year ended less than one monthprior to the date of issue of the prospectus;

(b) balance sheet as of a date which is not more than fourmonths prior to the date of issue of the prospectus;

(c) a statement of results of operations for the periodbeginning on the date of the financial statementsmentioned in rule 3(1)(b) (or, in the case of a companywhich is subject to rule 3(1)(a), beginning on the date ofincorporation) and ending on the date of the balancesheet required under sub-paragraph (b);

(d) a statement of retained earnings or deficit for the periodcovered by the statement of results of operations; and

(e) a statement of changes in financial position for theperiod covered by the statement of results of operations.

(4) The prospectus shall also include a bold legend to the effectthat the unaudited financial statements mentioned in paragraph (2) havenot been audited by the auditor and either that—

(a) the report of the auditor relates to financial statementscovering a period which ended more than six monthsprior to the date of issue of the prospectus; or

(b) the auditor has not completed the audit of any financialstatements as of the date of the report.

(5) At the discretion of the directors of the company, there maybe attached to the financial statements pro-forma financial statementscomprising—

(a) where the company has presented such financialstatements, a pro-forma balance sheet; and



(b) where a business is being acquired by the company outof the proceeds of the security issue covered by theprospectus and the company has presented suchfinancial statements—

(i) a pro-forma combined statement of results ofoperations; and

(ii) a pro-forma combined statement of changes infinancial position.

(6) Where pro-forma financial statements are attached to aprospectus pursuant to rule 4(5), there shall be attached to those pro-forma financial statements a compilation report by the auditor addressedto the directors and prepared in accordance with generally acceptedauditing standards stating the procedures the auditor has applied andwhether the pro-forma financial statements described in paragraph (5)have been properly compiled.

(7) A prospectus shall also include a statement disclosingevents occurring subsequent to the date of the audited financialstatements (or where, in accordance with rule 3(1)(a) or 3(2), there are noaudited financial statements, subsequent to the date of incorporation)but before the date of issue of the prospectus which either providematerial additional information relating to conditions that existed at thedate of the financial statements (or the date of incorporation) or whichcause significant changes to assets or liabilities or which will or mayhave a significant effect on the future operations of the company or astatement that there are no such events.

Auditor's Report or Auditor's Statement5 (1) In the case of a company where the prospectus is to beissued before the earlier of either the date the directors have approvedany financial statements in respect of the company's first financial periodfor laying before a general meeting of the company, or six months afterthe close of the company's first financial period, there shall be attachedto the prospectus a written statement by the auditor of the companyconfirming his acceptance of the appointment as auditor of the company.

(2) In any case, other than the case referred to in paragraph(1), an auditor's report shall be attached to the prospectus and suchreport shall be prepared in accordance with generally accepted auditingstandards and shall be in respect of the financial statements specified inparagraph 3(3).

(3) Where the report of the auditor referred to in paragraph (2)above is attached to a prospectus, a copy of each of the financial



statements referred to in rule 3(1)(b) shall be attached to the auditor'sreport.

Consent of Auditor6 A report or statement of the auditor of the company shall not becontained in or attached to a prospectus and the name of the auditor ofthe company shall not be contained in a prospectus unless—

(a) the auditor has given, and has not, before delivery of acopy of the prospectus for filing with the Registrar,withdrawn his written consent, which consent shall bedated within one week of the date of the filing of theprospectus with the Registrar, to the inclusion of theauditor's name and his report or statement in the formand context in which they are in fact included; and

(b) a statement that the auditor has given and has notwithdrawn that consent appears in the prospectus.

Revokes B.R. No. 28 of 19927 The Companies (Auditor's Report) Rules 1992 are revoked.



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THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT 1963 (Consolidated by Appleby as at 4 March 2003)

BERMUDA 1963 : 31

THIRD PARTIES (RIGHTS AGAINST INSURERS) ACT 1963


1 Interpretation

2 Rights of third parties on bankruptcy of insured person

3 Duty to give necessary information to third parties

4 Settlement between insurer and insured

5 Effect of Act

6 Saving for Motor Car Insurance (Third Party Risks) Act 1943

[13 February 1963]


§1 Interpretation 1 In this Act, unless the context otherwise requires—

"company" means any association recognized as a company by the Companies Act 1981 [title 17 item 5] operating in Bermuda;


"contract of insurance" means a contract whereby the insured is covered against the risk of liability to third parties;

"insured" means a person who is covered by a contract of insurance;

"insurer" means a person who undertakes insurance business whereby the insured is covered against the risk of liability to a third party.

§2 Rights of third parties on bankruptcy of insured person

2 (1) Where under any contract of insurance a person is insured against liabilities to third parties which he may incur, then—

(a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or

(b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or liquidator of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge,

if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred.

(2) Where any of the events specified in subsection (1)(a) or (b) occur, the rights of any of the creditors of the insured to or in respect of moneys paid or owing by the insurer to the insured under a contract of insurance shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred.

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(3) In so far as any contract of insurance whether made before or after 13 February 1963 in respect of any liability of the insured to third parties purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the happening to the insured of any of the events specified in subsection (1)(a) or (b), the contracts shall be of no effect.

(4) Upon a transfer under subsection (1) or subsection (2), the insurer shall, subject to section 4, be under the same liability to the third party as he would have been under to the insured:

Provided that—

(a) if the liability of the insurer to the insured exceeds the liability of the insured to the third party, nothing in this Act shall affect the rights of the insured against the insurer in respect of the excess; and

(b) if the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this Act shall affect the rights of the third party against the insured in respect of the balance.

(5) For the purposes of this Act, "liabilities to third parties", in relation to a person insured under any contract of insurance, shall not include any liability of that person in the capacity of insurer under some other contract of insurance.

§3 Duty to give necessary information to third parties

3 (1) In the event of any person becoming bankrupt or making a composition or arrangement with his creditors, or in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to any company or of a receiver or liquidator of the company's business or undertaking being duly appointed or of possession being taken by or on behalf of the holders of any debentures secured by a floating charge of any property comprised in or subject to the charge it shall be the duty of the bankrupt, debtor, personal representative of the deceased debtor or company, and, as the case may be, of the trustee in bankruptcy, trustee, liquidator, receiver, or person in possession of the property to give at the request of any person claiming that the bankrupt, debtor, deceased debtor, or company is under a liability to him such information as may reasonably be required by him for the purpose of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any, and any contract of insurance, in so far as it purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the giving of any such information in the events aforesaid or otherwise to prohibit or prevent the giving thereof in the said events shall be of no effect.

(2) If the information given to any person in pursuance of subsection (1) discloses reasonable ground for supposing that there have or may have been transferred to him under this Act rights against any particular insurer, that insurer shall be subject to the same duty as is imposed by subsection (1) on the persons therein mentioned.

(3) The duty to give information imposed by this section shall include a duty to allow all contracts of insurance, receipts for premiums, and other relevant documents in the possession or power of the person on whom the duty is so imposed to be inspected and copies thereof to be taken.


§4 Settlement between insurer and insured

4 Where the insured has become bankrupt or where in the case of the insured being a company, a winding-up order has been made or a resolution for a voluntary winding-up has been passed, with respect to the company, no agreement made between the insurer and the insured after liability has been incurred to a third party and after the commencement of the bankruptcy or winding-up, as the case may be, nor any waiver, assignment, or other disposition made by, or payment made to the insured after the commencement aforesaid shall be effective to defeat or affect the rights transferred to the third party under this Act, but those rights shall be the same as if no such agreement, waiver, assignment, disposition or payment had been made.

§5 Effect of Act 5 This Act shall apply to any claim by a third party against the insured whether such claim has arisen before or after 13 February 1963.

§6 Saving for Motor Car Insurance (Third Party Risks) Act 1943

6 Nothing in this Act derogates from or abridges the Motor Car Insurance (Third Party Risks) Act, 1943 [title 21 item 5].

[Amended by

Companies Act 1981 1981 : 59]

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PROCEEDS OF CRIME ACT 1997 (Consolidated by Appleby as at 1 April 2005)

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BERMUDA 1997: 34

PROCEEDS OF CRIME ACT 1997


PART I

PRELIMINARY

Introductory

1 Short title 2 Commencement and application

Interpretation

3 Meaning of “drug trafficking”, “relevant offence”, “criminal conduct” 4 Meaning of “property”, “realisable property” etc 5 Value of property 6 Gifts caught by this Act 7 Other definitions 8 Institution and conclusion of proceedings

PART II CONFISCATION ORDERS

Confiscation orders

9 Confiscation orders: drug trafficking 10 Confiscation orders: relevant offences 11 Postponed determinations 12 Assessing proceeds of drug trafficking 13 Statements 14 Provision of information by defendant 15 Amount to be recovered 16 Protection of third party rights

Subsequent proceedings

17 Reconsideration of case 18 Revised assessment of proceeds of criminal conduct 19 Reconsideration etc: supplementary 20 Increase in realisable property 21 Inadequacy of realisable property

Absconded persons etc

22 Confiscation order where defendant has absconded or died 23 Variation of order made against absconder 24 Discharge of order where absconder acquitted etc

PART III ENFORCEMENT OF CONFISCATION ORDERS

Default powers

25 Imprisonment in default 26 Interest on unpaid sums

Restraint and charging orders

27 Cases in which orders may be made 28 Restraint orders

29 Charging orders 30 Charging orders: supplementary


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Realisation of property

31 Realisation of property 32 Application of proceeds of realisation etc 33 Exercise of powers for realisation of property 34 Receivers: supplementary

Insolvency

35 Bankruptcy of defendant 36 Winding up of company holding realisable property

PART IV INFORMATION GATHERING POWERS

37 Production orders 38 Failure to comply with production order 39 Search warrants 40 Disclosure of information by Government Departments 41 Monitoring orders 42 Offence of prejudicing investigation

PART V MONEY LAUNDERING

Offences

43 Concealing or transferring proceeds of criminal conduct 44 Assisting another to retain proceeds of criminal conduct 45 Acquisition, possession or use of proceeds of criminal conduct 46 Disclosure of knowledge or suspicion of money laundering 47 Tipping-off

Penalties

48 Penalties for money laundering etc

Prevention of money laundering

49 Establishment of Committee; regulations etc

49A Use of guidance notes

PART VI SEIZURE OF CASH

50 Seizure and detention of cash imported or exported 51 Forfeiture orders and appeals 52 Seizure: supplementary

PART VII MISCELLANEOUS & SUPPLEMENTAL

Foreign orders etc

53 Enforcement of external confiscation orders 54 Registration of external confiscation orders 55 Evidence of corresponding law 55A Confiscated Assets Fund 55B Administration of the Fund

Offences and police powers etc

56 Offences by bodies corporate 57 Police powers etc 58 Police officers: duty of confidentiality


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Procedure

59 Jurisdiction 60 Compensation 61 Costs 62 Civil standard of proof 63 Appeals

Supplemental

64 Index of defined expressions 65 Regulations 66 Crown application 67 Repealed 68 Omitted 69 Omitted

SCHEDULE Relevant offences

Repealed

[Date of Assent 19 December 1997]

[Operative Date 19 January 1998]

WHEREAS it is expedient to extend the powers of the police and the courts in relation to the tracing and confiscation of the proceeds of drug trafficking; to make new provision in relation to the tracing and confiscation of the proceeds of certain other indictable offences; to make new and amended provision in relation to money laundering; to extend the powers of seizure and forfeiture on import or export of cash suspected of being the proceeds of criminal conduct; and to make connected and consequential provision;

[Words of enactment omitted]

PART I PRELIMINARY

Introductory

§1 Short title 1 This Act may be cited as the Proceeds of Crime Act 1997.

§2 Commencement and application

2 (1) This Act shall come into operation on such day as the Minister responsible for the Police may appoint by notice published in the Gazette.

(2) This Act shall apply to any property, whether or not situated in Bermuda.

Interpretation

§3 Meaning of “drug trafficking”, “relevant offence”, “criminal conduct”

3 In this Act—

“criminal conduct” means—

(a) drug trafficking, or

(b) any relevant offence;

“drug trafficking offence” means an offence—

(a) under section 4, 5, 6(3), 7 or 11 of the Misuse of Drugs Act 1972 [title 11 item 4] (importation, production, possession with intent to supply or handling of controlled drugs and cultivation of cannabis);

(b) under section 12 or 17 of the Criminal Justice (International Co-operation)


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(Bermuda) Act 1994 [title 8 item 72] (manufacture and supply of scheduled substances and using ship for illicit traffic); or

(c) under section 43, 44 or 45 of this Act (money laundering) which relates to the proceeds of drug trafficking;

or an offence under section 32, 33, 230 or 231 of the Criminal Code Act 1907 [title 8 item 31] (attempt, incitement, conspiracy etc) deriving from such an offence;

“drug trafficking” means doing or being concerned in, whether in Bermuda or elsewhere, any act constituting—

(a) a drug trafficking offence, or

(b) an offence punishable under a corresponding law,

and includes entering into or being otherwise concerned in, whether in Bermuda or elsewhere, a drug trafficking arrangement;

“drug trafficking arrangement” means an arrangement whereby—

(a) the retention or control by or on behalf of another person of that other person’s proceeds of drug trafficking is facilitated; or

(b) the proceeds of drug trafficking by another person are used to secure that funds are placed at that other person’s disposal or are used for that other person’s benefit to acquire property by way of investment;

“relevant offence” means— Modified by: 1999 : 39 2000 : 35

(a) any indictable offence in Bermuda other than a drug trafficking offence; or

(b) any act or omission which, had it occurred in Bermuda, would have constituted an indictable offence other than a drug trafficking offence.

§4 Meaning of “property”, “realisable property” etc

4 (1) In this Act—

“property” means money and all other property, movable or immovable, including things in action and other intangible or incorporeal property; and

“interest”, in relation to property, includes right.

(2) For the purposes of this Act—

(a) property is held by any person if he holds any interest in it;

(b) references to property held by a person include a reference to property vested in his trustee in bankruptcy or liquidator;

(c) references to an interest held in property by a person beneficially include a reference to an interest which would be held by him beneficially if the property were not so vested in his trustee in bankruptcy or liquidator; and

(d) property is transferred by one person to another if the first person transfers or grants to the other any interest in the property.

(3) In this Act, ‘realisable property” means—

(a) any property held by the defendant (other than property in respect of which there is in force a forfeiture order under section 37 of the Misuse of Drugs Act 1972) [title 11 item 4]; and

(b) any property held by a person to whom the defendant has, directly or indirectly, made a gift caught by this Act.


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(4) For the purposes of this Act, the amount that might be realised at the time a confiscation order is made against the defendant shall be—

(a) the total of the values at that time of all the realisable property held by the defendant; less

(b) where there are obligations having priority at that time, the total amounts payable in pursuance of such obligations,

together with the total of the values at that time of all gifts caught by this Act.

(5) For the purposes of subsection (4), an obligation has priority at any time if it is an obligation of the defendant—

(a) to pay an amount due in respect of a fine, or other order imposed or made on conviction of an offence, where the fine was imposed or order made before the confiscation order; or

(b) to pay any sum which would be included among the preferential debts in the defendant’s bankruptcy commencing on the date of the confiscation order or winding up under an order of the court made on that date.

(6) For the purposes of subsection (5)(b), “preferential debts”—

(a) in relation to bankruptcy, means the debts to be paid in priority under section 39 of the Bankruptcy Act 1989 [title 8 item 49] (assuming the date of the confiscation order to be the date of the receiving order); and

(b) in relation to winding up, means the debts to be paid in priority in accordance with section 236 of the Companies Act 1981 [title 17 item 5] (assuming the date of the confiscation order to be the date of the winding up).

§5 Value of property

5 (1) Subject to the following subsections and section 6, for the purposes of this Act, the value of property (other than cash) in relation to any person holding the property shall be its market value, except that where any other person holds an interest in the property, the value shall be—

(a) the market value of the first-mentioned person’s beneficial interest in the property, less

(b) the amount required to discharge any incumbrance (other than a charging order) on that interest.

(2) Subject to section 6(3), references in this Act to the value at any time (referred to in subsection (3) as the “material time”) of a gift caught by this Act are references to—

(a) the value of the gift to the recipient when he received it adjusted to take account of subsequent changes in the value of money; or

(b) where subsection (3) applies, the value mentioned therein,


(3) Subject to section 6(3), if at the material time the recipient holds—

(a) the property which he received (not being cash); or

(b) property which, in whole or in part, directly or indirectly represents in his hands the property which he received,

the value referred to in subsection (2)(b) shall be the value to him at the material time of the property mentioned in paragraph (a) or as the case may be, of the property mentioned in paragraph (b) so far as it so represents the property which he received, but disregarding in either case any charging order.

§6 Gifts caught by this Act

6 (1) In relation to a drug trafficking offence, a gift (including a gift made before the commencement of this Act) is caught by this Act if—


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(a) it was made by the defendant at any time since the beginning of the period of six years ending—

(i) when the proceedings for the drug trafficking offence were instituted against him, or

(ii) where no such proceedings have been instituted, when an application for a charging or restraint order is made under section 28 or 29; or

(b) it was made by the defendant at any time and was a gift of property—

(i) received by the defendant in connection with drug trafficking carried on by him or another person, or

(ii) which in whole or in part directly or indirectly represented in the defendant’s hands property received by him in that connection.

(2) In relation to a relevant offence, a gift (including a gift made before the commencement of this Act) is caught by this Act if—

(a) it was made by the defendant at any time since the commission of the relevant offence, or, if more than one, the earliest of the offences to which the proceedings relate (including any offence which the court takes into consideration in determining his sentence); and

(b) the court considers it appropriate in all the circumstances to take the gift into account.


(a) the circumstances in which the defendant is to be treated as making a gift include those where he transfers property to another person, directly or indirectly, for a consideration the value of which is significantly less than the value of the consideration provided by the defendant; and

(b) in those circumstances, this section and section 5 shall apply as if the defendant had made a gift of such share in the property as bears to the whole property the same proportion as the difference between the values referred to in paragraph (a) bears to the value of the consideration provided by the defendant.

§7 Other definitions

7 In this Act—

“Bermuda Monetary Authority” means the Authority established under section 2 of the Bermuda Monetary Authority Act 1969 [title 16 item 11];

“Confiscated Assets Fund” means the Fund established under section 55A Inserted by 2000 : 35

“confiscation order” means an order made under section 9 or 10 (including such an order made by virtue of section 17 or 22);

“the court” means the Supreme Court;

“defendant” means a person against whom proceedings have been instituted for an offence (whether or not he has been convicted);

“items subject to legal privilege” means—

(a) communications between a professional legal adviser, and his client made in connection with the giving of legal advice to the client; and

(b) communications between a professional legal adviser and his client or between such an adviser and any other person made in connection with or in contemplation of legal proceedings and for the purpose of such proceedings,


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when they are in the possession of a person who is entitled to possession of them; but items held with the intention of furthering a criminal purpose are not items subject to legal privilege;

“material” includes any book, document or other record in any form whatsoever, and any container or article relating thereto;

“money laundering” means doing any act—

(a) which constitutes an offence under section 43, 44 or 45; or

(b) which would constitute such an offence if done in Bermuda;

and for these purposes, having possession of any property shall be taken to be doing an act in relation to it;

“premises” includes any place and, in particular, includes—

(a) any vehicle, vessel, aircraft, or offshore structure, and

(b) any tent or moveable structure;

“prescribe” means prescribe by regulations made under section 65.

§8 Institution and conclusion of proceedings

8 (1) For the purposes of this Act—

(a) proceedings for an offence are instituted in Bermuda when an information is laid charging a person with an offence;

(b) proceedings in Bermuda for an offence are concluded on the occurrence of one of the following events—

(i) the discontinuance of the proceedings;

(ii) the acquittal of the defendant;

(iii) the quashing of the defendant’s conviction for the offence;

(iv) the satisfaction of a confiscation order made in the proceedings;

(c) an application under section 17, 18, 20 or 22 is concluded—

(i) if the court decides not to make or vary (as the case may be) a confiscation order against the defendant, when it makes that decision; or

(ii) if a confiscation order is made or varied as a result of that application, when the order is satisfied;

(d) a confiscation order is satisfied when no amount is due under it.

(2) For the purposes of this Act, an order is subject to appeal until (disregarding any power of a court to grant leave to appeal out of time) there is no further possibility of an appeal on which the order could be varied or set aside.

PART II CONFISCATION ORDERS

Confiscation orders

§9 Confiscation orders: drug trafficking

9 (1) Where a defendant appears before the Supreme Court to be sentenced for one or more drug trafficking offences, the court shall proceed under this section—

(a) on the application of the Attorney-General, or

(b) of its own motion where it considers it appropriate to do so.


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(2) The court shall first determine whether the defendant has benefited from drug trafficking.

(3) For the purposes of this Act, a person has benefited from drug trafficking if he has at any time (whether before or after the commencement of this Act) received any payment or other reward in connection with drug trafficking carried on by him or another person.

(4) If the court determines that he has so benefited, it shall, before sentencing or otherwise dealing with him in respect of the offence or (as the case may be) any of the offences concerned, make a confiscation order and determine in accordance with section 15 the amount to be recovered in his case under the order.

(5) The court shall then, in respect of the offence or offences concerned—

(a) order the defendant to pay the amount of the confiscation order within such period as it may specify; and

(b) take into account the confiscation order before—

(i) imposing any fine on him;

(ii) making any other order involving any payment by him; and

(iii) making any order under section 37 of the Misuse of Drugs Act 1972 [title 11 item 4] (forfeiture); but

(c) subject to paragraph (b), leave the confiscation order out of account in determining the appropriate sentence or other manner of dealing with the defendant.

§10 Confiscation orders: relevant offences

10 (1) Where a defendant appears before the Supreme Court to be sentenced for one or more relevant offences, the court shall proceed under this section—

(a) on the application of the Attorney-General, or

(b) of its own motion where it considers it appropriate to do so.

(2) The court shall first determine whether the defendant has benefited from

(a) the offence or offences for which he is to be sentenced (“the principal offence”),

(b) any other relevant offence of which he was convicted in the same proceedings as the principal offence, and

(c) any relevant offences which the court will be taking into consideration in determining his sentence for the principal offence.


(a) a person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of any property so obtained; and

(b) if he derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated as if he had obtained instead a sum of money equal to the value of the pecuniary advantage.

(4) If the court determines that the defendant has benefited from the offences mentioned in subsection (2), it shall, before sentencing or otherwise dealing with him in respect of the principal offence, make a confiscation order and determine in accordance with section 15 the amount to be recovered in his case under the order.

(5) The court shall then in respect of the principal offence—

(a) order the defendant to pay the amount of the confiscation order within such


APPLEBY

period as it may specify; and

(b) take into account the confiscation order before—

(i) imposing any fine on him, or

(ii) making any other order involving any payment by him; but

(c) subject to paragraph (b), leave the confiscation order out of account in determining the appropriate sentence or other manner of dealing with the defendant.

§11 Postponed determinations

11 (1) Where the court is proceeding under section 9 or 10 (as the case may be), but considers that it needs more information before—

(a) determining whether the defendant has benefited as mentioned in the section in question, or

(b) determining the amount to be recovered from him under a confiscation order,

it may, for the purpose of enabling that information to be obtained, postpone making the determination for such period as it may specify.

(2) More than one postponement may be made under subsection (1).

(3) Unless satisfied that there are exceptional circumstances, the court shall not specify a period under subsection (1) which, by itself or taken together with any other postponement under this section, exceeds six months from the date of conviction.

(4) Where the defendant appeals against his conviction, the court may on that account—

(a) postpone making either or both of the determinations mentioned in subsection (1) for such period as it may specify; or

(b) where it has exercised its powers to postpone, extend the specified period.

(5) A postponement or extension under subsection (1) or (4) may be made on the application of the Attorney-General or the defence or by the court of its own motion.

(6) Unless the court is satisfied there are exceptional circumstances, any postponement or extension under subsection (4) shall not extend beyond three months after the appeal is determined or otherwise disposed of.

(7) Where the court exercises its power under this section it may nevertheless proceed to sentence the defendant in respect of the offence in question or any such offences; and on making a postponed confiscation order by virtue of this section it may vary any fine or other order involving payment imposed on the defendant in accordance with subsection (5)(b) of section 9 or 10 (as the case may be).

§12 Assessing proceeds of drug trafficking

12 (1) For the purposes of this Act-

(a) any payments or other rewards received by a person at any time (whether before or after the commencement of this Act) in connection with drug trafficking carried on by him or another person are his proceeds of drug trafficking; and

(b) the value of his proceeds of drug trafficking is the aggregate of the values of the payments or other rewards.

(2) Subject to subsections (4) and (5), the court shall make the required assumptions for the purpose—

(a) of determining whether the defendant has benefited from drug trafficking, and

(b) if he has, of determining the value of his proceeds of drug trafficking.


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(3) The required assumptions are—

(a) that any property appearing to the court—

(i) to have been held by the defendant at any time since his conviction, or

(ii) to have been transferred to him at any time since the beginning of the period of six years ending when the proceedings were instituted against him,

was received by him as a payment or reward in connection with drug trafficking carried on by him;

(b) that any expenditure of his since the beginning of that period was met out of payments received by him in connection with drug trafficking carried on by him;

(c) that, for the purpose of valuing any property received or assumed to have been received by him at any time as such a reward, he received the property free of other interests in it.

(4) The court shall not make any of the required assumptions in relation to any particular property or expenditure if—

(a) that assumption is shown to be incorrect in the defendant’s case; or

(b) the court is satisfied that there would be a serious risk of injustice in the defendant’s case if that assumption were to be made;

and where the court, by virtue of this subsection, does not make one of the required assumptions it shall state its reasons.

(5) Subsection (2) does not apply if the only drug trafficking offence in respect of which the defendant appears before the court for sentencing is an offence under section 43, 44 or 45 relating to the proceeds of drug trafficking.

(6) For the purpose of assessing the value of the proceeds derived by the defendant from drug trafficking in a case where a confiscation order has previously been made against him (under this Act or the Drug Trafficking Suppression Act 1988) [title 8 item 30] the court shall leave out of account any such proceeds that are shown to the court to have been taken into account in determining the amount to be recovered under the previous order.

§13 Statements 13 (1) Where the Attorney-General asks the court to proceed under section 9 or 10 he shall give the court, within such period as it may direct, a statement (a “prosecutor’s statement”) of matters which he considers relevant in connection with—

(a) determining whether the defendant has benefited as mentioned in the section in question; or

(b) assessing the value of his proceeds of drug trafficking or benefit from any relevant offences.

(2) Where the court proceeds under section 9 or 10 without the Attorney-General having asked it to do so, it may require him to give it a prosecutor’s statement, within such period as it may direct.

(3) Where a prosecutor’s statement has been given—

(a) the Attorney-General may at any time give the court a further such statement; and

(b) the court may at any time require him to give it a further such statement, within such period as it may direct.

(4) Where any prosecutor’s statement has been given and the court is satisfied that it has been served on the defendant, it may require the defendant, within such period as it may


APPLEBY

direct—

(a) to indicate the extent to which he accepts the allegations in the statement; and

(b) so far as he does not accept any such allegation, to give particulars of any matters on which he proposes to rely;

and the court may for the purposes of the determination and assessment mentioned in subsection (1) treat any acceptance by the defendant as conclusive of the matters to which it relates.

(5) To the extent that the defendant fails in any respect to comply with a requirement under subsection (4), he may be treated for the purposes of this section as accepting every allegation in the statement.

(6) Where—

(a) there is tendered to the court by the defendant a statement as to any matters relevant to determining the amount that might be realised at the time the confiscation order is made; and

(b) the Attorney-General accepts to any extent any allegation in the statement,

the court may, for the purposes of that determination, treat that acceptance as conclusive of the matters to which it relates.

(7) An allegation may be accepted or a matter indicated for the purposes of this section either orally before the court or in writing.

(8) No acceptance by the defendant under this section that proceeds have been derived by him from drug trafficking or from any relevant offence shall be admissible in evidence in any proceedings for an offence.

§14 Provision of information by defendant

14 (1) For the purpose of obtaining information to assist it in carrying out its functions in relation to making a confiscation order, the court may order the defendant to give it such information in such manner and before such date as may be specified in the order.

(2) If the defendant fails without reasonable excuse to comply with any order under this section, the court may draw such inference from that failure as it considers appropriate.

(3) Where the Attorney-General accepts to any extent any allegation made by the defendant in giving to the court information required under this section, the court may treat that acceptance as conclusive of the matters to which it relates.

§15 Amount to be recovered

15 (1) Subject to subsection (3), the amount to be recovered under a confiscation order shall be the amount the court assesses to be the value of the defendant’s proceeds of drug trafficking or benefit from relevant offences (as the case may be).

(2) If the court is satisfied as to any matter relevant for determining the amount that might be realised at the time the confiscation order is made (whether by reason of the acceptance of an allegation made in a statement given under section 13 or made in the giving of information under section 14 or otherwise), the court may issue a certificate giving its opinion as to the matters concerned and shall do so if satisfied as mentioned in subsection (3).

(3) If the court is satisfied that the amount that might be realised at the time the confiscation order is made is less than the amount the court assesses to be the value of the defendant’s proceeds of drug trafficking or benefit from relevant offences (as the case may be), the amount to be recovered under the confiscation order shall be the amount appearing to the court to be the amount that might be so realised.

§16 Protection of third party rights

16 (1) Where an application is made for a confiscation order, a person who asserts an interest in realisable property may apply to the court, before the confiscation order is made, for an order under subsection (2).

(2) If a person applies to the court for an order under this subsection in respect of his interest in realisable property and the court is satisfied—

(a) that he was not in any way involved in the defendant’s criminal conduct; and


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(b) that he acquired the interest—

(i) for sufficient consideration; and

(ii) without knowing, and in circumstances such as not to arouse a reasonable suspicion, that the property was, at the time he acquired it, property that was involved in or was the proceeds of criminal conduct,

the court shall make an order declaring the nature, extent and value (as at the time the order is made) of his interest.

(3) Subject to subsection (4), where a confiscation order has already been made, a person who asserts an interest in the property may apply under this subsection to the court for an order under subsection (2).

(4) Except with the leave of the court, an application shall not be made under subsection (3)—

(a) by a person—

(i) who had knowledge of the application for a confiscation order before the order was made, or

(ii) who appeared at the hearing of that application; or

(b) later than 28 days beginning with the day on which the confiscation order was made.

(5) A person who makes an application under subsection (1) or (3) shall give not less than seven days’ written notice of the making of the application to the Attorney-General who shall be a party to any proceedings on the application.

Subsequent proceedings

§17 Reconsideration of case

17 (1) This section applies where a defendant has appeared before the Supreme Court to be sentenced in respect of one or more drug trafficking or relevant offences but the court has not made a confiscation order because either—

(a) it did not proceed under section 9 or 10, or

(b) the court has made a determination under subsection (2) of section 9 or 10 (“a subsection (2) determination”) that the defendant has not benefited from drug trafficking or from any relevant offence.

(2) If the Attorney-General has evidence which was not previously available but which he believes would have led the court to determine that the defendant had benefited from drug trafficking or from any relevant offence he may make an application to the court.

(3) On such an application the court shall consider the evidence and if satisfied that the defendant had so benefited, the court shall make a confiscation order and order the payment of such amount as it thinks just in all the circumstances of the case, including in particular the amount of any fine or other orders for payment imposed on the defendant in respect of the offence or offences in question.

§18 Revised assessment of proceeds of criminal conduct

18 (1) This section applies where the court has made a determination of the amount to be recovered under a confiscation order (“the current determination”).

(2) Where the Attorney-General is of the opinion that the real value of the defendant’s proceeds of drug trafficking or benefit from any relevant offences was greater than their assessed value, he may apply to the court for the evidence on which he has formed his opinion to be considered by the court.

(3) If, having considered the evidence, the court is satisfied that the real value of the defendant’s proceeds of drug trafficking or benefit from any relevant offences is greater than their


APPLEBY

assessed value (whether because the real value at the time of the current determination was higher than was thought or because the value of the proceeds or benefit in question has subsequently increased), the court shall make a fresh determination of the amount to be recovered under a confiscation order.

(4) In subsections (2) and (3)—

“assessed value” means the value of the defendant’s proceeds of drug trafficking or benefit from any relevant offences as assessed by the court in accordance with section 15(1) of this Act; and

“real value” means—

(a) the value of the defendant’s proceeds of drug trafficking which took place in the period by reference to which the current determination was made or in any earlier period; or

(b) the value of his benefit from any of the relevant offences mentioned in section 10(2).

(5) Any determination by virtue of this section shall be by reference to the amount that might be realised at the time when the determination is made.

(6) For the avoidance of doubt, section 12(6) shall not apply in relation to any of the defendant’s proceeds of drug trafficking taken into account in respect of the current determination.

(7) If, as a result of making the fresh determination required by subsection (3), the amount to be recovered exceeds the amount set by the current determination, the court may substitute for the amount to be recovered under the confiscation order such greater amount as it thinks just in all the circumstances of the case.

(8) Where the court varies a confiscation order by virtue of this section it shall substitute for the term of imprisonment in default fixed under section 25(1) in respect of the amount to be recovered under the order such longer term as may be determined in accordance with that section in respect of the greater amount to be recovered under the order as varied.

§19 Reconsideration etc: supplementary

19 (1) On an application under section 17 or 18, the court may take into account any payment or other reward received by the defendant on or after the date—

(a) of the conviction (in the case of an application under section 17 by virtue of subsection (1 )(a));

(b) of the subsection (2) determination (in the case of an application under section 17 by virtue of subsection (1 )(b)); or

(c) of the current determination (in the case of an application under section 18);

but only if the Attorney-General shows that it was received by the defendant in connection with drug trafficking carried on, or with any relevant offence committed, on or before that date.

(2) In considering any evidence which relates to any payment or reward in relation to drug trafficking to which subsection (1) applies, the court shall not make the assumptions which would otherwise be required by section 12.

(3) No application shall be entertained by the court under section 17 or 18 if it is made after the end of the period of six years beginning with the date on which the defendant was convicted, or where the application relates to more than one conviction, the date of the latest conviction.

(4) Sections 13 and 14 apply, with such modifications as may be necessary, in relation to applications under sections 17 and 18 as they apply in relation to proceedings under sections 9 and 10.

§20 Increase in 20 (1) This section applies where, by virtue of section 15(3), the amount which a person


APPLEBY

realisable property

is ordered to pay under a confiscation order is less than the amount assessed to be his proceeds of drug trafficking or benefit from relevant offences (as the case may be).

(2) If, on an application made—

(a) by the Attorney-General, or

(b) by a receiver appointed under section 28 or 31 in relation to the realisable property of the person in question,

the court is satisfied that the amount that might be realised in the case of the person in question is greater than the amount taken into account in making the confiscation order (whether it was greater than was thought when the order was made or has subsequently increased), the court shall issue a certificate to that effect, giving its reasons.

(3) Where a certificate has been issued the Attorney-General may apply to the court for an increase in the amount to be recovered under the confiscation order; and on that application the court may—

(a) substitute for that amount such amount not exceeding the amount assessed as the value referred to in subsection (1) as appears to the court to be appropriate having regard to the amount now shown to be realisable; and

(b) increase the term of imprisonment fixed in respect of the confiscation order under section 25(1) if the effect of the substitution is to increase the maximum period applicable in relation to the order under that section.

§21 Inadequacy of realisable property

21 (1) If, on an application made in respect of a confiscation order,

(a) by the defendant; or

(b) by a receiver appointed under section 28 or 31,

the court is satisfied that the realisable property is inadequate for the payment of any amount remaining to be recovered under the order, the court shall issue a certificate to that effect, giving its reasons.

(2) For the purposes of subsection (1)—

(a) in the case of realisable property held by a person who has been adjudged bankrupt, the court shall take into account the extent to which any property held by him may be distributed among creditors; and

(b) the court may disregard any inadequacy in the realisable property which appears to the court to be attributable, wholly or partly, to anything done by the defendant for the purpose of preserving any property held by a person to whom the defendant had, directly or indirectly, made a gift caught by this Act from any risk of realisation under this Act.

(3) Where a certificate has been issued under subsection (1), the person who applied for it may apply to the court which made the confiscation order for the amount to be recovered under the order to be reduced.

(4) The court shall, on an application under subsection (3)—

(a) substitute for the amount to be recovered under the order such lesser amount as the court thinks just in all the circumstances of the case; and

(b) substitute for the term of imprisonment in default fixed under section 25(1) in respect of the amount to be recovered under the order a shorter term if such is determined in accordance with that section in respect of the lesser amount to be recovered under the order as varied.

(5) Any person appearing to the court to be likely to be affected by any exercise of its powers under this section shall be entitled to appear before the court and make representations.


APPLEBY

Absconded persons etc

§22 Confiscation order where defendant has absconded or died

22 (1) Where a person has been convicted of one or more drug trafficking or relevant offences, on the application of the Attorney-General the court may make a confiscation order against him if satisfied that he has absconded or died.

(2) Where proceedings for one or more drug trafficking or relevant offences have been instituted but not concluded, on the application of the Attorney-General the court may make a confiscation order against the defendant if satisfied that he has absconded, but shall not do so until after the period of two years beginning with the date which is, in the opinion of the court, the date on which the defendant absconded.

(3) In any proceedings under this section—

(a) section 12(2) shall not apply;

(b) section 13 shall apply with the omission of subsections (4) to (6);

(c) the court shall not make a confiscation order against a defendant unless it is satisfied that the Attorney-General has taken reasonable steps to contact him; and

(d) any person appearing to the court to be likely to be affected by the making of a confiscation order shall be entitled to appear before the court and make representations.

(4) Where an application has been made to the court under this section in relation to a defendant who has absconded and the court has decided not to make a confiscation order against him, section 17 shall not apply at any time while he remains an absconder.

§23 Variation of order made against absconder

23 (1) Where a confiscation order is made by virtue of section 22(2) and the defendant ceases to be an absconder, he may apply to the court for a variation of the amount to be recovered under the order.

(2) If on such an application the court is satisfied that the value of the defendant’s proceeds of drug trafficking in the period by reference to which the determination in question was made, or the value of his benefit from relevant offences, or the amount that might have been realised at the time the order was made, was less than the amount ordered to be paid under the confiscation order, the court—

(a) may if it considers it just in all the circumstances reduce the amount to be recovered under the confiscation order, and

(b) if it does so, shall reduce the term of imprisonment in default in accordance with section 25(1).

(3) Where the court reduces the amount to be recovered under a confiscation order it may, on the application of a person who held property which was realisable property, order compensation to be paid to him if satisfied that he has suffered loss as a result of the making of the confiscation order and if, having regard to all the circumstances of the case, it considers it appropriate to do so.

(4) No application shall be entertained by the court if it is made after the end of six years beginning on the day on which the confiscation order was made.

§24 Discharge of order where absconder acquitted etc

24 (1) Where a confiscation order is made by virtue of section 22(2) and the defendant is subsequently tried for the offence or offences in question and acquitted on all counts, the court shall cancel the confiscation order.

(2) Where a confiscation order is made by virtue of section 22(2) against a person who ceases to be an absconder and subsection (1) of this section does not apply, the court may on the application of the defendant cancel the confiscation order if satisfied that—


APPLEBY

(a) there has been undue delay in continuing the proceedings in respect of which the power under section 22(2) of this Act was exercised; or

(b) the Attorney-General does not intend to proceed with the prosecution.

(3) Where the court cancels a confiscation order under this section it may, on the application of a person who held property which was realisable property, order compensation to be paid to him if satisfied that he has suffered loss as a result of the making of the confiscation order and if, having regard to all the circumstances of the case it considers it appropriate to do so.

(4) Where the court cancels a confiscation order under this section it may make such consequential or incidental order as it thinks fit.

PART III

ENFORCEMENT OF CONFISCATION ORDERS

Default powers

§25 Imprisonment in default

25 (1) Notwithstanding section 61 of the Criminal Code Act 1907 [title 8 item 31] (limits on periods of imprisonment in default of fines etc), where the court orders the defendant to pay an amount under a confiscation order it shall in addition direct him to be imprisoned in default of payment of any amount under the confiscation order as follows—

(a) if the amount does not exceed $20,000, for a term not exceeding 2 years;

(b) if the amount exceeds $20,000 but does not exceed $50,000, for a term not exceeding 5 years;

(c) if the amount exceeds $50,000 but does not exceed $100,000, for a term not exceeding 7 years; and

(d) if the amount exceeds $100,000, for a term not exceeding 10 years.

(2) Where—

(a) a warrant to commit the defendant to prison is issued for a default in payment of an amount ordered to be paid under a confiscation order in respect of an offence or offences; and

(b) at the time the warrant is issued, the defendant is liable to serve any term of imprisonment in respect of the offence or offences,

the term of imprisonment to be served in default of payment of the amount shall not begin to run until after the term mentioned in paragraph (b).

(3) Where a defendant serves a term of imprisonment in default of paying any amount due under a confiscation order, his serving that term does not prevent the confiscation order from continuing to have effect, so far as any other method of enforcement is concerned.

§26 Interest on unpaid sums

26 (1) If any sum required to be paid by a person under a confiscation order is not paid when it is required to be paid, that person shall be liable to pay interest on that sum for the period for which it remains unpaid; and the amount of interest shall for the purposes of enforcement, be treated as part of the amount to be recovered from him under the confiscation order.

(2) The court may, on the application of the Attorney-General, increase the term of imprisonment fixed in respect of the confiscation order if the effect of subsection (1) is to increase the maximum period applicable in relation to the order under section 25(1).

(3) The rate of interest under subsection (1) shall be that for the time being applying to a judgment debt.


§27 Cases in which restraint and charging

27 (1) The powers conferred on the Supreme Court by section 28 to make a restraint order and by section 29 to make a charging order are exercisable where—


APPLEBY

orders may be made

(a) proceedings have been instituted against the defendant for a drug trafficking or relevant offence or an application has been made in respect of the defendant under section 17, 18, 20 or 22;

(b) the proceedings have not, or the application has not been concluded;

(c) the court is satisfied that there is reasonable cause to believe—

(i) in the case of an application under section 18 or 20 of this Act, that the court will be satisfied as mentioned in section 18(3) or 20(2); or

(ii) in any other case, that the defendant has benefited from drug trafficking or from any relevant offence (as the case may be).

(2) The court shall not exercise those powers if it is satisfied that there has been undue delay in continuing the proceedings or application in question, or that it is not intended to proceed with the prosecution.

(3) Those powers are also exercisable where the court is satisfied—

(a) that a person is to be charged with a drug trafficking or relevant offence or an application as mentioned in subsection (l)(a) is to be made; and

(b) the court is satisfied as mentioned in subsection (l)(c).

(4) For the purposes of sections 28 and 29, at any time when those powers are exercisable before proceedings have been instituted—

(a) references in this Act to the defendant shall be construed as references to the person referred to in subsection (3)(a); and

(b) references in this Act to realisable property shall be construed as if, immediately before that time, proceedings had been instituted against the person referred to in subsection (2) for a drug trafficking or relevant offence.

(5) Where the court has made a restraint or charging order by virtue of subsection (3), the court shall discharge the order if proceedings in respect of the offence are not instituted, or if the application is not made, within such time as the court considers reasonable.

§28 Restraint orders

28 (1) The court may make a restraint order to prohibit any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order.

(2) A restraint order may apply—

(a) to all realisable property held by a specified person, whether the property is described in the order or not; and

(b) to realisable property held by a specified person, being property transferred to him after the making of the order.

(3) This section shall not have effect in relation to any property for the time being subject to a charge under section 29 of this Act or under section 19 of the Drug Trafficking Suppression Act 1988.[title 8 item 30]

(4) A restraint order—

(a) may be made only on an application by the Attorney-General;

(b) may be made on an ex parte application to a Judge in chambers; and

(c) shall provide for notice to be given to persons affected by the order.


(a) may, on the application of any person affected by the order, be discharged or varied in relation to any property; and


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(b) shall be discharged when proceedings for the offence are concluded.

(6) Where the court has made a restraint order, the court—

(a) may at any time appoint a receiver—

(i) to take possession of any realisable property; and

(ii) in accordance with the directions of the court, to manage or otherwise deal with any property in respect of which he is appointed,

subject to such exceptions and conditions as may be specified by the court; and

(b) may require any person having possession of property in respect of which the receiver is appointed under this section to give possession of it to the receiver.

(7) For the purposes of this section, dealing with property held by any person includes (without prejudice to the generality of the expression)—

(a) where a debt is owed to that person, making a payment to any person in reduction of the amount of the debt; and

(b) removing the property from Bermuda.

(8) Where the court has made a restraint order, a police officer may seize any realisable property for the purpose of preventing its removal from Bermuda; and property so seized shall be dealt with in accordance with the directions of the court.

§29 Charging orders

29 (1) For the purposes of this Act, a charging order is an order made under this section imposing on any such realisable property as may be specified in the order a charge for securing the payment of money to the Crown.

(2) The court may make a charging order on realisable property for securing the payment to the Crown—

(a) where a confiscation order has been made, of an amount not exceeding the amount payable under the confiscation order; and

(b) where a confiscation order has not been made, of an amount equal to the value from time to time of the property charged.

(3) A charging order—

(a) may be made only on an application by the Attorney-General; and

(b) may be made on an ex parte application to a Judge in chambers.

(4) Subject to subsection (6), a charge may be imposed by a charging order only on—

(a) any interest in realisable property, which is an interest held beneficially by the defendant or by a person to whom the defendant has directly or indirectly made a gift caught by this Act—

(i) in any chargeable asset; or

(ii) under any trust; or

(b) any interest in realisable property held by a person as trustee of a trust if the interest is in a chargeable asset or is an interest under another trust and a charge may, by virtue of paragraph (a), be imposed by a charging order on the whole beneficial interest under the first-mentioned trust.

(5) In this section—

(a) “chargeable asset” means any of the following—

(i) any land in Bermuda;

(ii) any relevant securities;


APPLEBY

(iii) any motor vehicle;

(iv) any vessel;

(v) any aircraft;

(vi) any other type of asset which the Minister of Finance may prescribe for the purposes of this section; and

(b) “relevant securities” means any of the following—

(i) securities of the government or of any public authority;

(ii) stock of any body incorporated in Bermuda;

(iii) stock of any body incorporated outside Bermuda or of any country or territory outside Bermuda, being stock registered in a register kept at any place within Bermuda;

(iv) options in relation to stock described in sub-paragraphs (ii) or (iii);

(v) units of any unit trust in respect of which a register of the unit holders is kept at any place in Bermuda.

(6) In any case where a charge is imposed by a charging order on any interest in any relevant securities, the court may provide for the charge to extend to any interest or dividend payable in respect of them.

(7) Where the court has made a charging order, the court may give such directions to such person as the court thinks fit to safeguard the assets under the charging order.

(8) The court—

(a) may, on the application of any person affected by the charging order, make an order discharging or varying it; and

(b) shall make an order discharging the charging order if the proceedings for the offence are concluded or on payment into court of the amount which is secured by the charge.

§30 Charging orders: supplementary

30 (1) A charging order maybe made either absolutely or subject to conditions including in particular conditions—

(a) as to notifying any person holding any interest in the property to which the order relates; or

(b) as to the time when the charge is to become enforceable.

(2) Notice of any charging order shall be deposited in the office of the Registrar-General for recording and registration in accordance with section 3 of the Registrar-General (Recording of Documents) Act 1955. [title 28 item 2]

(3) Subject to any provision made under section 31, a charge imposed by a charging order shall have the like effect and shall be enforceable in the same manner as an equitable charge created by the person holding the beneficial interest or, as the case may be, the trustees by writing under their hand.


§31 Realisation of property

31 (1) The court may, on an application by the Attorney-General, exercise the powers conferred by this section, where a confiscation order has been made and it is neither satisfied nor subject to appeal.

(2) The court may appoint a receiver in respect of realisable property.

(3) The court may empower the receiver appointed under this section or section 28 or in pursuance of a charging order—


APPLEBY

(a) to enforce any charge imposed under section 29 on realisable property or on interest or dividends payable in respect of such property; and

(b) in relation to any realisable property other than property for the time being subject to a charge under section 29, to take possession of the property subject to such conditions or exceptions as may be specified by the court.

(4) The court may order any person having possession of realisable property to give possession of it to the receiver.

(5) The court may empower the receiver to realise any realisable property in such manner as the court may direct.

(6) The court—

(a) may order any person holding an interest in realisable property to make such payment to the receiver in respect of any beneficial interest held by the defendant or, as the case may be, the recipient of a gift caught by this Act as the court may direct; and

(b) may, on the payment being made, by order transfer, grant or extinguish any interest in the property.

(7) Subsections (4) to (6) shall not apply to property for the time being subject to a charge under section 29 of this Act (or section 19 of the Drug Trafficking Suppression Act 1988) [title 8 item 30].

(8) The court shall not in respect of any property exercise the powers conferred by subsection (3)(a), (5) or (6) unless a reasonable opportunity has been given for persons holding any interest in the property to make representations to the court.

§32 Application of proceeds of realisation etc

32 (1) The following sums in the hands of the receiver pursuant to section 28 or 31 or in pursuance of a charging order—

(a) the proceeds of the enforcement of any charge imposed under section 29;

(b) the proceeds of the realisation, other than by the enforcement of such a charge, of any property under section 28 or 31; and

(c) any other sums, being property held by the defendant,

shall, after such payments (if any) as the court may direct have been made out of those sums, be applied on the defendant’s behalf towards the satisfaction of the confiscation order.

(2) If, after the amount payable under the confiscation order has been fully paid, any such sums remain in the hands of the receiver, he shall distribute those sums—

(a) among such of those who held property which has been realised under this Act; and

(b) in such proportions,

as the court may direct after giving a reasonable opportunity for such persons to make representations to the court.

§33 Exercise of powers for the realisation of property

33 (1) This section shall apply to the powers conferred on the court by sections 28 to 32 or on the receiver pursuant to section 28 or 31 or in pursuance of a charging order.

(2) Subject to subsections (3) to (6), the powers shall be exercised with a view to making available for satisfying the confiscation order or (as the case may be) any confiscation order that may be made in the defendant’s case, the value for the time being of realisable property held by any person by the realisation of such property.

(3) In the case of realisable property held by a person to whom the defendant has, directly or indirectly, made a gift caught by this Act, the powers shall be exercised with a view to


APPLEBY

realising no more than the value for the time being of the gift.

(4) The powers shall be exercised with a view to allowing any person other than the defendant or the recipient of any such gift to retain or recover the value of any property held by him.

(5) In exercising those powers, no account shall be taken of any obligations of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order.

(6) An order may be made or other action taken in respect of a debt owed by the Crown.

§34 Receivers: supplementary

34 (1) Where a receiver appointed under section 28 or 31 or in pursuance of a charging order—

(a) takes any action in relation to property which is not realisable property, being action which he would be entitled to take if it were such property, and

(b) believes and has reasonable grounds for believing, that he is entitled to take that action in relation to that property,

he shall not be liable to any person in respect of any loss or damage resulting from his action, except in so far as the loss or damage is caused by his negligence.

(2) Any amount due in respect of the remuneration and expenses of a receiver so appointed shall be paid out of the Consolidated Fund or the Confiscated Assets Fund.

Modified by 2000: 35

Insolvency

§35 Bankruptcy of defendant

35 (1) Where a person who holds realisable property is adjudged bankrupt-

(a) property for the time being subject to a restraint order made before the order adjudging him bankrupt; and

(b) any proceeds of property realised by virtue of section 28(6) or 31(5) or (6) for the time being in the hands of a receiver appointed under section 28 or 31,

shall be excluded from the bankrupt’s estate for the purposes of the Bankruptcy Act 1989 (“the 1989 Act”) [title 8 item 49].

(2) Where a person has been adjudged bankrupt, the powers conferred on the court by sections 28 to 32 or on a receiver shall not be exercised in relation to property for the time being comprised in the property of the bankrupt for the purposes of the 1989 Act.

(3) Nothing in the 1989 Act shall be taken as restricting, or enabling the restriction of, the exercise of those powers referred to in subsection (2).

(4) Subsection (2) shall not affect the enforcement of a charging order—

(a) made before the order adjudging the person bankrupt; or

(b) on property which was subject to a restraint order when the order adjudging him bankrupt was made.

(5) Where, in the case of a debtor, the receiver constituted by virtue of section 9 of the 1989 Act or an interim receiver stands appointed under section 10 of the 1989 Act, and any property of the debtor is subject to a restraint order—

(a) the powers conferred on the receiver by virtue of that Act shall not apply to property for the time being subject to the restraint order; and

(b) any such property in the hands of the receiver shall, subject to a lien for any expenses (including his remuneration) properly incurred in respect of the property, be dealt with in such manner as the court may direct.

(6) Where a person is adjudged bankrupt and has directly or indirectly made a gift caught by this Act—


APPLEBY

(a) no order shall be made by virtue of section 33 or 45 of the 1989 Act (avoidance of certain settlements etc) in respect of the making of the gift at any time when—

(i) proceedings for the drug trafficking or relevant offence have been instituted against him and have not been concluded;

(ii) an application has been made in respect of the defendant under section 17, 18, 20 or 22 of this Act and has not been concluded; or

(iii) property of the person to whom the gift was made is subject to a restraint order or a charging order; and

(b) any order made by virtue of section 33 or 45 of the 1989 Act after the conclusion of the proceedings shall take into account any realisation under this Act of property held by the person to whom the gift was made.

§36 Winding up of company holding realisable property

36 (1) Where realisable property is held by a company and an order for the winding up of the company has been made or a resolution has been passed by the company for the voluntary winding up, the functions of the liquidator shall not be exercisable in relation to—

(a) property for the time being subject to a restraint order made before the relevant time; and

(b) any proceeds of property realised by virtue of section 28(6) or 31(5) or (6) for the time being in the hands of a receiver appointed under section 28 or 31,

but there shall be payable out of such property any expenses (including the remuneration of the liquidator) properly incurred in the winding up in respect of the property.

(2) Where, in the case of a company, such an order has been made or such a resolution has been passed, the powers conferred on the court by sections 28 to 32 or on a receiver so appointed shall not be exercised in relation to any realisable property held by the company in relation to which the functions of the liquidator are exercisable—

(a) so as to inhibit him from exercising those functions for the purpose of distributing any property held by the company to the company’s creditors; or

(b) so as to prevent the payment out of any property of expenses (including the remuneration of the liquidator) properly incurred in the winding up in respect of the property.

(3) Nothing in the Companies Act 1981 [title 17 item 5] shall be taken as restricting, or enabling the restriction of, the exercise of those powers referred to in subsection (2).

(4) Subsection (2) shall not affect the enforcement of a charging order made before the relevant time or on property which was subject to a restraint order at the relevant time.


“company” means any company which may be wound up under the Companies Act 1981 [title 17 item 5];

“liquidator” includes any person appointed to the office of liquidator (whether provisionally or otherwise) under the Companies Act 1981 [title 17 item 5];

“the relevant time” means—

(a) where no order for the winding up of the company has been made, the time of the passing of the resolution for voluntary winding up;

(b) where—

(i) such an order has been made; but

(ii) before the presentation of the petition for the winding up of the


APPLEBY

company by court order, such a resolution had been passed by the company,

the time of the passing of the resolution; and

(c) in any other case where such an order has been made, the time of the making of the order.

PART IV

INFORMATION GATHERING POWERS

§37 Production orders

37 (1) For the purpose of an investigation into—

(a) drug trafficking,

(b) whether any person has benefited from criminal conduct, or

(c) the whereabouts of any proceeds of criminal conduct,

a police officer may apply to the Supreme Court for an order under subsection (2) (a “production order”) in relation to particular material or material of a particular description.

(2) The court may, if on such an application it is satisfied that the conditions in subsection (4) are fulfilled, make a production order requiring the person who appears to the court to be in possession of the material to which the application relates—

(a) to produce it to a police officer for him to take away; or

(b) to give a police officer access to it,

within such period as the order may specify.

This subsection has effect subject to section 40(10).

(3) The period to be specified in a production order shall be seven days unless it appears to the court that a longer or shorter period would be appropriate in the particular circumstances of the application.

(4) The conditions referred to in subsection (2) are—

(a) that there are reasonable grounds for suspecting that a specified person has carried on drug trafficking or has benefited from criminal conduct;

(b) that there are reasonable grounds for suspecting that the material to which the application relates—

(i) is likely to be of substantial value (whether by itself or together with other material) to the investigation for the purpose of which the application is made; and

(ii) does not consist of or include items subject to legal privilege; and

(c) that there are reasonable grounds for believing that it is in the public interest, having regard—

(i) to the benefit likely to accrue to the investigation if the material is obtained; and

(ii) to the circumstances under which the person in possession of the material holds it,

that the material should be produced or that access to it should be given.

(5) Where the court makes a production order under subsection (2)(b) in relation to material on any premises, it may, on the same or a subsequent application of a police officer, order any person who appears to him to be entitled to grant entry to the premises to allow a police officer to enter the premises to obtain access to the material.

(6) An application under subsection (1) or (5) may be made ex parte to a judge in


APPLEBY

Chambers.

(7) Where the material, to which an application under this section relates, consists of information contained in or accessible by means of a computer—

(a) a production order under subsection (2)(a) shall have effect as an order to produce the material in a form in which it can be taken away and in which it is visible and legible; and

(b) a production order under subsection (2)(b) shall have effect as an order to give access to the material in a form in which it is visible and legible.

(8) A production order—

(a) shall not confer any right to production of, or access to, items subject to legal privilege;

(b) shall have effect notwithstanding any obligation as to secrecy or other restriction upon the disclosure of information imposed by statute or otherwise; and

(c) may be made in relation to material in the possession of a Government Department.

(9) A police officer may photograph or make copies of any material produced or to which access is given under this section.

(10) Rules of court may make provision as to—

(a) the discharge and variation of production orders; and

(b) proceedings in relation to such orders.

(11) Where the investigation into whether a person has benefited from criminal conduct or the whereabouts of the proceeds of criminal conduct relates to a relevant offence which was not committed in Bermuda, an application under subsection (1) shall not be made unless the provisions of section 6 of the Criminal Justice (International Co-operation) (Bermuda) Act 1994 [title 8 item 72] (Bermudian evidence for use overseas) as modified by subsection (12) have been complied with.

(12) Section 6 of the Criminal Justice (International Co-operation) (Bermuda) Act 1994 [title 8 item 72] shall apply for the purposes of this section and section 39 with the following modifications—

(a) in subsection (1), for the words “criminal proceedings” to the end there shall be substituted “an investigation into whether a person has benefited from a relevant offence or the whereabouts of the proceeds of a relevant offence.”;

(b) in subsection (2)(a), for the words “an offence” there shall be substituted “a relevant offence”;

(c) for the words “by a notice” to the end of subsection (2) there shall be substituted “authorise a police officer to make an application for a production order under section 37 of the Proceeds of Crime Act 1997 [title 8 item 29] or for a search warrant under section 39 of that Act.”;

(d) at the end of subsection (5) there shall be added “, and “relevant offence” has the meaning given in the Proceeds of Crime Act 1997.”[title 8 item 29];

(e) subsection (6) shall be omitted.

§38 Failure to comply with production order

38 (1) Where a person is required by a production order to produce any material to a police officer or give a police officer access to any material, the person shall be guilty of an offence under this section if he—

(a) contravenes the order without reasonable excuse; or

(b) in purported compliance with the order produces or makes available any


APPLEBY

material known to the person to be false or misleading in a material particular without—

(i) indicating to the police officer to whom the material is produced or made available that the material is false or misleading and the respect in which the material is false or misleading; and

(ii) providing correct information to the police officer if the person is in possession of, or can reasonably acquire, the correct information.

(2) A person guilty of an offence under this section shall be liable on summary conviction to imprisonment for two years or a fine of $10,000 or both.

§39 Search warrants

39 (1) For the purpose of an investigation into—

(a) drug trafficking,

(b) whether any person has benefited from criminal conduct, or

(c) the whereabouts of any proceeds of criminal conduct,

a police officer may apply to the Supreme Court for a warrant under this section in relation to specified premises.

(2) On such an application, the court may issue a warrant authorising a police officer to enter and search the premises if the court is satisfied—

(a) that a production order made in relation to material on the premises has not been complied with;

(b) that the conditions in subsection (3) are fulfilled; or

(c) that the conditions in subsection (4) are fulfilled.

(3) The conditions referred to in subsection (2)(b) are—


(b) that the conditions in section 37(4)(b) and (c) are fulfilled in relation to any material on the premises; and

(c) that it would not be appropriate to make an order under that section in relation to the material because—

(i) it is not practicable to communicate with any person entitled to produce the material;

(ii) it is not practicable to communicate with any person entitled to grant access to the material or entitled to grant entry to the premises on which the material is situated; or

(iii) the investigation for the purposes of which the application is made might be seriously prejudiced unless a police officer could secure immediate access to the material.

(4) The conditions referred to in subsection (2)(c) are—


(b) that there are reasonable grounds for suspecting that there is on the premises any such material relating—

(i) to the specified person;

(ii) to drug trafficking;

(iii) to the question whether that person has benefited from criminal


APPLEBY

conduct; or

(iv) to any question as to the extent or whereabouts of any proceeds of criminal conduct,

as is likely to be of substantial value (whether by itself or together with other material) to the investigation for the purpose of which the application is made, but that the material cannot at the time of the application be particularised; and

(c) that—

(i) it is not practicable to communicate with any person entitled to grant entry to the premises;

(ii) entry to the premises will not be granted unless a warrant is produced; or

(iii) the investigation for the purposes of which the application is made might be seriously prejudiced unless a police officer arriving at the premises could secure immediate entry to them.

(5) Where a police officer has entered premises in the execution of a warrant issued under this section, he may seize and retain any material, other than items subject to legal privilege, which is likely to be of substantial value (whether by itself or together with other material) to the investigation for the purpose of which the warrant was issued.

(6) A police officer may photograph or make copies of any material seized under this section.

(7) A person who hinders or obstructs a police officer in the execution of a warrant issued under this section is guilty of an offence and liable on summary conviction to imprisonment for two years or a fine of $10,000 or both.

(8) Where the investigation into whether a person has benefited from criminal conduct or the whereabouts of the proceeds of criminal conduct relates to a relevant offence which was not committed in Bermuda, an application under subsection (1) shall not be made unless the provisions of section 6 of the Criminal Justice (International Co-operation) (Bermuda) Act 1994 [title 8 item 72] (Bermudian evidence for use overseas) as modified by section 37(12) have been complied with.

§40 Disclosure of information by Government Departments

40 (1) Subject to subsection (4), the Supreme Court may, on an application by the Attorney-General, order any material mentioned in subsection (3) which is in the possession of a Government Department to be produced to the court within such period as the court may specify.

(2) The power to make an order under subsection (1) is exercisable if—

(a) the powers conferred on the court to make a restraint order or a charging order are exercisable by virtue of section 27(1); or

(b) those powers are exercisable by virtue of section 27(3) and the court has made a restraint or charging order which has not been discharged,

but where the power to make an order under subsection (1) is exercisable by virtue only of paragraph (b), section 27(4) shall apply for the purposes of this section as it applies for the purposes of sections 28 and 29.

(3) The material referred to in subsection (1) is any material which—

(a) has been submitted to an officer of a Government Department by the defendant or by a person who has at any time held property which was realisable property;

(b) has been made by an officer of a Government Department in relation to the defendant or such a person; or


APPLEBY

(c) is correspondence which passed between an officer of a Government Department and the defendant or such a person,

and an order under that subsection may require the production of all such material, or of a particular description of such material, in the possession of the body concerned.

(4) An order under subsection (1) shall not require the production of any material unless it appears to the court that the material is likely to contain information that would facilitate the exercise of the powers conferred on the court by section 28, 29 or 31 or on a receiver appointed under section 28 or 31 or in pursuance of a charging order.

(5) The court may by order authorise the disclosure to such a receiver of any material produced under subsection (1) or any part of such material; but the court shall not make an order under this subsection unless a reasonable opportunity has been given for an officer of the Government Department to make representations to the court.

(6) Material disclosed in pursuance of an order under subsection (5) may, subject to any conditions contained in the order, be further disclosed for the purposes of the functions under this Act of the receiver or the court.

(7) The court may by order authorise the disclosure to a police officer of any material produced under subsection (1) or any part of such material; but the court shall not make an order under this subsection unless—

(a) a reasonable opportunity has been given for an officer of the Government Department to make representations to the court; and

(b) it appears to the court that the material is likely to be of substantial value in exercising functions relating to criminal conduct.

(8) Material disclosed in pursuance of an order under subsection (7) may, subject to any conditions contained in the order, be further disclosed for the purposes of functions relating to criminal conduct.

(9) Material may be produced or disclosed in pursuance of this section notwithstanding any obligation as to secrecy or other restriction upon the disclosure of information imposed by statute or otherwise.

(10) An order under subsection (1) and, in the case of material in the possession of a Government Department, a production order, may require any officer of the Government Department (whether named in the order or not) who may for the time being be in possession of the material concerned to comply with it, and such an order shall be served as if the proceedings were civil proceedings against the department.

(11) For the purposes of this section, “Government Department” includes—

(a) the Bermuda Monetary Authority;

(b) such other bodies as the Minister responsible for the Police may prescribe for the purposes of this section.

§41 Monitoring orders

41 (1) A police officer may apply to the Supreme Court for an order (“a monitoring order”) directing a banking institution to give to a police officer information obtained by the institution about transactions conducted through an account held by a particular person with the institution.

(2) An application for a monitoring order shall be made ex parte to a judge in Chambers and shall be supported by affidavit.

(3) A monitoring order shall apply in relation to transactions conducted during the period specified in the order, commencing not earlier than the day on which notice of the order is given to the banking institution and ending not later than three months after the day on which the order is made.

(4) A monitoring order shall not be made unless the court is satisfied that there are reasonable grounds for suspecting that the person in respect of whom the information is sought—


APPLEBY

(a) has committed or is about to commit a drug trafficking offence or a relevant offence;

(b) was involved in the commission, or is about to be involved in the commission, of such an offence; or

(c) has benefited directly or indirectly or is about to benefit directly or indirectly from the commission of such an offence.

(5) A monitoring order shall specify—

(a) the name or names in which the account is believed to be held;

(b) the nature of the information which the institution is required to give; and

(c) the manner in which the information is to be given.

(6) A person who knowingly—

(a) contravenes a monitoring order; or

(b) provides false or misleading information in purported compliance with the order,

shall be guilty of an offence and liable on summary conviction to imprisonment for two years or a fine of $10,000 or both.

(7) A reference in this section to a transaction conducted through an account includes a reference—

(a) to the making of a fixed term deposit;

(b) to the transfer of an amount so deposited or any part of it at the end of the term; and

(c) to the existence or use of a deposit box held by the institution.

(8) The provision of information to a police officer by virtue of a monitoring order shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability.

(9) In this section “banking institution” includes—

(a) any institution licensed as a bank or a deposit company under the Banks and Deposit Companies Act 1999;


(b) [Repealed]; and Repealed by BR 81/1999

(c) such other institutions as the Minister of Finance may prescribe for the purposes of this section.

§42 Offence of prejudicing investigation

42 (1) Where in relation to an investigation into criminal conduct—

(a) a production order has been made, or has been applied for and has not been refused;

(b) a warrant under section 39 has been issued; or

(c) a monitoring order has been made,

a person is guilty of an offence if, knowing or suspecting that the investigation is taking place, he makes any disclosure which is likely to prejudice the investigation or reveal the existence of the monitoring order.

(2) In proceedings against a person for an offence under this section, it is a defence to prove—


APPLEBY

(a) that he did not know or suspect that the disclosure was likely to prejudice the investigation or reveal the existence of the monitoring order; or

(b) that he had lawful authority or reasonable excuse for making the disclosure.

(3) Nothing in subsection (1) makes it an offence for a professional legal adviser to disclose any information or other matter—

(a) to, or to a representative of, a client of his in connection with the giving by the legal adviser of legal advice to the client; or

(b) to any person—

(i) in contemplation of, or in connection with, legal proceedings; and

(ii) for the purpose of those proceedings;

but this subsection does not apply in relation to any information or other matter which is disclosed with a view to furthering any criminal purpose.

(4) A person who commits an offence under this section shall be liable—

(a) on summary conviction to imprisonment for two years or a fine of $5,000 or both; and

(b) on conviction on indictment to imprisonment for five years or a fine of $10,000 or both.

PART V

MONEY LAUNDERING

Offences

§43 Concealing or transferring proceeds of criminal conduct

43 (1) A person is guilty of an offence if he—

(a) conceals or disguises any property which is, or in whole or in part directly or indirectly represents, his proceeds of criminal conduct, or

(b) converts or transfers that property or removes it from Bermuda;

for the purpose of avoiding prosecution for a drug trafficking or relevant offence or the making or enforcement in his case of a confiscation order.

(2) A person is guilty of an offence if, knowing or having reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents, another person’s proceeds of criminal conduct, he—

(a) conceals or disguises that property, or

(b) converts or transfers that property or removes it from Bermuda;

for the purpose of assisting any person to avoid prosecution for a drug trafficking or relevant offence or the making or enforcement of a confiscation order.

(3) In this section the references to concealing or disguising any property include references to concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it.

§44 Assisting another to retain proceeds of criminal conduct

44 (1) Subject to subsection (3), a person is guilty of an offence if he enters into or is otherwise concerned in an arrangement whereby—

(a) the retention or control by or on behalf of another person (“A”) of A’s proceeds of criminal conduct is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise); or


APPLEBY

(b) A’s proceeds of criminal conduct—

(i) are used to secure that funds are placed at A’s disposal; or

(ii) are used for A’s benefit to acquire property by way of investment,

and he knows or suspects that A is a person who is or has been engaged in or has benefited from criminal conduct.

(2) In this section, references to any person’s proceeds of criminal conduct include a reference to any property which in whole or in part directly or indirectly represented in his hands his proceeds of criminal conduct.

(3) Where a person discloses in good faith to a police officer a suspicion or belief that any funds or investments are derived from or used in connection with criminal conduct, or any matter on which such a suspicion or belief is based—

(a) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability; and

(b) if he does any act in contravention of subsection (1) and the disclosure relates to the arrangement concerned, he does not commit an offence under this section if—

(i) the disclosure is made before he does the act concerned and the act is done with the consent of the police officer; or

(ii) the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it.

(4) In proceedings against a person for an offence under this section, it is a defence to prove—

(a) that he did not know or suspect that the arrangement related to any person’s proceeds of criminal conduct;

(b) that he did not know or suspect that by the arrangement the retention or control by or on behalf of A of any property was facilitated or, as the case may be, that by the arrangement any property was used as mentioned in subsection (l)(b); or

(c) that—

(i) he intended to disclose to a police officer such a suspicion, belief or matter as is mentioned in subsection (3) in relation to the arrangement, but

(ii) there is reasonable excuse for his failure to make any such disclosure in the manner mentioned in subsection (3)(b).

(5) In the case of a person who was in employment at the time in question, subsections (3) and (4) shall have effect in relation to disclosures and intended disclosures to the appropriate person in accordance with any procedure established by his employer for the making of such disclosures as they have effect in relation to disclosures, and intended disclosures, to a police officer.

§45 Acquisition, possession or use of proceeds of criminal conduct

45 (1) A person is guilty of an offence if, knowing that any property is, or in whole or in part directly or indirectly represents, another person’s proceeds of criminal conduct, he acquires or uses that property or has possession of it.

(2) It is a defence to a charge of committing an offence under this section that the person charged acquired or used the property or had possession of it for adequate consideration.

(3) For the purposes of subsection (2)—

(a) a person does not acquire property for adequate consideration if the value of


APPLEBY

the consideration is significantly less than the value of the property; and

(b) a person does not use or have possession of property for adequate consideration if the value of the consideration is significantly less than the value of his use or possession of the property.

(4) The provision for any person of services or goods which are of assistance to him in criminal conduct shall not be treated as consideration for the purposes of subsection (2).

(5) Where a person discloses in good faith to a police officer a belief that any property is, or in whole or in part directly or indirectly represents, another person’s proceeds of criminal conduct, or any matter on which such a belief is based—

(a) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability; and

(b) if he does any act in relation to the property in contravention of subsection (1), he does not commit an offence under this section if—

(i) the disclosure is made before he does the act in question and the act is done with the consent of the police officer; or

(ii) the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it.

(6) For the purposes of this section, having possession of any property shall be taken to be doing an act in relation to it.

(7) In proceedings against a person for an offence under this section, it is a defence to prove that—

(a) he intended to disclose to a police officer such a belief or matter as is mentioned in subsection (5), but

(b) there is reasonable excuse for his failure to make any such disclosure in the manner mentioned in subsection (5)(b).

(8) In the case of a person who was in employment at the time in question, subsections (5) and (7) shall have effect in relation to disclosures, and intended disclosures, to the appropriate person in accordance with any procedure established by his employer as they have effect in relation to disclosures, and intended disclosures, to a police officer.

(9) No police officer or other person shall be guilty of an offence under this section in respect of anything done by him in the course of acting in connection with the enforcement, or intended enforcement, of any provision of this Act or of any other statutory provision relating to drug trafficking or relevant offences or the proceeds of criminal conduct.

§46 Disclosure of knowledge or suspicion of money laundering

46 (1) Where a person in good faith discloses to a police officer-

(a) his suspicion or belief that another person is engaged in money laundering, or

(b) any information or other matter on which that suspicion or belief is based,

the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise and shall not give rise to any civil liability.

(2) A person is guilty of an offence if—

(a) he knows or suspects that another person is engaged in money laundering which relates to any proceeds of drug trafficking;

(b) the information, or other matter, on which that knowledge or suspicion is based came to his attention in the course of his trade, profession, business or


APPLEBY

employment; and

(c) he does not disclose the information or other matter to a police officer as soon as is reasonably practicable after it comes to his attention.

(3) Subsection (2) does not make it an offence for a professional legal adviser to fail to disclose any information or other matter which has come to him in privileged circumstances.

(4) It is a defence to a charge of committing an offence under this section that the person charged had a reasonable excuse for not disclosing the information or other matter in question.

(5) Any disclosure made by a person who was in employment at the time in question to the appropriate person in accordance with any procedure established by his employer shall be treated, for the purposes of this section, as a disclosure to a police officer.

(6) For the purposes of this section, any information or other matter comes to a professional legal adviser in privileged circumstances if it is communicated or given to him—

(a) by, or by a representative of, a client of his in connection with the giving by the adviser of legal advice to the client;

(b) by, or by a representative of, a person seeking legal advice from the adviser; or

(c) by any person—



but no information or other matter shall be treated as coming to a professional legal adviser in privileged circumstances if it is communicated or given with a view to furthering any criminal purpose.

§47 Tipping-off 47 (1) A person is guilty of an offence if—

(a) he knows or suspects that a police officer is acting, or is proposing to act, in connection with an investigation which is being, or is about to be, conducted into money laundering; and

(b) he discloses to any other person information or any other matter which is likely to prejudice that investigation or proposed investigation.

(2) A person is guilty of an offence if—

(a) he knows or suspects that a disclosure has been made to a police officer or to an appropriate person under section 44, 45 or 46; and

(b) he discloses to any other person information or any other matter which is likely to prejudice any investigation which might be conducted following such a disclosure.

(3) Nothing in subsection (1) or (2) makes it an offence for a professional legal adviser to disclose any information or other matter—

(a) to, or to a representative of, a client of his in connection with the giving by the adviser of legal advice to the client; or

(b) to any person—



but this subsection does not apply in relation to any information or other matter which is disclosed with a view to furthering any criminal purpose.

(4) In proceedings against a person for an offence under subsection (1) or (2), it is a defence to prove that he did not know or suspect that the disclosure was likely to be prejudicial in the way there mentioned.


APPLEBY

(5) No police officer or other person shall be guilty of an offence under this section in respect of anything done by him in the course of acting in accordance with the enforcement, or intended enforcement, of any provision of this Act or of any other statutory provision relating to criminal conduct or the proceeds of criminal conduct.

Penalties

§48 Penalties for money laundering etc

48 (1) A person guilty of an offence under section 43, 44 or 45 (money laundering) shall be liable—

(a) on summary conviction, to imprisonment for five years or a fine of $50,000 or both; and

(b) on conviction on indictment, to imprisonment for twenty years or an unlimited fine or both.

(2) A person guilty of an offence under section 46 or 47 (failure to disclose knowledge or suspicion; tipping off) shall be liable—

(a) on summary conviction, to imprisonment for three years or a fine of $15,000 or both; or

(b) on conviction on indictment, to imprisonment for ten years or an unlimited fine or both.

Prevention of money laundering

§49 Establishment of Committee; regulations etc

49 (1) There shall be established a committee, to be known as the National Anti-Money Laundering Committee, for the purpose of

(a) advising the Minister of Finance in relation to the detection and prevention of money laundering in Bermuda;

(b) issuing from time to time guidance as to compliance with this Act and regulations made under this Act;

(c) advising the Minister of Finance as to the participation of Bermuda in the international effort against money laundering;

and the Committee shall meet as often as may be necessary to carry out its duties.

(2) The members of the National Anti-Money Laundering Committee shall be

(a) the Financial Secretary (who shall be Chairman),

(b) the Attorney-General,

(c) the Permanent Secretary of the Ministry responsible for the Police,

(d) the Commissioner of Police,

(e) the General Manager of the Bermuda Monetary Authority,

(f) such other persons as the Minister of Finance may from time to time appoint;

and the Committee may appoint a sub-committee, including such representatives of the financial and business sector in Bermuda as it thinks appropriate, to assist in formulating the guidance mentioned in subsection (1)(b).

(3) The Minister of Finance may, after consulting the National Anti-Money Laundering Committee, make such regulations as he thinks fit for the purposes of detecting and preventing money laundering.

(4) Without prejudice to the generality of subsection (3), such regulations may in particular

(a) require such financial and other institutions as may be prescribed to establish


APPLEBY

and maintain procedures relating to the identification of clients, the keeping of records, the making of reports and training;

(b) create criminal offences of failing to comply with the regulations; and

(c) provide that in determining whether a person has complied with the regulations the trial court may take account of any current relevant guidance issued by the National Anti-Money Laundering Committee.

§49A Use of guidance notes

49A In determining whether a person has committed an offence under this Act the court shall take account of any relevant guidance issued by the National Anti-Money Laundering Committee.

Inserted by 1999 : 39 Modified by 2000 : 35

PART VI

SEIZURE OF CASH

§50 Seizure and detention of cash imported or exported

50 (1) A police officer may seize and detain, in accordance with this Part, any cash which is being imported into or exported from Bermuda if the officer has reasonable grounds for suspecting that it directly or indirectly represents any person’s proceeds of criminal conduct or is intended by any person for use in any criminal conduct.

(2) Cash seized by virtue of this section shall not be detained for more than forty-eight hours unless its continued detention is authorised by an order made by a magistrate; and no such order shall be made unless the magistrate is satisfied—

(a) that there are reasonable grounds for the suspicion mentioned in subsection (1); and

(b) that continued detention of the cash is justified while its origin or derivation is further investigated or consideration is given to the institution (whether in Bermuda or elsewhere) of criminal proceedings against any person for an offence with which the cash is connected.

(3) Any order under subsection (2) shall authorise the continued detention of the cash to which it relates for such period, not exceeding three months beginning with the date of the order, as may be specified in the order; and a court of summary jurisdiction, if satisfied as to the matters mentioned in that subsection, may thereafter from time to time by order authorise the further detention of the cash but so that—

(a) no period of detention specified in such an order shall exceed three months beginning with the date of the order; and

(b) the total period of detention shall not exceed two years from the date of the order under subsection (2).

(4) Any application for an order under subsection (2) or (3) shall be made by a police officer.

(5) At any time while cash is detained by virtue of this section—

(a) a court of summary jurisdiction may direct its release if satisfied—

(i) on an application made by the person from whom it was seized or a person by or on whose behalf it was being imported or exported, that there are no, or are no longer, any such grounds for its detention as are mentioned in subsection (2); or

(ii) on an application made by any other person, that detention of the cash is not for that or any other reason justified; and

(b) a police officer may release the cash if satisfied that its detention is no longer justified but shall first notify the magistrate or court of summary jurisdiction under whose order it is being detained.

(6) If at a time when any cash is being detained by virtue of this section—


APPLEBY

(a) an application for its forfeiture is made under section 51 or

(b) proceedings are instituted (whether in Bermuda or elsewhere) against any person for an offence with which the cash is connected,

the cash shall not be released until any proceedings pursuant to the application or, as the case may be, the proceedings for that offence have been concluded.

§51 Forfeiture orders and appeals

51 (1) A court of summary jurisdiction may make an order (a “forfeiture order”) ordering the forfeiture of any cash which has been seized under section 50 if satisfied, on an application made by a police officer while the cash is detained under that section, that the cash directly or indirectly represents any person’s proceeds of, or benefit from, or is intended by any person for use in, criminal conduct.

(2) An order may be made under subsection (1) whether or not proceedings are brought against any person for an offence with which the cash in question is connected.

(3) Any party to the proceedings in which a forfeiture order is made (other than the applicant) may, before the end of the period of thirty days beginning with the date on which it is made, appeal to the Supreme Court.

(4) On an application made by an appellant to a court of summary jurisdiction at any time, that court may order the release of so much of the cash to which the forfeiture order relates as it considers appropriate to enable him to meet his legal expenses in connection with the appeal.

(5) An appeal under this section shall be by way of rehearing, and the Supreme Court may make such order as it considers appropriate and, in particular, may order the release of the cash (or any remaining cash) together with any accrued interest.

§52 Seizure: supplementary

52 (1) Cash consisting of coins and bank-notes seized under this Part and detained for more than forty-eight hours shall where practicable, unless required as evidence of an offence, be held in an interest-bearing account, and the interest accruing on any such cash shall be added to that cash on its forfeiture or release.

(2) An order under section 50(2) shall provide for notice to be given to persons affected by the order.

(3) Without prejudice to the generality of any existing power to make rules, provision may be made by rules of court—

(a) with respect to applications to any court under this Part;

(b) for the giving of notice of such applications to persons affected;

(c) for the joinder of persons as parties; and

(d) generally with respect to the procedure under this Part before any court.

(4) In this Part—

“cash” means—

(a) coins and bank-notes in any currency; and

(b) negotiable instruments;

“exported”, in relation to any cash, includes its being brought to any place in Bermuda for the purpose of being exported.

PART VII

MISCELLANEOUS & SUPPLEMENTAL

Foreign orders etc

§53 Enforcement of external confiscation orders

53 (1) The Minister responsible for the Police may, by order—


APPLEBY

(a) direct in relation to a country or territory outside Bermuda designated by the order (a “designated country”) that, subject to such modifications as may be specified, this Act shall apply to external confiscation orders and to proceedings which have been or are to be instituted in the designated country and may result in an external confiscation order being made there;

(b) make—

(i) such provision in connection with the taking of action in the designated country with a view to satisfying a confiscation order;

(ii) such provision as to evidence or proof of any matter for the purposes of this section and section 54; and

(iii) such incidental, consequential and transitional provision,

as appears to him to be expedient; and

(c) without prejudice to the generality of this subsection, direct that, in such circumstances as may be specified, proceeds arising out of action taken in the designated country with a view to satisfying a confiscation order and which are retained there shall nevertheless be treated as reducing the amount payable under the order to such extent as may be specified.

(2) An order under this section may make different provision for different cases or classes of cases.

(3) The power to make an order under this section includes power to modify this Act in such a way as to confer power on a person to exercise a discretion.

(4) In this section and section 54-

“external confiscation order” means an order made by a court in a designated country for the purpose

(a) of recovering property, or the value of such property, obtained as a result of or in connection with—

(i) drug trafficking; or

(ii) any offence which would, if committed in Bermuda, be triable on indictment; or

(b) of depriving a person of a pecuniary advantage so obtained;

“modifications” includes additions, alterations and omissions.

(5) An order under this section is subject to the negative resolution procedure.

§54 Registration of External confiscation orders

54 (1) On an application made by or on behalf of the government of a designated country, the Supreme Court may register an external confiscation order made there if-

(a) it is satisfied that at the time of registration the order is in force and not subject to appeal;

(b) it is satisfied, where the person affected by the order did not appear in the proceedings, that he received notice of the proceedings in sufficient time to enable him to defend them; and

(c) it is of the opinion that enforcing the order in Bermuda would not be contrary to the interests of justice.

(2) In subsection (l)(a), “appeal” includes—

(a) any proceedings by way of discharging or setting aside a judgment; and

(b) an application for a new trial or a stay of execution.


APPLEBY

(3) The court shall cancel the registration of an external confiscation order if it appears to the court that the order has been satisfied by payment of the amount due under it.

§55 Evidence of corresponding law

55 (1) A document purporting to be issued by or on behalf of the Government of a country or territory and purporting to state the terms of a corresponding law in force in that country or territory shall be admitted in evidence, in proceedings under this Act, on its production by the prosecution without further proof, and such document shall be conclusive evidence that—

(a) it is issued by or on behalf of the Government of that country or territory;

(b) the terms of such law are as stated in the document;

(c) any facts stated in the document to constitute an offence under such law do constitute such offence.

(2) “Corresponding law”

(a) in relation to proceedings relating to drug trafficking has the meaning given in section 40 of the Misuse of Drugs Act 1972 [title 11 item 4]; and

(b) in any other case, means a law which corresponds with a provision of Bermuda law which creates a relevant offence.

§55A Confiscated Assets Fund

55A (1) There shall be established a fund to be known as the Confiscated Assets Fund (“the Fund”)


(2) There shall be paid into the Fund⎯

(a) proceeds of criminal conduct recovered under a confiscation order;

(b) cash forfeited under Part VI;

(ba) cash or property forfeited or confiscated under the Anti-Terrorism (Financial and Other Measures) Act 2004;


(c) money forfeited under section 37 of the Misuse of Drugs Act 1972;

(d) money paid to the Government of Bermuda by a foreign jurisdiction in respect of confiscated assets, whether under a treaty or arrangement providing for mutual assistance in criminal matters or otherwise.

(3) The Minister of Finance may, after consulting the National Anti-Money Laundering Committee, authorise payments to be made out of the Fund⎯

(a) for purposes related to—

(i) law enforcement, including in particular the investigation of suspected cases of drug trafficking, terrorist financing and money laundering;


(ii) treatment and rehabilitation of drug addicts; and

(iii) public education in relation to drug addiction;

(b) to satisfy an obligation of the Government of Bermuda to a foreign jurisdiction in respect of confiscated assets, whether under a treaty or arrangement providing for mutual assistance in criminal matters or otherwise;

(c) to meet the expenses of the National Anti-Money Laundering Committee;

(d) to meet the remuneration and expenses of a receiver appointed under this Act or the Anti-Terrorism (Financial and Other Measures) Act 2004;


(e) to pay compensation or costs awarded under this Act or the Anti-Terrorism (Financial and Other Measures) Act 2004;


(f) to cover costs associated with the administration of the Fund.

§55B 55B (1) The moneys paid into the Fund shall be invested in accordance with the Public Inserted by 2000:


APPLEBY

Administration of the Fund

Funds Act 1954, and the income earned from such investments shall be paid into the Fund. 35

(2) The financial year of the Fund shall end on 31st March in each year.

(3) The Minister of Finance shall cause proper accounts, and proper records in relation to the accounts, of the Fund to be kept, and shall cause to be prepared in respect of each financial year a statement of the accounts of the Fund in such form as the Minister may direct.

(4) Within six months after the end of each financial year, the Minister shall send to the Auditor a copy of the statement of accounts for that financial year.

(5) The Auditor shall examine every statement of accounts received by him under this section and shall make a report in writing on the statement to the Minister.

(6) The Minister shall lay before each House of the Legislature a copy of the Auditor’s report.


§56 Offences by bodies corporate

56 Where a body corporate is guilty of an offence under this Act and that offence is proved to have been committed with the consent or connivance of any director, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in any such capacity, he, as well as the body corporate, shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

§57 Police powers etc

57 (1) For the purposes of this Act, “police officer” includes any officer of the Customs Department.

(2) A police officer may arrest without warrant any person whom he reasonably believes has committed an offence under this Act.

(3) An officer of the Customs Department may, in any case relating to the commission of an offence under this Act, exercise all or any of the powers in relation to investigations into an offence which is arrestable without warrant conferred on a police officer by the Criminal Code Act 1907 [title 8 item 31].

§58 Police officers: duty of confidentiality

58 (1) Except for the purpose of the performance of his duties or the exercise of his functions or when lawfully required to do so by any court or under the provisions of any enactment, no police officer shall disclose any information or matter which has been obtained by him in the performance of his duties or the exercise of his functions under this Act.

(2) Any person who contravenes this section shall be guilty of an offence and shall be liable on summary conviction to imprisonment for one year or a fine of $2,000 or both.

Procedure

§59 Jurisdiction 59 Where a defendant is charged with a drug trafficking or relevant offence which may be tried summarily or on indictment-

(a) the power of the Attorney-General to issue a certificate under section 450 of the Criminal Code Act 1907 [title 8 item 31] requiring an offence to be tried on indictment may be exercised where the Attorney-General intends to make an application for a confiscation order if the defendant is convicted; and

(b) the power of a court of summary jurisdiction to commit the defendant to the Supreme Court for sentencing under section 25(1) of the Summary Jurisdiction Act 1930 [title 8 item 34] may be exercised where the court of summary jurisdiction is of the opinion that the defendant is one against whom the Supreme Court may consider making a confiscation order.

§60 Compensation

60 (1) If an investigation is begun against a person for a drug trafficking or relevant offence or offences and any of the following circumstances occur

(a) no proceedings are instituted against that person;

(b) proceedings are instituted against that person but do not result in his


APPLEBY

conviction for any drug trafficking or relevant offence; or

(c) proceedings are instituted against that person and he is convicted of one or more drug trafficking or relevant offences, but

(i) the conviction or convictions concerned are quashed; or

(ii) he is granted a pardon in respect of the conviction or convictions concerned,

the Supreme Court may, on application by a person who held property which was realisable property, order compensation to be paid to the applicant if, having regard to all the circumstances, it considers it appropriate to make such an order.

(2) The court shall not order compensation to be paid unless it is satisfied—

(a) that there has been some serious default on the part of any person concerned in the investigation or prosecution of the offence or offences concerned; and

(b) that the applicant has suffered loss in consequence of anything done in relation to the property by, or in pursuance of a restraint order or a charging order.

(3) The court shall not order compensation to be paid in any case where it appears to the court that the investigation would have been continued, or the proceedings would have been instituted or continued, as the case may be, if the serious default had not occurred.

(4) Without prejudice to subsection (1), where—

(a) a disclosure is made by any person in accordance with section 44(3) or 44(5) in relation to any property;

(b) in consequence of the disclosure and for the purposes of an investigation or prosecution in respect of a drug trafficking offence or offences any act is done or omitted to be done in relation to that property; and

(c) no proceedings are instituted against any person in respect of that offence or offences or no restraint order or charging order is made in relation to that property,

the court may, on application by a person who held the property, order compensation to be paid to the applicant if, having regard to all the circumstances, it considers it appropriate to make such an order.

(5) The court shall not order compensation to be paid under subsection (4) unless it is satisfied—

(a) that there has been some serious default on the part of any person concerned in the investigation or prosecution of the offence or offences concerned and that, but for that default, the act or omission referred to in subsection (4)(b) would not have occurred; and

(b) the applicant has, in consequence of the act or omission referred to in subsection (4)(b), suffered loss in relation to the property.

(6) The amount of compensation to be paid under this section shall be such as the court thinks just in all the circumstances of the case.

(7) Compensation ordered to be paid under this section and sections 23 and 24 shall be paid out of the Consolidated Fund or the Confiscated Assets Fund.


§61 Costs 61 (1) Where—

(a) a person brings, or appears at, court proceedings under this Act and endeavours—

(i) to prevent a confiscation order or a restraint order or a charging order from being made against property of his; or

(ii) to have property of his excluded from such an order; and


APPLEBY

(b) that person is successful in that endeavour; and

(c) the court is satisfied that he was not in any way involved in criminal conduct,

then the court may by order declare that he is entitled to be paid all reasonable costs incurred by him in connection with those proceedings, or such part of those costs as the court determines.

(2) The costs referred to in subsection (1) are not limited to costs of a kind that are normally recoverable by a successful party in civil proceedings.

(3) Costs payable by virtue of a declaration made by the court under subsection (1) shall be paid out of the Consolidated Fund or the Confiscated Assets Fund.


§62 Civil standard of proof

62 Any question of fact to be decided by a court in proceedings under this Act, except any question of fact that is for the prosecution to prove in any proceedings for an offence under this Act, shall be decided on the balance of probabilities.

§63 Appeals 63 Any decision of a court in proceedings under this Act, except proceedings in relation to any offence committed under this Act, is a judgment of a court in a civil cause or matter within section 12(1) and (2) of the Court of Appeal Act 1964 [title 8 item 4] or, as the case may be, section 2 of the Civil Appeals Act 1971 [title 8 item 85].

Supplemental

§64 Index of defined expressions

64 In this Act the expressions listed below are defined by, or otherwise fall to be construed in accordance with, the provisions of this Act listed below—

amount that might be realised section 4(4)

amount to be recovered section 15

benefited from—

drug trafficking section 9(3)

relevant offence section 10(3)

charging order section 29

conclusion of application section 8(1)

conclusion of proceedings section 8(1)

confiscation order section 7

corresponding law section 55

the court section 7

defendant section 7

chargeable asset section 29(5)

criminal conduct section 3

drug trafficking section 3

drug trafficking arrangement section 3

drug trafficking offence section 3

external confiscation order section 53

gift caught by this Act section 6

held (in relation to property) section 4(2)

institution of proceedings section 8(1)

interest (in relation to property) section 4(1)

items subject to legal privilege section 7


APPLEBY

material section 7

money laundering section 7

monitoring order section 41

police officer section 57

premises section 7

prescribed section 7

proceeds of drug trafficking section 12(1 )(a)

production order section 37

property section 4(1), (2)

prosecutor’s statement section 13(4)

realisable property section 4(3)

relevant offence section 3 and Schedule

restraint order section 28

subject to appeal section 8(2)

transferred (in relation to property) section 4(2)

value of gift section 5(2)

value of proceeds of drug trafficking section 12(l)(b)

value of property section 5(1)

§65 Regulations 65 (1) Regulations may be made for prescribing anything which is required to be prescribed under this Act and generally for carrying out the purposes and provisions of this Act—

(a) by the Minister of Finance, in relation to Part V; and

(b) by the Minister responsible for the Police, in any other case.

(2) Regulations made under this section shall be subject to the negative resolution procedure.

§66 Crown application

66 This Act binds the Crown, but not so as to make the Crown capable of any criminal offence.

§67 Repeals 67 Omitted

§68 Transitional provision

68 Omitted

§69 Consequential amendments

69 Omitted

SCHEDULE (section 3)

RELEVANT OFFENCES

Repealed by: 1999:39 2000: 35

[Amended by

Proceeds of Crime Amendment Act 1999 1999 : 39

The Banks and Deposit Companies (Consequential Amendments) Order 1999 BR 81/1999

Proceeds of Crime Amendment Act 2000 2000 : 35

Anti-Terrorism (Financial and Other Measures) Act 2004 2004 : 31]

PROCEEDS OF CRIME (DESIGNATED COUNTRIES ANDTERRITORIES) ORDER 1998

1

BR 1/1999

PROCEEDS OF CRIME ACT 1997

1997 : 34

THE PROCEEDS OF CRIME (DESIGNATED COUNTRIES ANDTERRITORIES) ORDER 1998

ARRANGEMENT OF ARTICLES

1 Citation2 Interpretation3 Designation of and

application of Act tocountries and territories

4 Proof of orders andjudgments of court in adesignated country

5 Evidence in relation toproceedings and orders ina designated country

6 Certificate as toappropriate authority of adesignated country

7 Representation ofgovernment of adesignated country

8 Satisfaction ofconfiscation order in adesignated country

9 Currency conversion

SCHEDULE 1

Appropriate authority ofdesignated country

SCHEDULE 2

Modification of Proceedsof Crime Act 1997

SCHEDULE 3

Proceeds of Crime Act asmodified

In exercise of the powers conferred upon the Minister of Labour,Home Affairs and Public Safety by section 53 of the Proceeds of CrimeAct 1997, the following Order is hereby made:


2

Citation1 This Order may be cited as the Proceeds of Crime (DesignatedCountries and Territories) Order 1998.

Interpretation2 In this Order—

"the Act" means the Proceeds of Crime Act 1997, and the"relevant provisions of the Act" are Parts I, III and VII of thatAct;

"appropriate authority" of a designated country means—

(a) the authority specified in relation to that country inSchedule 1;

(b) where no authority is so specified, the authorityappearing to the court to be the appropriate authority ofthat country for the purposes of sections 53 and 54 ofthe Act, and of the other relevant provisions of the Act asapplied under article 3(2) of this Order;

"court of a designated country" includes a court of any state orterritory of a designated country;

"designated country" means a country or territory designatedunder article 3(1).

Designation of and application of the Act to countries andterritories3 (1) Each of the countries and territories specified in Schedule 1is hereby designated for the purposes of sections 53 and 54 of the Act.

(2) In relation to a designated country, the relevant provisionsof the Act shall apply, subject to the modifications specified in Schedule2, to external confiscation orders and to proceedings which have been orare to be instituted in the designated country and which may result inan external confiscation order being made there.

(3) Accordingly, in relation to such orders and suchproceedings, the relevant provisions of the Act shall have effect as set outin Schedule 3.

Proof of orders and judgments of court in a designated country4 (1) For the purposes of sections 53 and 54 of the Act, and ofthe other relevant provisions of the Act, as applied under article 3(2)—

(a) any order made or judgment given by a court in adesignated country purporting to bear the seal of that


3

court or to be signed by any person in his capacity as ajudge, magistrate or officer of the court, shall be deemedwithout further proof to have been duly sealed or, as thecase may be, to have been signed by that person; and

(b) a document, duly authenticated, which purports to be acopy of any order made or judgment given by a court ina designated country shall be deemed without furtherproof to be a true copy.

(2) A document purporting to be a copy of any order made orjudgment given by a court in a designated country is duly authenticatedfor the purpose of paragraph (1)(b) above if it purports to be certified byany person in his capacity as a judge, magistrate or officer of the court inquestion or by or on behalf of the appropriate authority of the designatedcountry.

Evidence in relation to proceedings and orders in a designatedcountry5 (1) For the purposes of sections 53 and 54 of the Act, and ofthe other relevant provisions of the Act as applied under article 3(2), acertificate purporting to be issued by or on behalf of the appropriateauthority of a designated country, stating—

(a) that proceedings have been instituted there and havenot been concluded, or that proceedings are to beinstituted there;

(b) in a case to which section 8 of the Act (institution ofproceedings), as modified by Schedule 2, applies, thatthe defendant has been notified as specified in thatparagraph;

(c) that an external confiscation order is in force and is notsubject to appeal;

(d) that all or a certain amount of the sum payable underan external confiscation order remains unpaid in thedesignated country, or that other property recoverableunder an external confiscation order remainsunrecovered there;

(e) that any person has been notified of any proceedings inaccordance with the law of the designated country; or

(f) that an order (however described) made or to be made bya court of the designated country has the purpose, or, asthe case may be, will have the purpose, of recovering


4

payments or other rewards received in connection withdrug trafficking or relevant offences or their value;

shall, in any proceedings in the Supreme Court, be admissible asevidence of the facts so stated.

(2) In any such proceedings a statement contained in adocument, duly authenticated, which purports to have been received inevidence or to be a copy of a document so received, or to set out orsummarise evidence given in proceedings in a court in a designatedcountry, shall be admissible as evidence of any fact stated therein.

(3) A document is duly authenticated for the purposes ofparagraph (2) if it purports to be certified by any person in his capacityas a judge, magistrate or officer of the court in a designated country, orby or on behalf of the appropriate authority of the designated country, tohave been received in evidence or to be a copy of a document so received,or, as the case may be, to be the original document containing orsummarising the evidence or a true copy of that document.

(4) Nothing in this article shall prejudice the admission of anyevidence, whether contained in any document or otherwise, which isadmissible apart from this article.

Certificate as to appropriate authority of a designated country6 Where in relation to any designated country no authority isspecified in Schedule 1, a certificate made by the Attorney-General to theeffect that the authority specified therein is the appropriate authority forthe purposes of sections 53 and 54 of the Act, and of the other relevantprovisions of the Act as applied by article 3(2) of this Order shall besufficient evidence of that fact.

Representation of government of a designated country7 (1) Where the Attorney-General receives a written request fromthe appropriate authority of a designated country to register an externalconfiscation order under section 54 of the Act, and that request isaccompanied

(a) by two copies of the external confiscation order with atranslation into English where necessary; and

(b) by a certificate issued by or on behalf of the appropriateauthority stating

(i) that the order is in force and not subjectto appeal; and

(ii) where the person affected by the orderdid not appear in the proceedings, that


5

he received notice of the proceedings insufficient time to enable him to defendthem,

the Attorney-General, if he is of the opinion that enforcing the order inBermuda would not be contrary to the interests of justice, shall lodge acopy of the request, the order and the certificate with the Registrar of theSupreme Court for registration in accordance with section 54 of the Act.

(2) A written request for assistance sent to the Attorney-General by the appropriate authority of a designated country shall,unless the contrary is shown, be deemed to constitute the authority ofthat country for the Attorney-General to act on its behalf in anyproceedings in the Supreme Court under section 54 of the Act or anyother provision of the Act as applied by article 3(2).

(3) In paragraph (1)(b)(i), "appeal" includes

(a) any proceedings by way of discharging or setting aside ajudgment; and


Satisfaction of confiscation order in a designated country8 (1) Where—

(a) a confiscation order has been made under section 9 or10 of the Act; and

(b) a request has been sent by the Attorney-General to theappropriate authority of a designated country forassistance in enforcing that order; and

(c) in execution of that request property is recovered in thatcountry,

the amount payable under the confiscation order shall be treated asreduced by the value of the property so recovered.

(2) For the purposes of this article, and without prejudice to theadmissibility of any evidence which may be admissible apart from thisarticle, a certificate purporting to be issued by or on behalf of theappropriate authority of a designated country stating—

(a) that property has been recovered there in execution of arequest by the Attorney-General;

(b) the value of the property so recovered; and

(c) the date on which it was recovered,


6

shall, in any proceedings in a court in Bermuda, be admissible asevidence of the facts so stated.

Currency conversion9 (1) Where the value of property recovered as described inarticle 8(1) is expressed in a currency other than that of Bermuda, theextent to which the amount payable under the confiscation order is to bereduced under that article shall be calculated on the basis of theexchange rate prevailing on the date on which the property wasrecovered in the designated country concerned.

(2) Where an amount of money payable or remaining to be paidunder an external confiscation order registered in the Supreme Courtunder section 54 of the Act, is expressed in a currency other than that ofBermuda, for the purpose of any action taken in relation to that orderunder the Act as applied under article 3(2), the amount shall beconverted into the currency of Bermuda on the basis of the exchangerate prevailing on the date of registration of the order.

(3) For the purposes of this article, a written certificatepurporting to be signed by any person acting in his capacity as an officerof any bank in Bermuda and stating the exchange rate prevailing on aspecified date shall be admissible as evidence of the facts so stated.

Made this 23rd day of December, 1998

Minister of Labour, Home Affairs & Public Safety


7

SCHEDULE 1 article 3(1)

APPROPRIATE AUTHORITY OF DESIGNATED COUNTRY

Designated country Appropriate authority

AfghanistanAlgeriaAnguilla The Attorney General of AnguillaAntigua & Barbuda The Attorney GeneralArgentina The Ministry of Foreign AffairsArmeniaAustralia The Attorney-General’s DepartmentAustriaAzerbaijanBahamas The Attorney General of the BahamasBahrain The Ministry of the InteriorBangladeshBarbados The Attorney GeneralBelarusBelgiumBelizeBeninBhutanBolivia Secretaria Nacional de Defensa Social

del Ministerio de GobiernoBosnia & HerzegovinaBotswanaBrazilBritish Virgin Islands The Attorney General of the British

Virgin IslandsBrunei DarussalamBulgariaBurkina FasoBurundiCameroonCanada The Minister of Justice or officials

designated by that MinisterCape VerdeCayman Islands The Attorney General of the Cayman

IslandsChadChile Ministerio del InteriorChina


8

Colombia The Fiscalia General de la Nacion andthe Ministerio de Justicia delDerecho

Costa RicaCote d'IvoireCroatiaCubaCyprusCzech RepublicDenmarkDominicaDominican RepublicEduador Consejo Nacional del Control de

Sustancias Estupefacientes yPsicotropicas (CONSEP)

EgyptEl SalvadorEthiopiaFijiFinlandFranceGambiaGermanyGhanaGibraltar The Attorney General of GibraltarGreeceGrenada The Ministry of External AffairsGuatemalaGuernsey Her Majesty’s Attorney General for the

Bailiwick of GuernseyGuineaGuinea-BissauGuyana The Permanent Secretary, Ministry of

Home AffairsHaitiHondurasHong Kong The Attorney General of Hong KongHungaryIndia The Ministry of Home AffairsIranIrelandIsle of Man Her Majesty’s Attorney General for the

Isle of ManItaly The Ministry of JusticeJamaicaJapan


9

Jersey Her Majesty’s Attorney General for theBailiwick of Jersey

JordanKazakhstanKenyaKyrgyzstanLatviaLesothoLithuaniaLuxembourgMacedonia, Former

Yugoslav Republic ofMadagascarMalawiMalaysia The Inspector General of Police,

MalaysiaMaliMaltaMauritaniaMoldovaMonacoMontserrat The Attorney General of MontserratMoroccoMyanmarNepalNetherlands Afdeling Internationale RechtshulpNicaraguaNigerNigeria The Attorney General of the Federation

of the Republic of NigeriaNorwayOmanPakistanPanama The Ministry of Government and JusticeParaguay National Anti-Drugs Secretariat of the

Presidency of the Republic (SENAD)PeruPolandPortugalQatarRomania The Ministry of the Interior and the

Ministry of JusticeThe Russian

FederationSaint Kitts & NevisSaint Lucia


10

Saint Vincent & theGrenadines

Sao Tome & PrincipeSaudi Arabia The Ministry of the InteriorSenegalSeychellesSierra LeoneSlovakiaSloveniaSouth Africa The Department of Foreign AffairsSpain The Ministerio de Justicia, MadridSri LankaSudanSurinameSwazilandSweden The Ministry for Foreign AffairsSwitzerland Office fédéral de la policeSyrian Arab RepublicTajikistanThailand The Attorney General or a person

designated by himTogoTongaTrinidad & TobagoTunisiaTurkeyTurkmenistanTurks & Caicos IslandsUgandaUkraine The Office of the General Prosecutor

and the Ministry of JusticeUnited Arab EmiratesUnited Kingdom The Attorney GeneralUnited Mexican States The Office of the Attorney GeneralUnited Republic of

TanzaniaUnited States of

AmericaThe Attorney General of the United

States of AmericaUruguay The Ministry of Education and CultureUzbekistanVenezuelaYemenYugoslavia,The Federal

Republic ofZambiaZimbabwe


11


MODIFICATIONS OF THE PROCEEDS OF CRIME ACT 1997

1 Sections 1 and 2 of the Act shall be omitted.

2 Before section 3 there shall be inserted

"External confiscation orders2A (1) An order made by a court in a designated countryfor the purpose

(a) of recovering property, or the value of such property,obtained as a result of or in connection with

(i) drug trafficking, or

(ii) a relevant offence; or

(b) of depriving a person of a pecuniary advantage soobtained,

is referred to in this Act as an "external confiscation order".

(2) In subsection (1) above the reference to an orderincludes any order, decree, direction or judgment, or any partthereof, however described."

3 In section 3, for the definition of "relevant offence" there shall besubstituted

""relevant offence" means an offence which would, ifcommitted in Bermuda, be triable on indictment".

4 (1) In section 4(3), for paragraphs (a) and (b) there shall besubstituted

"(a) in relation to an external confiscation ordermade in respect of specified property, theproperty which is specified in the order; and

(b) in any other case—

(i) any property held by the defendant; and

(ii) any property held by a person to whomthe defendant has directly or indirectlymade a gift caught by this Act."


12

(2) Subsections (4) to (6) of section 4 shall be omitted.

5 In section 6(1) for the words "commencement of this Act" thereshall be substituted "commencement of the Proceeds of Crime(Designated Countries and Territories) Order 1998".

6 (1) In section 7

(a) for the definition of "defendant" there shall besubstituted—

""defendant" means a person against whom an externalconfiscation order has been made, or a personagainst whom proceedings which may result in anexternal confiscation order being made have been orare to be, instituted in a court in a designatedcountry."; and

(b) at the end of the definition of "the court" there shall beadded "or, as the case may be, a court of a designatedcountry;".

(2) In section 7, the definitions of "Bermuda MonetaryAuthority", "confiscation order", "items subject to legal privilege","material" and "money laundering" shall be omitted.

7 For section 8 there shall be substituted—

"(1) Proceedings are instituted in a designated country when—

(a) under the law of the designated countryconcerned one of the steps specified in relationto that country in column 2 of the Appendixhereto has been taken there in respect of allegeddrug trafficking by the defendant; or

(b) where no steps have been specified in relationthereto as mentioned in paragraph (a) above, thedefendant has been notified in writing inaccordance with the laws of the designatedcountry that the competent authorities of thatcountry have begun proceedings against him inrespect of alleged drug trafficking; or

(c) an application has been made to a court in adesignated country for an external confiscationorder,

and where the application of this subsection wouldresult in there being more than one time for the


13

institution of proceedings, they shall be taken to havebeen instituted at the earliest of those times.

(2) Proceedings for an offence are concluded—

(a) when (disregarding any power of a court to grantleave to appeal out of time) there is no furtherpossibility of an external confiscation orderbeing made in the proceedings;

(b) on the satisfaction of an external confiscationorder made in the proceedings, whether by therecovery of all property liable to be recovered orthe payment of any amount due.

(3) An external confiscation order is satisfied when noproperty remains liable to be recovered under it or no amount isdue under it.

(4) An external confiscation order is subject to appeal until(disregarding any power of a court to grant leave to appeal out oftime) there is no further possibility of an appeal on which theorder could be varied or set aside."

8 Sections 9 to 26 shall be omitted.

9 (1) In section 27 (1)

(a) for paragraph (a) there shall be substituted

"(a) proceedings have been instituted against thedefendant in a designated country for a drugtrafficking or relevant offence;";

(b) in paragraph (b) the words "or the application has not"shall be omitted; and

(c) for paragraph (c) there shall be substituted

"(c)either an external confiscation order has been madein the proceedings or it appears to the SupremeCourt that there are reasonable grounds forbelieving that such an order may be made in them."

(2) Section 27(2) shall be omitted.

(3) For section 27(3) there shall be substituted

"(3) The powers mentioned in subsection (1) above are alsoexercisable where it appears to the Supreme Court thatproceedings are to be instituted against the defendant in adesignated country and that there are reasonable grounds for


14

believing that an external confiscation order may be made inthem."


(5) In section 27(5), for the words "proceedings in respect of theoffence are not instituted or if the application is not made", there shall besubstituted "those proceedings are not instituted".

10 (1) In section 28(2), for paragraphs (a) and (b) there shall besubstituted

"(a) where an application under subsection (4)relates to an external confiscation order made inrespect of specified property, to property whichis specified in that order, and


(i) to all realisable property held by aspecified person, whether the property isdescribed in the restraint order or not;and

(ii) to realisable property held by a specifiedperson, being property transferred tohim after the making of the restraintorder."

(2) In section 28(3), the words "or under section 19 of the DrugTrafficking Suppression Act 1988" shall be omitted.

(3) For section 28(5)(b) there shall be substituted

"(b) shall be discharged when the proceedings inrelation to which the order was made areconcluded".

11 For section 29(2) there shall be substituted

"(2) The court may make a charging order onrealisable property for securing the payment

(a) where a fixed amount is payable under anexternal confiscation order, of an amount notexceeding the amount so payable; and

(b) in any other case, of an amount equal to thevalue from time to time of the property charged."

12 After section 30 there shall be inserted


15

"Applications for restraint and charging orders30A An application under section 28(4) or 29(3) shall besupported by an affidavit which shall—

(a) state, where applicable, the grounds for believing thatan external confiscation order has been or may bemade in the proceedings instituted or to be institutedin the designated country concerned;

(b) to the best of the deponent's ability, give particularsof the realisable property in respect of which theorder is sought and specify the person or personsholding such property;

(c) in a case to which section 27(3) of this Act applies,indicate when it is intended that proceedings shouldbe instituted in the designated country concerned,

and the affidavit may contain statements of information or beliefwith the sources and grounds thereof."

13 (1) For section 31(1) there shall be substituted

"(1) Where an external confiscation order has beenregistered in the Supreme Court under section 54 of this Act, theSupreme Court may, on the application of the Attorney-General,exercise the powers conferred by subsections (1A) to (6).

(1A) In respect of any sum of money payable under theexternal confiscation order the court may make a garnisheeorder as if the sum were due to the Crown in pursuance of ajudgment or order of the Supreme Court, but any such ordershall direct that the sum payable be paid to the Supreme Court."


14 (1) In section 32(1), for the words "be applied on thedefendant's behalf towards the satisfaction of the confiscation order"there shall be substituted "be paid to the Supreme Court and appliedtowards the satisfaction of the external confiscation order".

(2) In section 32(2), for the words "If, after the amount payableunder the confiscation order", there shall be substituted "Where a fixedamount is payable under the external confiscation order and, after thatamount".

15 (1) In section 33(2), for the words "making available" to the endof the subsection there shall be substituted "recovering property which isliable to be recovered under an external confiscation order registered in


16

the Court under section 54 of this Act or, as the case may be, with a viewto making available for recovery property which may become liable to berecovered under any external confiscation order which may be made inthe defendant's case".

(2) In section 33(5), for "confiscation order" there shall besubstituted "external confiscation order".

16 In section 34(2), for the words "out of the Consolidated Fund"there shall be substituted "by the person on whose application thereceiver was appointed".

17 In section 35(6)

(a) sub-paragraphs (i) and (ii) of paragraph (a) shall beomitted; and

(b) in sub-paragraph (b), for the words "conclusion of theproceedings or of the application" there shall besubstituted "discharge of the restraint or chargingorder".


19 In section 54(3), after the word "satisfied" there shall be inserted"by the recovery of all property liable to be recovered under it or".


21 For the definitions in section 64 there shall be substituted thefollowing

"charging order section 29

conclusion of proceedings in adesignated country

section 8(2)

defendant section 7


external confiscation order section 2A


"held" in relation to property section 4(2)

institution of proceedings in adesignated country

section 8(1)


17

"interest", in relation to property section 4(1)


property section 4(1)

realisable property section 4(1) and (2)


"satisfied", in relation to an externalconfiscation order

section 8(3)

"subject to appeal", in relation to anexternal confiscation order

section 8(4)

"transferred", in relation to property section 4(2)

value of gift, payment or reward section 5(2)

value of property section 5(1)."

22 Section 65, 67 to 69 and the Schedule shall be omitted.

23 After section 66 there shall be inserted the Appendix set out atthe end of Schedule 3 to this Order.


THE PROCEEDS OF CRIME ACT 1997 AS MODIFIED

Interpretation

External confiscation orders2A (1) An order made by a court in a designated country for thepurpose

(a) of recovering property, or the value of such property,obtained as a result of or in connection with

(i) drug trafficking, or

(ii) a relevant offence; or

(b) of depriving a person of a pecuniary advantage soobtained,

is referred to in this Act as an "external confiscation order".


18

(2) In subsection (1) the reference to an order includes anyorder, decree, direction or judgment, or any part thereof, howeverdescribed.

Meaning of "drug trafficking", "relevant offence", "criminal conduct"3 In this Act—

"criminal conduct" means

(a) drug trafficking, or

(b) any relevant offence;

"drug trafficking offence" means an offence

(a) under section 4, 5, 6(3), 7 or 11 of the Misuse of DrugsAct 1972 (importation, production, possession withintent to supply or handling of controlled drugs andcultivation of cannabis);

(b) under section 12 or 17 of the Criminal Justice(International Co-operation) (Bermuda) Act 1994(manufacture and supply of scheduled substances andusing ship for illicit traffic); or

(c) under section 43, 44 or 45 of this Act (moneylaundering) which relates to the proceeds of drugtrafficking;

or an offence under section 32, 33, 230 or 231 of theCriminal Code Act 1907 (attempt, incitement, conspiracy etc)deriving from such an offence;

"drug trafficking" means doing or being concerned in, whether inBermuda or elsewhere, any act constituting—

(a) a drug trafficking offence, or

(b) an offence punishable under a corresponding law,

and includes entering into or being otherwise concerned in,whether in Bermuda or elsewhere, a drug traffickingarrangement;

"drug trafficking arrangement" means an arrangementwhereby—

(a) the retention or control by or on behalf of anotherperson of that other person's proceeds of drug traffickingis facilitated; or


19

(b) the proceeds of drug trafficking by another person areused to secure that funds are placed at that otherperson's disposal or are used for that other person'sbenefit to acquire property by way of investment;

"relevant offence" means an offence which would, if committed inBermuda, be triable on indictment.

Meaning of "property", "realisable property" etc4 (1) In this Act—

"property" means money and all other property, movable orimmovable, including things in action and other intangible orincorporeal property; and

"interest", in relation to property, includes right.


(a) property is held by any person if he holds any interest init;

(b) references to property held by a person include areference to property vested in his trustee in bankruptcyor liquidator;

(c) references to an interest held in property by a personbeneficially include a reference to an interest whichwould be held by him beneficially if the property werenot so vested in his trustee in bankruptcy or liquidator;and

(d) property is transferred by one person to another if thefirst person transfers or grants to the other any interestin the property.

(3) In this Act, "realisable property" means

(a) in relation to an external confiscation order made inrespect of specified property, the property which isspecified in the order; and


(i) any property held by the defendant; and

(ii) any property held by a person to whom thedefendant has directly or indirectly made a giftcaught by this Act.


20

Value of property5 (1) Subject to the following subsections and section 6, for thepurposes of this Act, the value of property (other than cash) in relation toany person holding the property shall be its market value, except thatwhere any other person holds an interest in the property, the value shallbe—

(a) the market value of the first-mentioned person'sbeneficial interest in the property, less

(b) the amount required to discharge any incumbrance(other than a charging order) on that interest.

(2) Subject to section 6(3), references in this Act to the value atany time (referred to in subsection (3) as the "material time") of a giftcaught by this Act are references to—

(a) the value of the gift to the recipient when he received itadjusted to take account of subsequent changes in thevalue of money; or

(b) where subsection (3) applies, the value mentionedtherein,


(3) Subject to section 6(3), if at the material time the recipientholds—

(a) the property which he received (not being cash); or

(b) property which, in whole or in part, directly or indirectlyrepresents in his hands the property which he received,

the value referred to in subsection (2)(b) shall be the value to him at thematerial time of the property mentioned in paragraph (a) or as the casemay be, of the property mentioned in paragraph (b) so far as it sorepresents the property which he received, but disregarding in eithercase any charging order.

Gifts caught by this Act6 (1) In relation to a drug trafficking offence, a gift (including agift made before the commencement of the Proceeds of Crime (DesignatedCountries and Territories) Order 1998) is caught by this Act if—

(a) it was made by the defendant at any time since thebeginning of the period of six years ending

(i) when the proceedings for the drugtrafficking offence were institutedagainst him, or


21

(ii) where no such proceedings have beeninstituted, when an application for acharging or restraint order is madeunder section 28 or 29; or

(b) it was made by the defendant at any time and was a giftof property

(i) received by the defendant in connectionwith drug trafficking carried on by himor another person, or

(ii) which in whole or in part directly orindirectly represented in the defendant'shands property received by him in thatconnection.

(2) In relation to a relevant offence, a gift (including a gift madebefore the commencement of this Act) is caught by this Act if—

(a) it was made by the defendant at any time since thecommission of the relevant offence, or, if more than one,the earliest of the offences to which the proceedingsrelate (including any offence which the court takes intoconsideration in determining his sentence); and

(b) the court considers it appropriate in all thecircumstances to take the gift into account.


(a) the circumstances in which the defendant is to betreated as making a gift include those where he transfersproperty to another person, directly or indirectly, for aconsideration the value of which is significantly lessthan the value of the consideration provided by thedefendant; and

(b) in those circumstances, this section and section 5 shallapply as if the defendant had made a gift of such sharein the property as bears to the whole property the sameproportion as the difference between the values referredto in paragraph (a) bears to the value of theconsideration provided by the defendant.

Other definitions7 In this Act—

"the court" means the Supreme Court or, as the case may be, acourt of a designated country;


22

"defendant" means a person against whom an externalconfiscation order has been made, or a person against whomproceedings which may result in an external confiscationorder being made have been or are to be, instituted in a courtin a designated country;

"prescribe" means prescribe by regulations made under section65.

Institution and conclusion of proceedings8 (1) Proceedings are instituted in a designated country when—

(a) under the law of the designated country concerned oneof the steps specified in relation to that country incolumn 2 of the Appendix hereto has been taken there inrespect of alleged drug trafficking or the commission of arelevant offence by the defendant; or

(b) where no steps have been specified in relation thereto asmentioned in paragraph (a) above, the defendant hasbeen notified in writing in accordance with the laws ofthe designated country that the competent authorities ofthat country have begun proceedings against him inrespect of alleged drug trafficking or a relevant offence;or

(c) an application has been made to a court in a designatedcountry for an external confiscation order,

and where the application of this subsection would result in there beingmore than one time for the institution of proceedings, they shall be takento have been instituted at the earliest of those times.

(2) Proceedings for an offence are concluded—

(a) when (disregarding any power of a court to grant leave toappeal out of time) there is no further possibility of anexternal confiscation order being made in theproceedings;

(b) on the satisfaction of an external confiscation ordermade in the proceedings, whether by the recovery of allproperty liable to be recovered; or the payment of anyamount due.

(3) An external confiscation order is satisfied when no propertyremains liable to be recovered under it or no amount is due under it.

(4) An external confiscation order is subject to appeal until(disregarding any power of a court to grant leave to appeal out of time)


23

there is no further possibility of an appeal on which the order could bevaried or set aside.


Cases in which restraint and charging orders may be made27 (1) The powers conferred on the Supreme Court by section 28to make a restraint order and by section 29 to make a charging order areexercisable where—

(a) proceedings have been instituted against the defendantin a designated country for a drug trafficking or relevantoffence;

(b) the proceedings have not been concluded;

(c) either an external confiscation order has been made inthe proceedings or it appears to the Supreme Court thatthere are reasonable grounds for believing that such anorder may be made in them.

(3) The powers mentioned in subsection (1) are also exercisablewhere it appears to the Supreme Court that proceedings are to beinstituted against the defendant in a designated country and that thereare reasonable grounds for believing that an external confiscation ordermay be made in them.

(5) Where the court has made a restraint or charging order byvirtue of subsection (3), the court shall discharge the order if the thoseproceedings are not instituted within such time as the court considersreasonable.

Restraint orders28 (1) The court may make a restraint order to prohibit anyperson from dealing with any realisable property, subject to suchconditions and exceptions as may be specified in the order.

(2) A restraint order may apply—

(a) where an application under subsection (4) relates to anexternal confiscation order made in respect of specifiedproperty, to property which is specified in that order,and


(i) to all realisable property held by aspecified person, whether the property is


24

described in the restraint order or not;and

(ii) to realisable property held by a specifiedperson, being property transferred tohim after the making of the restraintorder.

(3) This section shall not have effect in relation to any propertyfor the time being subject to a charge under section 29 of this Act.



(b) may be made on an ex parte application to a Judge inchambers; and

(c) shall provide for notice to be given to persons affected bythe order.


(a) may, on the application of any person affected by theorder, be discharged or varied in relation to anyproperty; and

(b) shall be discharged when the proceedings in relation towhich the order was made are concluded.

(6) Where the court has made a restraint order, the court—

(a) may at any time appoint a receiver—

(i) to take possession of any realisableproperty; and

(ii) in accordance with the directions of thecourt, to manage or otherwise deal withany property in respect of which he isappointed,

subject to such exceptions and conditions as may bespecified by the court; and

(b) may require any person having possession of property inrespect of which the receiver is appointed under thissection to give possession of it to the receiver.

(7) For the purposes of this section, dealing with property heldby any person includes (without prejudice to the generality of theexpression)—


25

(a) where a debt is owed to that person, making a paymentto any person in reduction of the amount of the debt;and

(b) removing the property from Bermuda.

(8) Where the court has made a restraint order, a police officermay seize any realisable property for the purpose of preventing itsremoval from Bermuda; and property so seized shall be dealt with inaccordance with the directions of the court.

Charging orders29 (1) For the purposes of this Act, a charging order is an ordermade under this section imposing on any such realisable property asmay be specified in the order a charge for securing the payment ofmoney to the Crown.

(2) The court may make a charging order on realisable propertyfor securing the payment—

(a) where a fixed amount is payable under an externalconfiscation order, of an amount not exceeding theamount so payable; and

(b)in any other case, of an amount equal to the value fromtime to time of the property charged.

(3) A charging order—


(b) may be made on an ex parte application to a Judge inchambers.

(4) Subject to subsection (6), a charge may be imposed by acharging order only on—

(a) any interest in realisable property, which is an interestheld beneficially by the defendant or by a person towhom the defendant has directly or indirectly made agift caught by this Act—

(i) in any chargeable asset; or

(ii) under any trust; or

(b) any interest in realisable property held by a person astrustee of a trust if the interest is in a chargeable assetor is an interest under another trust and a charge may,by virtue of paragraph (a), be imposed by a charging


26

order on the whole beneficial interest under the first-mentioned trust.

(5) In this section

(a) "chargeable asset" means any of the following

(i) any land in Bermuda;

(ii) any relevant securities;

(iii) any motor vehicle;

(iv) any vessel;

(v) any aircraft;

(vi) any other type of asset which theMinister of Finance may prescribe forthe purposes of this section; and

(b) "relevant securities" means any of the following

(i) securities of the government or of anypublic authority;

(ii) stock of any body incorporated inBermuda;

(iii) stock of any body incorporated outsideBermuda or of any country or territoryoutside Bermuda, being stock registeredin a register kept at any place withinBermuda;

(iv) options in relation to stock described insub-paragraphs (ii) or (iii);

(v) units of any unit trust in respect ofwhich a register of the unit holders iskept at any place in Bermuda.

(6) In any case where a charge is imposed by a charging orderon any interest in any relevant securities, the court may provide for thecharge to extend to any interest or dividend payable in respect of them.

(7) Where the court has made a charging order, the court maygive such directions to such person as the court thinks fit to safeguardthe assets under the charging order.

(8) The court—


27

(a) may, on the application of any person affected by thecharging order, make an order discharging or varying it;and

(b) shall make an order discharging the charging order ifthe proceedings for the offence are concluded or onpayment into court of the amount which is secured bythe charge.

Charging orders: supplementary30 (1) A charging order may be made either absolutely or subjectto conditions including in particular conditions—

(a) as to notifying any person holding any interest in theproperty to which the order relates; or

(b) as to the time when the charge is to become enforceable.

(2) Notice of any charging order shall be deposited in the officeof the Registrar-General for recording and registration in accordancewith section 3 of the Registrar-General (Recording of Documents) Act1955.

(3) Subject to any provision made under section 31, a chargeimposed by a charging order shall have the like effect and shall beenforceable in the same manner as an equitable charge created by theperson holding the beneficial interest or, as the case may be, the trusteesby writing under their hand.

Applications for restraint and charging orders30A An application under section 28(4) or 29(3) of this Act shall besupported by an affidavit which shall—

(a) state, where applicable, the grounds for believing that anexternal confiscation order has been or may be made inthe proceedings instituted or to be instituted in thedesignated country concerned;

(b) to the best of the deponent's ability, give particulars ofthe realisable property in respect of which the order issought and specify the person or persons holding suchproperty;

(c) in a case to which section 27(3) of this Act applies,indicate when it is intended that proceedings should beinstituted in the designated country concerned,

and the affidavit may contain statements of information or belief with thesources and grounds thereof.


28


Realisation of property31 (1) Where an external confiscation order has been registered inthe Supreme Court under section 54 of this Act, the Supreme Court may,on the application of the Attorney-General, exercise the powers conferredby subsections (1A) to (6) below.

(1A) In respect of any sum of money payable under the externalconfiscation order the court may make a garnishee order as if the sumwere due to the Crown in pursuance of a judgment or order of theSupreme Court, but any such order shall direct that the sum payable bepaid to the Supreme Court.

(2) The court may appoint a receiver in respect of realisableproperty.

(3) The court may empower the receiver appointed under thissection or section 28 or in pursuance of a charging order—

(a) to enforce any charge imposed under section 29 onrealisable property or on interest or dividends payable inrespect of such property; and

(b) in relation to any realisable property other than propertyfor the time being subject to a charge under section 29,to take possession of the property subject to suchconditions or exceptions as may be specified by thecourt.

(4) The court may order any person having possession ofrealisable property to give possession of it to the receiver.

(5) The court may empower the receiver to realise anyrealisable property in such manner as the court may direct.

(6) The court—

(a) may order any person holding an interest in realisableproperty to make such payment to the receiver inrespect of any beneficial interest held by the defendantor, as the case may be, the recipient of a gift caught bythis Act as the court may direct; and

(b) may, on the payment being made, by order transfer,grant or extinguish any interest in the property.

(8) The court shall not in respect of any property exercise thepowers conferred by subsection (3)(a), (5) or (6) unless a reasonable


29

opportunity has been given for persons holding any interest in theproperty to make representations to the court.

Application of proceeds of realisation etc32 (1) The following sums in the hands of the receiver pursuant tosection 28 or 31 or in pursuance of a charging order—

(a) the proceeds of the enforcement of any charge imposedunder section 29;

(b) the proceeds of the realisation, other than by theenforcement of such a charge, of any property undersection 28 or 31; and

(c) any other sums, being property held by the defendant,

shall, after such payments (if any) as the court may direct have beenmade out of those sums, be paid to the Supreme Court and appliedtowards the satisfaction of the external confiscation order.

(2) Where a fixed amount is payable under the externalconfiscation order and, after that amount has been fully paid, any suchsums remain in the hands of the receiver, he shall distribute thosesums—

(a) among such of those who held property which has beenrealised under this Act; and

(b) in such proportions,

as the court may direct after giving a reasonable opportunity for suchpersons to make representations to the court.

Exercise of powers for the realisation of property33 (1) This section shall apply to the powers conferred on thecourt by sections 28 to 32 or on the receiver pursuant to section 28 or 31or in pursuance of a charging order.

(2) Subject to subsections (3) to (6), the powers shall beexercised with a view to recovering property which is liable to berecovered under an external confiscation order registered in the Courtunder section 54 of this Act or, as the case may be, with a view tomaking available for recovery property which may become liable to berecovered under any external confiscation order which may be made inthe defendant's case.

(3) In the case of realisable property held by a person to whomthe defendant has, directly or indirectly, made a gift caught by this Act,the powers shall be exercised with a view to realising no more than thevalue for the time being of the gift.


30

(4) The powers shall be exercised with a view to allowing anyperson other than the defendant or the recipient of any such gift toretain or recover the value of any property held by him.

(5) In exercising those powers, no account shall be taken of anyobligations of the defendant or of the recipient of any such gift whichconflict with the obligation to satisfy the external confiscation order.

(6) An order may be made or other action taken in respect of adebt owed by the Crown.

Receivers: supplementary34 (1) Where a receiver appointed under section 28 or 31 or inpursuance of a charging order—

(a) takes any action in relation to property which is notrealisable property, being action which he would beentitled to take if it were such property, and

(b) believes and has reasonable grounds for believing, thathe is entitled to take that action in relation to thatproperty,

he shall not be liable to any person in respect of any loss or damageresulting from his action, except in so far as the loss or damage iscaused by his negligence.

(2) Any amount due in respect of the remuneration andexpenses of a receiver so appointed shall be paid by the person on whoseapplication the receiver was appointed.

Insolvency

Bankruptcy of defendant35 (1) Where a person who holds realisable property is adjudgedbankrupt—

(a) property for the time being subject to a restraint ordermade before the order adjudging him bankrupt; and

(b) any proceeds of property realised by virtue of section28(6) or 31(5) or (6) for the time being in the hands of areceiver appointed under section 28 or 31,

shall be excluded from the bankrupt's estate for the purposes of theBankruptcy Act 1989 ("the 1989 Act").

(2) Where a person has been adjudged bankrupt, the powersconferred on the court by sections 28 to 32 or on a receiver shall not be


31

exercised in relation to property for the time being comprised in theproperty of the bankrupt for the purposes of the 1989 Act.

(3) Nothing in the 1989 Act shall be taken as restricting, orenabling the restriction of, the exercise of those powers referred to insubsection (2).

(4) Subsection (2) shall not affect the enforcement of a chargingorder—

(a) made before the order adjudging the person bankrupt;or

(b) on property which was subject to a restraint order whenthe order adjudging him bankrupt was made.

(5) Where, in the case of a debtor, the receiver constituted byvirtue of section 9 of the 1989 Act or an interim receiver standsappointed under section 10 of the 1989 Act, and any property of thedebtor is subject to a restraint order—

(a) the powers conferred on the receiver by virtue of that Actshall not apply to property for the time being subject tothe restraint order; and

(b) any such property in the hands of the receiver shall,subject to a lien for any expenses (including hisremuneration) properly incurred in respect of theproperty, be dealt with in such manner as the court maydirect.

(6) Where a person is adjudged bankrupt and has directly orindirectly made a gift caught by this Act

(a) no order shall be made by virtue of section 33 or 45 ofthe 1989 Act (avoidance of certain settlements etc) inrespect of the making of the gift at any time whenproperty of the person to whom the gift was made issubject to a restraint order or a charging order; and

(b) any order made by virtue of section 33 or 45 of the 1989Act after the discharge of the restraint or charging ordershall take into account any realisation under this Act ofproperty held by the person to whom the gift was made.

Winding up of company holding realisable property36 (1) Where realisable property is held by a company and anorder for the winding up of the company has been made or a resolutionhas been passed by the company for the voluntary winding up, thefunctions of the liquidator shall not be exercisable in relation to—


32

(a) property for the time being subject to a restraint ordermade before the relevant time; and

(b) any proceeds of property realised by virtue of section28(6) or 31(5) or (6) for the time being in the hands of areceiver appointed under section 28 or 31,

but there shall be payable out of such property any expenses (includingthe remuneration of the liquidator) properly incurred in the winding upin respect of the property.

(2) Where, in the case of a company, such an order has beenmade or such a resolution has been passed, the powers conferred on thecourt by sections 28 to 32 or on a receiver so appointed shall not beexercised in relation to any realisable property held by the company inrelation to which the functions of the liquidator are exercisable—

(a) so as to inhibit him from exercising those functions forthe purpose of distributing any property held by thecompany to the company's creditors; or

(b) so as to prevent the payment out of any property ofexpenses (including the remuneration of the liquidator)properly incurred in the winding up in respect of theproperty.

(3) Nothing in the Companies Act 1981 shall be taken asrestricting, or enabling the restriction of, the exercise of those powersreferred to in subsection (2).

(4) Subsection (2) shall not affect the enforcement of a chargingorder made before the relevant time or on property which was subject toa restraint order at the relevant time.


"company" means any company which may be wound up underthe Companies Act 1981;

"liquidator" includes any person appointed to the office ofliquidator (whether provisionally or otherwise) under theCompanies Act 1981;

"the relevant time" means—

(a) where no order for the winding up of the company hasbeen made, the time of the passing of the resolution forvoluntary winding up;

(b) where—


33

(i) such an order has been made; but

(ii) before the presentation of the petitionfor the winding up of the company bycourt order, such a resolution had beenpassed by the company,

the time of the passing of the resolution; and

(c) in any other case where such an order has been made,the time of the making of the order.

Foreign orders etc

Registration of external confiscation orders54 (1) On an application made by or on behalf of the governmentof a designated country, the Supreme Court may register an externalconfiscation order made there if—

(a) it is satisfied that at the time of registration the order isin force and not subject to appeal;

(b) it is satisfied, where the person affected by the order didnot appear in the proceedings, that he received notice ofthe proceedings in sufficient time to enable him todefend them; and

(c) it is of the opinion that enforcing the order in Bermudawould not be contrary to the interests of justice.

(2) In subsection (1)(a), "appeal" includes—

(a) any proceedings by way of discharging or setting aside ajudgment; and


(3) The court shall cancel the registration of an externalconfiscation order if it appears to the court that the order has beensatisfied by the recovery of all property liable to be recovered under it orby payment of the amount due under it.

Evidence of corresponding law55 (1) A document purporting to be issued by or on behalf of theGovernment of a country or territory and purporting to state the terms ofa corresponding law in force in that country or territory shall be admittedin evidence, in proceedings under this Act, on its production by the


34

prosecution without further proof, and such document shall beconclusive evidence that—

(a) it is issued by or on behalf of the Government of thatcountry or territory;

(b) the terms of such law are as stated in the document;

(c) any facts stated in the document to constitute an offenceunder such law do constitute such offence.

(2) "Corresponding law"

(a) in relation to proceedings relating to drug trafficking hasthe meaning given in section 40 of the Misuse of DrugsAct 1972; and

(b) in any other case, means a law which corresponds witha provision of Bermuda law which creates a relevantoffence.


Offences by bodies corporate56 Where a body corporate is guilty of an offence under this Act andthat offence is proved to have been committed with the consent orconnivance of any director, manager, secretary or other similar officer ofthe body corporate or any person who was purporting to act in any suchcapacity, he, as well as the body corporate, shall be guilty of that offenceand shall be liable to be proceeded against and punished accordingly.

Police powers etc57 (1) For the purposes of this Act, "police officer" includes anyofficer of the Customs Department.

(2) A police officer may arrest without warrant any personwhom he reasonably believes has committed an offence under this Act.

(3) An officer of the Customs Department may, in any caserelating to the commission of an offence under this Act, exercise all orany of the powers in relation to investigations into an offence which isarrestable without warrant conferred on a police officer by the CriminalCode Act 1907.

Police officers: duty of confidentiality58 (1) Except for the purpose of the performance of his duties or theexercise of his functions or when lawfully required to do so by any courtor under the provisions of any enactment, no police officer shall disclose


35

any information or matter which has been obtained by him in theperformance of his duties or the exercise of his functions under this Act.

(2) Any person who contravenes this section shall be guilty ofan offence and shall be liable on summary conviction to imprisonmentfor one year or a fine of $2,000 or both.

Procedure

Civil standard of proof62 Any question of fact to be decided by a court in proceedingsunder this Act, except any question of fact that is for the prosecution toprove in any proceedings for an offence under this Act, shall be decidedon the balance of probabilities.

Appeals63 Any decision of a court in proceedings under this Act, exceptproceedings in relation to any offence committed under this Act, is ajudgment of a court in a civil cause or matter within section 12(1) and (2)of the Court of Appeal Act 1964 or, as the case may be, section 2 of theCivil Appeals Act 1971.

Supplemental

Index of defined expressions64 In this Act the expressions listed below are defined by, orotherwise fall to be construed in accordance with, the provisions of thisAct listed below

charging order section 29

conclusion of proceedings in adesignated country

section 8(2)

defendant section 7


external confiscation order section 2A


"held" in relation to property section 4(2)

institution of proceedings in adesignated country

section 8(1)

"interest", in relation to property section 4(1)


36


property section 4(1)

realisable property section 4(1) and (2)


"satisfied", in relation to an externalconfiscation order

section 8(3)

"subject to appeal", in relation to anexternal confiscation order

section 8(4)

"transferred", in relation to property section 4(2)

value of gift, payment or reward section 5(2)

value of property section 5(1)

Crown application66 This Act binds the Crown, but not so as to make the Crowncapable of any criminal offence.

APPENDIX

INSTITUTION OF PROCEEDINGS

Designated country Point at which proceedings are instituted

Anguilla (a) when a summons or warrant isissued in respect of an offence;

(b) when a person is charged with anoffence after being taken intocustody without a warrant;

(c) when a bill of indictment ispreferred

Antigua & Barbuda when a person has been charged with ascheduled offence

Argentina when a judge has ordered that a personbe detained for the purpose of testifying inconnection with the commission of anoffence


37

Australia when an information or a complaint hasbeen laid before a justice of the peace or amagistrate, or a person has been chargedwith an offence, or an indictment or apresentment has been preferred

The Bahamas (a) when an information has beenlaid before a justice of the peace;

(b) when a person is charged with anoffence after having been takeninto custody without a warrant;


Bahrain when a bill of indictment is lodged incourt against any person for an offence

Barbados (a) when an information has beenlaid before a magistrate;

(b) when a person is charged with anoffence;


Bolivia when a warrant is issued by a competentjudge or an order to institute proceedings,containing the preventive annotation ofproperty liable to registration or the bankdeposit of the monies, assets and propertyof the accused

British Virgin Islands (a) when a summons or warrant isissued in respect of an offence;

(b) when a person is charged with anoffence after being taken intocustody without a warrant;

(c) when an indictment is preferred


38

The Cayman Islands (a) when a charge has been signedunder subsection (3) or (4) ofsection 13 of the CriminalProcedure Code in respect of theoffence;

(b) when a person is charged withthe offence after being arrestedwithout a warrant undersubsection (5) of that section

Chile when an application for a decision fromthe competent judicial authority is made

Columbia when a preliminary investigation or aformal process has begun and, in eithercase, a Resolution has been issued for afreezing or seizure order

Ecuador when a writ is issued by a judge initiatingcriminal proceedings

Germany when a person is notified that he isaccused of an offence and will be broughtbefore a court

Gibraltar when a person is charged with an offence,whether by the laying of an information orotherwise

Grenada (a) when an information has beenlaid before a justice of the peace;



Guernsey when a person is charged with an offence

Guyana when a charge has been laid against aperson for an offence

Hong Kong (a) when a magistrate issues awarrant or summons;


(c) when an indictment is preferred


39

India (a) when information relating tocommission of any crime isreceived by any law enforcementagency empowered to investigatesuch crime under the law for thetime being in force and laid beforea court of law;

(b) when any allegation is madeorally or in writing to a court oflaw that a person has committedan offence;

(c) when a person is charged with anoffence;

(d) when any investigation or inquiryinto the commission of anyoffence is directed by a court oflaw

Isle of Man (a) where a justice of the peaceissues a summons under section4 of the Summary Jurisdiction

Act 1989, when the complaint inrelation to the offence is made tohim;

(b) where a justice of the peaceissues a warrant for the arrest ofany person under that section,when the complaint in relation tothe offence is made to him;

(c) where a person is charged withthe offence after being taken intocustody without a warrant, whenhe is taken into custody;

(d) where an information is preferredby the Attorney General in a casewhere there have been nocommittal proceedings, when theinformation is lodged in theGeneral Registry in accordancewith section 4(1) of the CriminalCode Amendment Act 1917


40

Italy (a) when a person is notified, inaccordance with article 369 of theItalian Code of CriminalProcedure, that a prosecutionagainst him is in progress;

(b) when a proposal for theapplication of a preventativemeasure (“misura di prevenzione”)is laid before a court

Jersey (a) when the Bailiff issues a warrantin respect of an offence for thearrest of a person who is out ofthe Island;

(b) when a person is arrested andcharged with an offence;

(c) when a summons in respect of anoffence is served on a person at

the instance of the AttorneyGeneral;

(d) when a summons in respect ofthe offence is served on a personin accordance with the provisionsof Article 8 of the Police Court(Miscellaneous Provisions)(Jersey) Law, 1949

Malaysia when a person is charged with an offence

Montserrat (a) when a judge issues a summonsor warrant in respect of anoffence;

(b) when a person is charged with anoffence after being taken intocustody without a warrant


41

Netherlands (a) when a pre-trial financialinvestigation has been initiated;

(b) when the provisional measurehas been ordered by aninvestigating magistrate;

(c) when a police prosecutor hasrequested a pre-trial criminalinvestigation by an investigatingmagistrate to be instituted;

(d) when a public prosecutor has laidan indictment

Panama when a person has been charged with anoffence

Paraguay when a judge has ordered the restraint ofproperty and a preventative detentionorder has been made

Romania (a) when the start of a penal pursuitis ordered;

(b) when penal proceedings start inrespect of an offender

Saudi Arabia when an information has been laid beforea judicial authority

South Africa (a) when a summons is issued inrespect of an offence;



Spain when by virtue of a judicial resolution it isdecided to proceed against a person for anoffence

Sweden when a public prosecutor has establishedthat there are reasonable grounds tosuspect that a person has committed anoffence and accordingly is obliged underthe Code of Judicial Procedure to notifythe person of the suspicion


42

Switzerland when proceedings for an offence arebrought before an examining magistrate

Thailand when a court or the Asset ExaminationCommittee issues a restraint order

Ukraine when a criminal case is brought

United Kingdom when a summons or warrant is issued inrespect of an offence, or a person ischarged after being taken into custodywithout a warrant, or a bill of indictmentis preferred

United Mexican States when criminal proceedings are institutedby a judicial authority

United States of America when an indictment, information orcomplaint has been filed against a personin respect of an offence

Uruguay when criminal proceedings are institutedby a judicial authority

U.S.A. – BERMUDA TAX CONVENTION ACT 1986 (Consolidated by Appleby as at 4 March 2003)

BERMUDA 1986 : 39

U.S.A. - BERMUDA TAX CONVENTION ACT 1986


1 Short title

2 Interpretation

3 Legal effect of this Act

4 Procedure in respect of a request

5 Power to require production of information

6 Power to enter premises to obtain information

7 Provision supplementary to ss.5 and 6

8 Service of documents

9 Offences

10 Depositions, etc.

11 Advisory Committee

12 Judicial review

13 Regulations

14 Crown bound


FIRST SCHEDULE THE CONVENTION

SECOND SCHEDULE THE TEXT OF THE NOTES

THIRD SCHEDULE THE PROTOCOL OF EXCHANGE OF INSTRUMENTS RATIFICATION

[29 August 1986]

WHEREAS it is expedient to make provision authorizing the enforcement of certain obligations of Bermuda under the Convention on taxation matters signed on 11th July, 1986 at Washington D.C. in the United States of America between the Government of the United Kingdom (on behalf of the Government of Bermuda) and the Government of the United States of America, and to make other connected or incidental provision:

words of enactment omitted

§1 Short title 1 This Act may be cited as the U.S.A. - Bermuda Tax Convention Act 1986.

§2 Interpretation 2 (1) In this Act, unless the context otherwise requires-

"the Agreement" means the arrangements between Bermuda and the United States established by the Convention and the Notes;

"Article" means Article of the Convention;

"business" includes profession or trade;

applebyglobal.com

APPLEBY


APPLEBY

"the Convention" means the Convention entered into on 11th July, 1986 at Washington D.C. in the United States of America by the U.K. Government (on behalf of the Government of Bermuda) and the U.S. Government relating to the taxation of insurance enterprises and mutual assistance in tax matters, the text of which Convention is set forth in the First Schedule and in relation to which the Protocol of 1988 sets forth certain reservations of the United States;


"document" includes any book, paper, statement, account, writing or record, and any device by means of which material is recorded or stored;

"information" includes documents;

"judge" means judge of the Supreme Court;

"the Minister" has the meaning given by subsection (2);

"the Notes" means the notes exchanged on 11th July, 1986 between the U.K. Government and the U.S. Government concerning the Convention, the text of which notes, apart from formal matters, is set forth in the Second Schedule;

"premises" includes any place whatsoever and any means of transport;

"the Protocol of 1988" means the Protocol of Exchange of Instruments of Ratification executed at Washington aforesaid on 2nd December 1988 and set forth in the Third Schedule;


"regulation" means regulation made under section 13;

"request" means an application made, pursuant to Article 5 and the Notes, for assistance;

"the U.K. Government" means the Government of the United Kingdom;

"the United States" has the meaning assigned by Article 1;

"the U.S. Government" means the Government of the United States.

(2) In this Act, a reference to the Minister, in relation to any function to be performed by the Minister under this Act, is a reference to the Minister of Finance or such person, being an officer or servant, or an agency, of the Government of Bermuda, as the Minister of Finance may designate to perform the function (with or without a duty to refer back to the Minister of Finance) in his stead as his delegate.

(3) A reference in this Act to the performance of a function includes reference to the performance of a duty or the exercise of a power or right.

§3 Legal effect of this Act

3 (1) This Act has effect for the purpose of enforcing the giving of assistance by persons in Bermuda in connection with the performance of the obligations assumed by Bermuda under the Agreement.

(2) The Minister, in performing his functions under this Act, is not restricted by any law or any rule of law relating to confidentiality except as expressly provided in the Agreement.

§4 Procedure in respect of a request

4 (1) A request must be in writing.

(2) A request must be signed by a senior official designated by the U.S. Government.

(3) A request shall contain particulars indicating-


APPLEBY

(a) that by the request the U.S. Government seeks information identified in the request; and

(b) that the information is in Bermuda and that a person in Bermuda has or may have the information in his possession, custody or control; and

(c) that the information relates to the carrying out of the laws of the United States mentioned in Article 5; and

(d) that the information relates to the affairs of a person in respect of whom the request has been made under the Agreement ("the taxpayer"); and

(e) where the request has been made pursuant to the first sentence of Article 5, that the information sought by the U.S. Government is relevant to the determination of the liability of the taxpayer; and


(f) whether or not the taxpayer is a resident of Bermuda or of the United States; and

(g) that the request relates to an examination of the taxpayer in relation to a taxable period of the taxpayer, being a period specified in the request, but so that, where a request, in seeking information relating to a taxable period so specified, also seeks information relating to a time outside that period. the request must establish the connection between that period and that time.

(4) Subject to subsections (1), (2) and (3), a request shall be in such form as regulations may prescribe.

§5 Power to require production of information

5 (1) Subject to this section, where the Minister has received a request in respect of which the requirements of section 4 are fulfilled, he shall by notice in writing under this section served upon the person referred to in paragraph (b) of subsection (3) of that section direct him to deliver to the Minister the information referred to in that paragraph.

(2) For the purposes of subsections (3) and (4) of this section, a subsection (2) matter is a matter —

(a) with respect to which information is sought in a request; and

(b) which relates to a person who is not a resident either of Bermuda or of the United States, whether or not the requirements of section 4 are fulfilled in relation to the request.

(3) Where the Minister receives a request which seeks information with respect to a subsection (2) matter, he shall not issue a notice under this section to any person unless the Minister is satisfied that the information is necessary for the proper administration and enforcement of the fiscal laws of the united States.

(4) Where the Minister receives a request which seeks information with respect to a matter which either —

(a) is a subsection (2) matter; or

(b) does not constitute a United States criminal or tax fraud investigation,

he shall not issue a notice under this section to any person unless the Minister receives certification from a senior official designated by the Secretary of the Treasury of the United States that the information sought by the request is relevant to and necessary for


APPLEBY

the determination of the tax liability of a United States taxpayer, or the criminal tax liability of a person under the laws of the United States.

(5) A notice under this section must —

(a) contain the pertinent details of the request to which the notice relates; and

(b) specify the time within which the information sought by the request is to be delivered to the Minister.

(6) The time to be specified in such a notice is 28 days commencing on the day on which the notice was served, or such greater or lesser number of days as the Minister may in any particular case think fit.

(7) Subject to subsections (8) and (9), a person who is directed by such a notice to deliver information to the Minister shall deliver it to the Minister in accordance with the notice if the information is in Bermuda and that person has it in his possession, custody or control.

(8) A person complies with a duty under this section to deliver information to the Minister if he makes the information available to him.

(9) After a notice has been served, the Minister may in any case enlarge the time specified in the notice, either before or after that time has expired, if in his opinion the circumstances warrant.

(10) A direction given in a notice under this section to a person is an absolute defence to any claim brought against him in respect of any act of his that was done, or any omission of his that was made, in good faith in obedience to the direction.

§6 Power to enter premises to obtain information

6 (1) An officer of the Ministry of Finance may make an application to a judge under and in accordance with the provisions of this section for the issue of a warrant authorizing entry upon premises.

(2) An officer of that Ministry who makes such an application must produce a minute signed by the Minister of Finance himself authorizing the officer to make the application in that particular case.

(3) If on information given on oath by such an officer a judge is satisfied that there is reasonable ground for suspecting that an offence against this Act has been, or is being, or is about to be, committed on any premises, being an offence by reason of which the delivery to the Minister of information sought by a request is endangered, then the judge may issue a warrant in writing authorizing an officer of the Ministry to enter the premises, if necessary by force, at any time within 14 days commencing on the day of the issue of the warrant, and search them.

(4) In issuing a warrant under this section, the judge may impose such restrictions upon the execution of the warrant as he may deem proper in the circumstances.

(5) An officer entering premises by virtue of a warrant under this section may take such other persons and equipment with him as he thinks necessary; and, on leaving premises entered by virtue of a warrant under this section, shall, if they are unoccupied or the occupier is temporarily absent, leave them as effectively secured against trespassers as he found them.

(6) On entering premises by virtue of a warrant under this section, the officer may seize and remove any things whatsoever found there which he has reasonable cause to believe may contain information relevant to a request, and shall deliver any things so seized and removed to the Minister.


APPLEBY

(7) Where entry to premises has been made by virtue of a warrant under this section and the officer making the entry has seized any things under the authority of the warrant, he shall prepare a list of them and, if so requested by a person showing himself either —

(a) to be the occupier of the premises; or

(b) to have had possession or custody of those things immediately before the seizure,

provide that person with a copy of that list.

(8) Where things are seized under the authority of a warrant and it is shown that access to those things is required for the continued conduct of the business or affairs of any person, the Minister shall afford to that person reasonable access to those things.

§7 Provision supplementary to ss.5 and 6

7 Where the Minister obtains material by virtue of section 5 or 6, he shall —

(a) in any event, for 20 days commencing on the day on which he obtained the material, unless he returns it pursuant to paragraph (c), not disclose or reveal to any person the contents or import of the material, and, in particular, if the material in his opinion contains information sought by a request, not, as respects that material, comply with the request;

(b) after the expiry of those 20 days, if the material in his opinion contains information sought by a request, be entitled to make copies of it and keep them and also make them available to others in furtherance of the request;

(c) whether or not the material contains information sought by a request, return the material as soon as practicable to the person from whom he obtained it.

§8 Service of documents 8 (1) A document to be served under this Act by one person ("the server") on another person ("the subject") is to be treated as properly served on the subject if dealt with as provided for in this section.

(2) The document may be delivered or sent by post to the subject, or addressed to him by name and left at his proper address.

(3) For the purposes of subsection (2), a document sent by post to, or left at, the address last known to the server as a person's address shall be treated as sent by post to, or left at, his proper address.

(4) References in this section to the serving of a document on a person include the giving of the document to him.

§9 Offences 9 (1) A person who —

(a) contravenes subsection (7) of section 5; or

(b) wilfully obstructs an officer executing a warrant under section 6 or a person lawfully accompanying him pursuant to subsection (5) of that section, is guilty of an offence.

(2) If any person, in or in connection with delivering information pursuant to subsection (7) of section 5, wilfully tampers with it or alters it so that the information is false when received by the Minister, he is guilty of an offence.


APPLEBY

(3) If any person without a reasonable excuse destroys or damages any information which he knows that the Minister by a notice under section 5 has directed should be delivered to the Minister, he is guilty of an offence.

(4) A person guilty of an offence may be proceeded against summarily, and is liable on conviction to imprisonment for a term not exceeding six months or to a fine not exceeding $5,000, or to both such imprisonment and such a fine.

§10 Depositions, etc. 10 (1) Where a request so stipulates, the Minister shall obtain the information sought by the request in the form of —

(a) depositions of witnesses; or

(b) original documents or copies of original documents,

being depositions so made, and documents or copies so certified or authenticated, as the laws and administrative practices of Bermuda permit.

(2) Regulations shall be made, conferring such functions on such persons as the regulations may specify, so that full effect can be given to subsection (1).

§11 Advisory Committee 11 (1) The Minister of Finance shall establish and maintain a committee, to be known as "the Tax Convention Advisory Committee", for the purpose of advising him on matters of policy connected with the performance of his functions under this Act.

(2) The Tax Convention Advisory Committee ("the Committee") shall consist of such persons (not fewer than five in number), to be appointed by the Minister of Finance, as he thinks fit, but so that not fewer than three of the Committee's members shall be persons appearing to him to be knowledgeable about the matters dealt with in the Convention.

(3) The Minister of Finance shall appoint a person to be the Committee's chairman.

(4) Subject to Article 6 dealing with confidentiality, the Minister of Finance may refer to the Committee any matter mentioned in subsection (1), and shall take into account any advice that the Committee may tender on that matter.

§12 Judicial review 12 For the avoidance of doubt, it is hereby declared that nothing in this Act excludes or restricts the right of any person aggrieved by the performance by the Minister of Finance or any other person of any function under this Act to challenge the performance of that function, in so far as it affects him, either by seeking review of it by the Supreme Court and the grant, if thought fit by that Court, of an order under section 10 of the Administration of Justice (Prerogative writs) Act 1978 [title 8 item 12] or by taking any other action which is lawfully available.

§13 Regulations 13 (1) The Minister of Finance may make regulations—

(a) prescribing anything that is required or permitted by this Act to be prescribed by regulation, or that is in the opinion of the Minister necessary or convenient to be prescribed for carrying out this Act or giving effect to it; and

(b) creating offences and prescribing penalties (including, if thought fit, imprisonment) for such offences but not exceeding the penalties fixed by section 9.

(2) Regulations are subject to the affirmative resolution procedure.

§14 Crown bound 14 This Act binds the Crown.



APPLEBY

FIRST SCHEDULE (Section 2)

THE CONVENTION

CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND (ON BEHALF OF THE GOVERNMENT OF BERMUDA) AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA RELATING TO THE TAXATION OF INSURANCE ENTERPRISES AND MUTUAL ASSISTANCE IN TAX MATTERS

The Government of the United Kingdom of Great Britain and Northern Ireland (on behalf of the Government of Bermuda) and the Government of the United States of America, desiring to conclude a convention with respect to the taxation of insurance enterprises and mutual assistance in tax matters, have agreed as follows:

Article 1

General Definitions

1 In this Convention, unless the context otherwise requires:

(a) (i) the term "United States" means the United States of America, but does not include Puerto Rico, the Virgin Islands, Guam, or any other United States possession or territory; and

(ii) the term "Bermuda" means the islands in the Atlantic Ocean known as Bermuda;

(b) the term "person" includes an individual, an estate, a trust, a company, a partnership, and any other body of persons;

(c) the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes;

(d) the term "enterprise of insurance" means an enterprise of which the predominant business activity during, the taxable year is the issuing of insurance or annuity contracts or acting as the reinsurer of risks underwritten by insurance companies, together with the investing or reinvesting of assets held in respect of insurance re-serves, capital, and surplus incident to the carrying on of the insurance business;

(e) the terms "enterprise of a Covered Jurisdiction" and "enterprise of the other Covered Jurisdiction" mean respectively an enterprise carried on by a resident of a Covered Jurisdiction and an enterprise carried on by a resident of the other Covered Jurisdiction;

(f) the term "competent authority" means:

(i) in the case of the United States, the Secretary of the Treasury or his delegate; and

(ii) in the case of Bermuda, the Minister of Finance or his delegate;

(g) the "insurance obligation" means any obligation which, in accordance with normal industry practice, an insurer undertakes under the terms of a contract of insurance, to make payments or incur expenses in connection with the insurance protection offered under the contract,


APPLEBY

including any such obligation to pay claims to or for the benefit of the insured resulting from damages connected with the covered risk, to pay interest on such claims, and to pay the costs of defending an insured against such damages, but in no event including any obligation to pay premiums or other costs of reinsuring the covered risk; and

(h) the term "Covered Jurisdiction" means the United States or Bermuda, as the context requires.

2 As regards the application of the Convention by a Covered Jurisdiction, any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a common meaning, have the meaning which it has under the laws of that Jurisdiction. For purposes of the United States, the preceding sentence shall refer to laws concerning taxes. The competent authorities may agree to a common meaning of a term for purposes of this Convention.

Article 2

Residence

For purposes of this Convention, the term "resident" of a Covered Jurisdiction means:

(a) in the case of the United States:

(i) any person, other than a company, resident in the United States for the purpose of United States tax; but in the case of a partnership, estate or trust, only to the extent that the income derived by such partnership, estate or trust is subject to United States tax as the income of a resident, either in its hands or in the hands of its partners or beneficiaries; and

(ii) a company created under the laws of the United States or a political subdivision thereof; and

(b) in the case of Bermuda:

(i) an individual who has the status of a legal resident of Bermuda; and

(ii) a company, partnership, trust, or association created under the laws of Bermuda.

Article 3

Permanent Establishment

1 For the purposes of Article 4, except as otherwise specified in this Article, the term "permanent establishment" means a regular place of business through which the business of an enterprise of insurance is wholly or partly carried on.

2 The term "Permanent establishment" shall include especially a place of management, a branch, an office and premises used a sales outlet.

3 The term "permanent establishment" shall also include the furnishing of services, including consultancy, management, technical and supervisory services, within a Covered Jurisdiction by an enterprise of insurance through employees or other persons but only if:

(a) activities of that nature continue within the Jurisdiction for a period or periods aggregating more than 90 days in a twelve-month period, provided that a permanent establishment shall not exist in any taxable year in which such services are rendered in that Jurisdiction for a


APPLEBY

period or periods aggregating less than 30 days in the taxable year; or

(b) the services are performed within the Jurisdiction for an associated enterprise.

For purposes of this paragraph, two enterprises shall be "associated" if either participates directly or indirectly in the management, control, or capital of the other, or if the same persons participate directly or indirectly in the management, control, or capital of both.

4 Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include any one or more of the following:

(a) the maintenance of a regular place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise of insurance; or

(b) the maintenance of a regular place of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.

5 Notwithstanding the provisions of paragraphs 1, 2, and 3, a person (other than an agent of independent status to whom paragraph 6 applies) acting in a Covered Jurisdiction on behalf of an enterprise of insurance of the other Covered Jurisdiction shall be deemed to be a permanent establishment of that enterprise in the first-mentioned Jurisdiction if he has and habitually exercises in the first-mentioned Jurisdiction an authority to include contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 4 which, if exercised through a regular place of business, would not make that regular place of business a permanent establishment under the provisions of that paragraph.

6 An enterprise of insurance shall not be deemed to have a permanent establishment in a Covered Jurisdiction merely because it carries on business in that Jurisdiction through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such person are devoted substantially on behalf of that enterprise, he shall not be considered an agent of independent status within the meaning of this paragraph if the transactions between the agent and the enterprise were not made under arm's length conditions.

7 The fact that a company which is a resident of a Covered Jurisdiction controls or is controlled by a company which is a resident of the other Covered Jurisdiction, or which carries on business in that other Jurisdiction (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

Article 4

Taxation of Insurance Enterprises

1 The business profits of an enterprise of insurance of a Covered Jurisdiction derived from carrying on the business of insurance (including insubstantial amounts of income incidental to such business) shall not be taxable in the other Covered Jurisdiction unless the enterprise carries on or has carried on business in the other Jurisdiction through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the business profits of the enterprise may be taxed in the other Jurisdiction but only so much of them as is attributable to that permanent establishment. Nothing in this Convention shall prevent the United States from taxing its residents (as determined under Article 2(a) ) and its citizens as if this Convention had not entered into force.


APPLEBY

2 Where an enterprise of insurance of one of the Covered Jurisdictions carries on or has carried on business through a permanent establishment in the other Jurisdiction, there shall in each Covered Jurisdiction be attributed to the permanent establishment business profits which would reasonably be expected to have been derived by it, if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions. In determining the business profits of a permanent establishment in a Covered Jurisdiction through which an enterprise of insurance of the other Jurisdiction carries on or has carried on business, there shall be allowed as deductions, for purpose of tax imposed by the first-mentioned Jurisdiction other than excise taxes on premiums paid to foreign insurers, expenses which are incurred for the purposes of the permanent establishment, including a reasonable allocation of executive and general administrative expenses, research and development expense, interest, and other expenses incurred for the enterprise of insurance as a whole (or the part thereof which includes the permanent establishment), whether incurred in the Jurisdiction in which the permanent establishment is situated or elsewhere. For the purposes of this paragraph, the business profits to be attributed to a permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. Nothing in this Article shall affect taxation by a Covered Jurisdiction of dividends, interest, royalties, gains or compensation for services beneficially owned by a resident of the other Covered Jurisdiction if such items of income are not attributable to a permanent establishment of the beneficial owner of such income in the first-mentioned Jurisdiction.

3 A person which is a resident of a Covered Jurisdiction and which derives income from sources within the other Covered Jurisdiction shall not be entitled, in the other Covered Jurisdiction, to relief from taxation under this Article if:

(a) 50 percent or less of the beneficial ownership of such person is owned, directly or indirectly, by any combination of one or more individual residents of a Covered Jurisdiction or citizens of the United States: or

(b) the income of such person is used in substantial part, directly or indirectly, to make distributions (where such distributions are made with respect to beneficial ownership interests and are substantially disproportionate to such interests) to, or to meet liabilities (including liabilities for interest, royalties, or other expenses, but not including liabilities, whether or not for interest or other expenses, which constitute insurance obligations) to, persons who are neither residents of either of the Covered Jurisdictions nor citizens of the United States.

If one of the Covered Jurisdictions proposes to deny benefits to a resident of the other Covered Jurisdiction by reason of this paragraph, the competent authorities of the Covered Jurisdictions shall, upon request of the competent authority of the other Covered Jurisdiction, consult each other.

4 The provisions of paragraph 3 shall not apply if the person deriving the income is a company which is a resident of a Covered Jurisdiction in whose principal class of shares there is substantial and regular trading on a recognized stock exchange. For purposes of the preceding sentence, the term "recognized stock exchange" means:

(a) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any other stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934; and

(b) any other stock exchange agreed upon by the competent authorities


APPLEBY

of the Covered Jurisdictions.

5 Nothing in this Convention shall limit any provisions of the law of either Covered Jurisdiction which permit the distribution, apportionment, or allocation of income, deductions, credits, or allowances between persons, whether or not residents of a Covered Jurisdiction, owned or controlled directly or indirectly by the same interests when necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such persons.

6 The existing taxes to which this Article shall apply in the United States are the Federal income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax and the personal holding company tax), and the excise taxes imposed on insurance premiums paid to foreign insurers. This Article shall, however, apply to the excise taxes imposed on insurance premiums paid to foreign insurers only to the extent that the risks covered by such premiums are not reinsured with a person not entitled to the benefits of this or any other convention which applies to these taxes. This Article shall also apply to any identical or substantially similar taxes which are imposed by the United States after the date of signature of the Convention in addition to, or in place of, the existing taxes, and shall also apply to any tax imposed by Bermuda after the date of signature of the Convention which is identical or substantially similar to the existing United States taxes to which this Article applies, to the same extent as it applies to those existing taxes. The competent authorities of the Covered Jurisdictions shall notify each other of any significant changes which have been made in their respective taxation laws and of any official published material concerning the application of the Convention, including explanations, regulations, rulings, or judicial decisions.

7 The taxation on a permanent establishment which an enterprise of insurance of a Covered Jurisdiction has in the other Covered Jurisdiction shall not be less favorably levied in that other Jurisdiction than the taxation levied on enterprises of insurance of that other Jurisdiction carrying on the same activities. This provision shall not be construed as obliging a Covered Jurisdiction to grant to residents of the other Covered Jurisdiction any personal allowances, reliefs, and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents. The provisions of this paragraph shall not be construed to prevent the United States from imposing an additional tax on the income of a permanent establishment maintained by a resident of Bermuda in the United States. Except where the provisions of paragraph 5 apply, interest, royalties. and other disbursements paid by a resident of a Covered Jurisdiction to an enterprise of insurance of the other Covered Jurisdiction shall, for purposes of determining the taxable profit of such resident, be deductible under the same conditions as if they had been paid to an enterprise of insurance of the first-mentioned Jurisdiction. For purposes of this paragraph, the term "taxation" means taxes which are the subject of this Convention.

Article 5

Mutual Assistance in Tax Matters

The competent authorities of the Covered Jurisdictions shall provide assistance as appropriate in carrying out the laws of the respective Covered Jurisdictions relating to the prevention of tax fraud and the evasion of taxes. In addition, the competent authorities shall, through consultations, develop appropriate conditions, methods, and techniques for providing, and shall thereafter provide, assistance as appropriate in carrying out the fiscal laws of the respective Covered Jurisdictions other than those relating to tax fraud and the evasion of taxes.

Article 6

Confidentiality


APPLEBY

Any matters subject to assistance under Article 5 shall be treated as confidential in the same manner as such matters or items would be under the domestic laws of the Covered Jurisdiction requesting the assistance and, in any event, shall be disclosed only:

(a) in the case of the United States, to persons or authorities (including courts and administrative bodies) involved in the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, taxes, and

(b) in the case of Bermuda, to the competent authority of Bermuda.

Such persons or authorities shall use such matters or items only for purposes of the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, taxes. Such matters or items may be disclosed in public court proceedings or public decisions, but shall not be disclosed to any country other than one of the Covered Jurisdictions for any purpose.

Article 7

Entry into Force and Termination

1 This Convention shall be subject to ratification in accordance with the applicable procedures of each party and instruments of ratification shall be exchanged as soon as possible.

2 The Convention shall enter into force upon the exchange of instruments of ratification and its provisions shall have effect:

(a) in respect of excise taxes on insurance premiums paid to foreign insurers, for premiums paid or credited on or after January 1, 1986;

(b) in respect of income taxes imposed on the business profits derived by an enterprise of insurance, for such profits derived in taxable years beginning on or after the first day of the calendar year in which this Convention enters into force;

(c) in respect of mutual assistance covered by the first sentence of Article 5, for taxable years not barred by the statute of limitations of the Covered Jurisdiction requesting such assistance; provided, however, that neither Covered Jurisdiction shall be required by Article 5 to provide such assistance with respect to taxable years beginning prior to January 1, 1977; and

(d) in respect of mutual assistance covered by the second sentence (and not also described in the first sentence) of Article 5, for taxable years not barred by the statute of limitations of the Covered Jurisdiction requesting such assistance; provided, however, that neither Covered Jurisdiction shall be required by Article 5 to provide such assistance with respect to:

(i) taxable years beginning prior to January 1, 1977; or

(ii) taxable years beginning prior to the entry into force of the Convention if the provisions of such assistance would cause or result in the breach of an obligation to maintain confidentiality of information under the laws of such Jurisdiction in effect on the date of signature of the Convention.

2 The Convention shall continue in force indefinitely, but either party may give notice of termination to the other party on or after June 30 of the year following the


APPLEBY

calendar year in which this Convention enters into force and in such event the Convention shall terminate on the first day of the seventh full calendar month following that in which the notice is given.

Done at Washington, in duplicate, this Eleventh day of July, 1986.

FOR THE GOVERNMENT FOR THE GOVERNMENT OF THE UNITED KINGDOM OF THE UNITED STATES OF BRITAIN AND OF AMERICA: NORTHERN IRELAND (ON BEHALF OF THE GOVERNMENT OF BERMUDA): JOHN SWAN JOHN C. WHITEHEAD

SECOND SCHEDULE (Section 2)

THE TEXT OF THE NOTES

(1) The United States Government noted that in order to implement the relief from excise taxes pursuant to paragraph 1 of Article 4 of the Convention it would be necessary to establish procedures which would, inter alia, ensure that companies claiming the benefits of that paragraph are entitled to such benefits and, in the case of refunds, that the amount and recipient of such refunds are properly determined. Representatives of Bermuda assured the representatives of the United States Government of Bermuda's willingness to establish such procedures as may be mutually agreed to ensure that relief from the excise tax is obtained by appropriate persons.

(2) The United States Government noted that paragraph 3 of Article 4 of the Convention limits the availability of the exemption granted to insurance enterprises by either Covered Jurisdiction under the Convention to persons resident in the other Covered Jurisdiction which (i) are more than 50 percent owned, directly or indirectly, by individual residents of the Covered Jurisdiction or U.S. citizens; and (ii) do not use their income in substantial part, directly or indirectly, to make certain payments to persons who are neither residents of a Covered Jurisdiction nor U.S. citizens. The United States Government indicated that, for purposes of the ownership test in that provision, it would not treat any individual as owning "indirectly" through an intermediary entity any beneficial interest in an entity resident in one of the Covered Jurisdictions if the evidence of and rights to the ownership of any interest in such intermediary entity are in bearer form. For purposes of the second test, the term "Liabilities" refers to payments which reduce gross premiums or are deductible against gross income, and includes interest, royalties, and premiums paid in connection with reinsuring risks. Also, if the sum of (i) the ratio which reinsurance premium payments bears to gross premiums less return premiums and (ii) the ratio which payments of other liabilities bears to (a) gross premiums less return premiums and less reinsurance premium payments plus (b) gross income from all other activities, is no more than 50 percent, such payments will not generally be considered "substantial," provided that in appropriate circumstances a lower aggregate percentage will be considered "substantial".

(3) The United States Government expressed its concern that the obligations of a Covered Jurisdiction not be construed to establish an obligation to provide assistance with respect to matters other than those relating to the domestic laws of a Covered Jurisdiction respecting taxes. The representatives of the United States and Bermuda agreed that the intended scope of Article 5 of the Convention is limited to assistance relating to the domestic laws of the Covered Jurisdictions concerning taxes.

(4) Representatives of Bermuda expressed concerns as to the policies of the United States Government regarding assistance that might relate to persons not resident


APPLEBY

in one of the two Covered Jurisdictions and matters that do not constitute a criminal investigation. The representatives of the United States Government discussed with the representatives of Bermuda the United States' policies relating to information exchange. The representatives of the United States and Bermuda agreed that, where the United States requests assistance with respect to a matter which (i) relates to a person not resident in one of the two Covered Jurisdictions or (ii) does not constitute a United States criminal or tax fraud investigation, a senior official designated by the Secretary of the Treasury shall certify such request as being relevant to and necessary for the determination of the tax liability of a United States taxpayer, or the criminal tax liability of a person under the laws of the United States. The representatives of the United States and Bermuda further agreed that, in connection with any assistance relating to persons not resident in one of the two Covered Jurisdictions, it shall be established to the satisfaction of the competent authority of the requested Jurisdiction that such assistance is necessary for the proper administration and enforcement of the fiscal laws of the requesting Jurisdiction. Where such necessity has been duly established, the competent authorities shall consult as to the appropriate form of such assistance.

(5) The representatives of the United States and Bermuda agreed that, subject to the limitations described in and agreement to procedures referred to in paragraph (4) above, it is intended that the mutual assistance to be provided under Article 5 of the Convention come into effect under the limitations of Article 7 as follows:

(i) Subject to paragraph (iv), Bermuda's obligation under the Convention to provide assistance with respect to civil and criminal tax matters relating to taxable years of a taxpayer beginning after the entry into force of the Convention will not be limited by any confidentiality restrictions of Bermudian law, other than those relating to solicitor-client privilege.

(ii) With respect to matters relating to taxable years of a taxpayer beginning before the entry into force of the Convention (but beginning on or after January 1, 1977 and not barred by the statute of limitations), paragraph 2(d)(ii) of Article 7 limits Bermuda's obligation to provide assistance with respect to civil tax matters (other than civil fraud) if the provision of such assistance would entail breach of an obligation to maintain confidentiality of information under the laws of Bermuda in effect on the date of signature of the Convention. Under this standard, confidential information would only include information protected by Bermudian statutory and common law. It is understood that under Bermudian common law confidential information would include information protected by the common law solicitor-client privilege and banker-client privilege, It was agreed that if a taxpayer claims that other categories of information are protected under Bermudian common law, and if the United States so requests, the Government of Bermuda will have such a claim determined in the courts of Bermuda.

(iii) Bermuda's obligation under subparagraph 2(c) of Article 7 to provide assistance with respect to criminal tax matters (and tax matters involving civil fraud) relating to taxable years of a taxpayer beginning before the entry into force of the Convention (but on or after January 1, 1977 and not barred by the statute of limitations) would only be limited by the confidentiality obligations of the solicitor-client privilege.


APPLEBY

(iv) Bermuda's obligation under the Convention to provide assistance with respect to civil tax matters (other than civil fraud) relating to a taxpayer's taxable years beginning after the entry into force of the Convention will not require it to cause any person to breach a legal obligation to maintain confidentiality of documents or information, properly asserted by such person under the laws of Bermuda as in effect on the date of signature of the Convention, where such documents or information were created in or derived from periods prior to the date of entry into force of the Convention. However, the limitation on Bermuda's obligation described in the preceding sentence will not apply to documents or information created in or derived from a date preceding the entry into force of the Convention that are relevant to a request relating to taxable years after the entry into force of the Convention and are of a kind that have a continuing operational effect. For example, if assistance is requested with respect to a taxpayer's bank trans-actions occurring after the entry into force of the Convention and the signature card for the account in question was executed prior to the entry into force of the Convention, Bermuda's obligation to provide assistance with respect to such a signature card would not be affected by confidentiality restrictions. Similarly, if a taxpayer's depreciation deduction for a year after entry into force of the Convention is under examination, Bermuda's obligation to provide assistance with respect to information about the purchase price of the property in question, if such property was acquired before the entry into force of the Convention, would not be affected by any confidentiality restrictions of Bermudian law.

(6) The representatives of the United States Government expressed concerns regarding whether assistance would be provided in a form which would permit its use in judicial or administrative proceedings. The representatives of the United States and Bermuda agreed that under Article 5 of the Convention, it was intended that, if specifically requested by a competent authority of a Covered Jurisdiction, the competent authority of the other Covered Jurisdiction shall provide information in the form of depositions of witnesses and authenticated copies of original documents (including books, papers, statements, records, accounts and writings) to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other Jurisdiction.

(7) Representatives of Bermuda also expressed concerns as to the scope for use of unilateral compulsory measures by one Covered Jurisdiction to obtain documents, records, or other materials located in the territory of the other Covered Jurisdiction, and within the scope of assistance under the Convention after entry into force of the Convention. In this context the representatives of the United States Government confirmed that, with respect to documents, records, or other materials in the custody of a resident of a Covered Jurisdiction and located in the territory of that Jurisdiction, it shall be the policy of the United States, where practicable, to request assistance pursuant to the provisions of the Convention before using unilateral measures.

(8) The representatives of the United States Government inquired whether shares of a company organized under the laws of Bermuda could be issued in bearer form. The representatives of Bermuda informed the United States representatives that the laws of Bermuda did not permit the issuance of company shares to an unnamed person.


APPLEBY

(9) The United States representatives sought clarification that matters that were the subject of assistance under the Convention but that are made public in accordance with Article 6 of the Convention would not be further subject to Article 6. The representatives of the United States and Bermuda agreed that matters that are the subject of assistance under the Convention but that are made public in accordance with the Convention would not be further subject to Article 6.

(10) The representatives of the Government of the United States observed that, under the legal system applicable in Bermuda, the Convention is not self-executing and that legislation would be required in order to implement the provisions of the Convention. The representatives of Bermuda understood that instruments of ratification would not be exchanged until such legislation as may be required to implement the provisions of the Convention has been enacted. It was further understood that the Convention would be ratified and other necessary steps, such as the adoption of implementing legislation necessary to meet the obligations of the Convention, would be taken so as to permit the exchange of instruments of ratification at the earliest possible date.

(11) The representatives of Bermuda inquired whether, following the entry into force of the Convention, the Secretary of the Treasury of the United States would be prepared to certify that assistance under the Convention, and subject to the understandings of this Note, would be satisfactory for purposes of section 927(e)(3) of the Internal Revenue Code of 1954, as amended (the "Code"), relating to countries qualifying as a Jurisdiction in which a Foreign Sales Corporation (FSC) may be organized. The representatives of Bermuda also inquired whether the assistance provided for in the Convention, subject to the understandings of this Note, would be satisfactory for purposes of eligibility for convention tax benefits under section 274(h)(6) of the Code.

The representatives of the United States stated that upon entry into force of the Convention, and subject to the understandings contained in this Note, the Secretary of the Treasury, or his delegate, will be prepared to certify Bermuda for purposes of section 927(e)(3) of the Code such that a company organized under the laws of Bermuda may qualify as a FSC. Such certification would be published in the Federal Register and may be terminated effective six months after the date of publication of a notice of termination in the Federal Register. The United States Government also stated that, upon entry into force of the Convention, the Secretary of the Treasury, or his delegate, will be prepared to execute on behalf of the United States Government an executive agreement satisfying the requirements of section 274(h)(6) of the Code, which would incorporate by cross-reference the provisions of Articles 5 and 6 of the Convention and this Note, and would allow persons incurring expenses for attending business conventions in Bermuda to claim deductions for such expenses as though Bermuda were included as part of the "North American area."

(12) The representatives of Bermuda emphasized the necessity of including in the Convention additional provisions intended to prevent changes in U.S. income tax treaty policy from adversely affecting the economic position of Bermuda's insurance and tourism industries relative to those of U.S. treaty partners in similar circumstances under current U.S. tax treaty policy. The United States representatives were not able to accept such provisions. However, the United States Government recognizes that insurance and tourism currently play a vital role in the Bermudian economy. If, in the future, the income tax treaty policies of the United States change in a manner which would have a material, adverse effect on such Bermudian business activities, compared with existing circumstances, the United States Government would be prepared to reopen the discussions in order to take account of such change in policies.

THIRD SCHEDULE (Section 2) Inserted by 1989


APPLEBY

THE PROTOCOL OF EXCHANGE OF INSTRUMENTS OF RATIFICATION : 12

The undersigned, John Swan, Premier of Bermuda, and George P. Shultz, Secretary of State of the United States of America, being duly authorized for the purpose by their respective Governments, have met for the purpose of exchanging instruments of ratification of the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland (on behalf of the Government of Bermuda) and the Government of the United States of America relating to the Taxation of Insurance Enterprises and Mutual Assistance in Tax Matters, with a related Exchange of Notes, signed at Washington on July 11, 1986. The United States ratification is subject to the following reservations:

(1) Effective January 1, 1990, said Convention shall not operate to prevent the imposition by the United States of any excise taxes on insurance premiums paid to foreign insurers, whether or not such premiums constitute income of an enterprise of insurance of a Covered Jurisdiction; and

(2) Said Convention shall in no event operate to prevent the imposition by the United States of any excise taxes on insurance premiums paid to foreign insurers except with respect to insurance premiums that either:

(a) constitute income of an enterprise of insurance of a Covered Jurisdiction carried on by a company in a taxable year in which the company is a controlled foreign corporation within the meaning of section 957(a) or (b) of title 26 of the United States Code as in effect for such taxable year; or

(b) constitute income of an enterprise of insurance of a Covered Jurisdiction carried on by a company in a taxable year in which:

(i) the company is subject to the rules of section 953(c) of the Internal Revenue Code of 1986, and

(ii) the company is a controlled foreign corporation within the meaning of section 957(a) of the Internal Revenue Code of 1986 as modified by section 953(c)(1) of said Code, and

the premiums constitute related person insurance income within the meaning of section 953(c) of the Internal Revenue Code of 1986.

The respective instruments of ratification having been compared and found to be in due form, the exchange took place this day.

IN WITNESS WHEREOF, the respective Plenipotentiaries have signed the present Protocol of Exchange of Instruments of Ratification.

DONE in duplicate in the English language at Washington this second day of December, 1988.

FOR THE GOVERNMENT FOR THE GOVERNMENT OF THE UNITED KINGDOM OF THE UNITED STATES OF BRITAIN AND OF AMERICA: NORTHERN IRELAND (ON BEHALF OF THE GOVERNMENT OF BERMUDA): JOHN SWAN GEORGE P. SCHULTZ


[Amended by

U.S.A. – Bermuda tax Convention Amendment Act 1989 1989 : 12

U.S.A. – Bermuda tax Convention Amendment Act 1999 1999 : 37]

The Right People. The Right Places.

APPLEBY

EXEMPTED UNDERTAKINGS TAX PROTECTION ACT 1966 (Consolidated by Appleby as at 20 February 2003)

BERMUDA 1966 : 41

EXEMPTED UNDERTAKINGS TAX PROTECTION ACT 1966

[29 March 1966]


§1 Interpretation 1 In this Act— Modified by 1971 : 83

"exempted undertaking" means — Modified by 1988 : 20

(a) an exempted undertaking within section 127 of the Companies Act 1981 [title 17 item 5]; or


(b) an exempted partnership within section 2 of the Exempted Partnerships Act 1992 [title 17 item 26]; or

(c) an exempted unit trust scheme;

"exempted unit trust scheme" means an arrangement made for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities whereby those persons may participate as beneficiaries under a non-resident trust in profits or income arising from the acquisition, holding, management or disposal of any property whatsoever;


"Minister" means the Minister of Finance.

"non-resident trust" means a trust of which the trustee has been designated under the Exchange Control Regulations 1973 [title 16 item 1(a)] as not resident in Bermuda;


§2 Minister may give assurance

2 (1) The Minister is hereby authorized to enter into an arrangement with any exempted undertaking that shall make application to the Accountant-General therefor, whereby such undertakings may be given an assurance that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income or computed on any capital asset, gain or appreciation, then the imposition of any such tax shall not be applicable to such undertakings or to any of its operations.


(2) Any such arrangement as is referred to in subsection (1) may include an assurance that the aforesaid taxes, and any tax in the nature of estate duty or inheritance tax, shall not be applicable to the shares, debentures or other obligations of such undertaking.

(3) Any such assurance as aforesaid may be for any period not exceeding fifty years from 29 March 1966 and may be in such form as the Minister may determine.

Modified by: 1973 : 103 1987 : 17

§3 Application to residents of Bermuda

3 In the event of the enactment of any legislation in Bermuda imposing any tax referred to in this Act, then nothing contained herein shall be construed so as to prevent the application of any such tax to such persons ordinarily resident in Bermuda to whom it is appropriate that such tax should be applied.

§4 Repeal 4 omitted

applebyglobal.com

APPLEBY

EXEMPTED UNDERTAKINGS TAX PROTECTION ACT 1966 (Consolidated by Appleby as at 20 February 2003)

APPLEBY

[Amended by

Companies (Incorporation by Registration) Act 1970 1970 : 270

Transfer of Functions and Reorganization (Finance) Act 1971 1971 : 83

Exempted Undertakings Tax Protection Act 1966 Amendment Act 1973 1973 : 103

Exempted Undertakings Tax Protection Amendment Act 1987 1987 : 17

Exempted Undertakings Tax Protection Amendment Act 1988 1988 : 20

Exempted partnerships Act 1992 1992 : 66]

THE SEGREGATED ACCOUNTS COMPANIES ACT 2000 (Consolidated by Appleby as at 12 January 2005)

BERMUDA

2000 : 33

THE SEGREGATED ACCOUNTS COMPANIES ACT 2000

Date of Assent 22 August 2000]

[Operative Date 14 June 2002]


PART I

INTERPRETATION AND APPLICATION

1 Citation

2 Interpretation and application

PART II

REGISTRATION

3 Application for registration to operate segregated accounts

4 Companies to notify Registrar

5 Notice and documents to be filed

6 Registration and register of segregated accounts companies

7 Removal from the register

8 Provisions relating to operation of segregated accounts pursuant to private Act

PART III

MANAGEMENT AND ADMINISTRATION

9 Company to inform persons they are dealing with segregated accounts company

10 Segregated account representative

11 Governing instruments and contracts

12 Apportionment of assets and liabilities

13 Amalgamations and consolidations

14 Issue of securities linked to a segregated account

15 Dividends, distributions, redemptions, repurchases and reduction of capital

16 Accounts, records and registers

17 Nature of segregated accounts, application of assets and liabilities

17A Internal transactions

17B Creditor enforcement rights limited to account assets

18 Rights and obligations with respect to segregated accounts

PART IV

RECEIVERSHIP AND WINDING UP

19 Receivership orders

applebyglobal.com

APPLEBY


APPLEBY

20 Application for receivership orders

21 Functions and powers of receiver

22 Discharge and variation of receivership orders

23 Remuneration of receiver

24 Winding up of segregated accounts companies

25 Application of assets

PART V

GENERAL

26 Directions of Minister to modify the provisions of this Act

27 Minister may make regulations

27A Effect on transaction and interests in a segregated account of infringement of this Act

28 Suits and actions against Registrar and Official Receiver

29 Registrar and Official Receiver to be indemnified in respect of foreign suits

30 Offences

31 Fees

32 Commencement

WHEREAS it is expedient to provide for the registration and regulation of companies that operate segregated accounts:

Be it enacted by The Queen's Most Excellent Majesty, by and with the advice and consent of the Senate and the House of Assembly of Bermuda, and by the authority of the same, as follows: —

PART I

INTERPRETATION AND APPLICATION

§1 Citation 1 This Act may be cited as the Segregated Accounts Companies Act 2000.

§2 Interpretation and application

2 (1) In this Act— Replaced by 2002 : 10

"account owner" in relation to a segregated account means any person who is—

(a) the registered holder of shares which are—

(i) issued by the segregated accounts company, and

(ii) linked to that segregated account;

(b) expressly identified in the governing instrument linked to a segregated account as being an account owner for the purposes of this Act in respect of that segregated account; or

(c) expressly designated in the records of the segregated accounts company as being an account owner in respect of that segregated account;

and the interests of an account owner in any of the foregoing capacities in relation to any


APPLEBY

segregated account are referred to in this Act as "account holdings";

"appointed newspaper" means the Gazette or newspaper appointed by the Registrar under section 2(6) of the Companies Act 1981;

"contract" includes written agreements, instruments or other writings (including electronic records) which create or affect rights or obligations;

"counterparty" means any party (other than the segregated accounts company itself, save where section 17A(1) applies) to a transaction to which the segregated accounts company is a party, and under which assets or liabilities are wholly or partly linked to a segregated account, but an account owner shall not (in that capacity) also be a counterparty;

"court" means the Supreme Court;

"creditor" means, in respect of any segregated account (and in that regard may include a counterparty of the segregated account) or the general account respectively, any person to whom any liability is owed by the segregated accounts company and such liability is linked to that segregated account or is a liability of the general account, as the case may be; but, except as provided for in section 18(14), an account owner shall not (in that capacity) also be a creditor;

"general account" means an account comprising all of the assets and liabilities of a segregated accounts company which are not linked to a segregated account of that company;

"general shareholder" means any member of a segregated accounts company not being the holder of a share linked to a segregated account;

"governing instrument" means one or more written agreements, instruments, bye-laws, prospectuses, resolutions of directors, registers or other documents (including electronic records), setting out the rights, obligations and interests of account owners in respect of a segregated account;

"insurance business" means insurance business as defined in section 1(1) of the Insurance Act 1978;

"known creditors" means creditors whose identity and whereabouts are known to, or with due diligence could be discovered by, the company, or other persons known to the company;

"linked" means referable by means of—

(a) an instrument in writing including a governing instrument or contract;

(b) an entry or other notation made in respect of a transaction in the records of a segregated accounts company; or

(c) an unwritten but conclusive indication,

which identifies an asset, right, contribution, liability or obligation as belonging or pertaining to a segregated account;

"manager" means any person who, by virtue of the terms of a governing instrument or otherwise with the consent of a segregated accounts company and the account owners of any segregated account, has control of a segregated account;

"mutual fund" means a mutual fund within the meaning of section 156A of the Companies Act 1981;

"officer" in relation to a segregated accounts company, includes director and secretary;

"operative date" means the date on which this Act comes into force;

"the Minister" means the Minister of Finance;

"register" means the register of segregated accounts companies maintained under section 6;


APPLEBY

"registered" means registered under section 6;

"Registrar" means the Registrar of Companies appointed under section 3 of the Companies Act 1981;

"security" in relation to a segregated accounts company, means any share, note, bond, debenture, evidence of indebtedness, certificate, unit, warrant, or right conferring an option to acquire shares or any other right issued by or pertaining to the company, but does not include a contract of insurance unless the terms of the contract so provide;

"segregated account" means a separate and distinct account (comprising or including entries recording data, assets, rights, contributions, liabilities and obligations linked to such account) of a segregated accounts company pertaining to an identified or identifiable pool of assets and liabilities of such segregated accounts company which are segregated or distinguished from other assets and liabilities of the segregated accounts company for the purposes of this Act;

"segregated accounts company" means a company which is registered under section 6 and, unless the context otherwise requires, references to "the company" shall be construed as references to such company;

"transaction" means any dealing of whatever nature, which may be evidenced by a governing instrument (in the case of a transaction with an account owner) or contract (in the case of a transaction with a counterparty), including the issue of any security, by which assets or liabilities become linked to a segregated account or by which the assets or liabilities linked to a segregated account are otherwise affected, or, in the case of assets linked to a segregated account which are intended by the parties to be applied to a risk of any nature, any dealing which exposes such assets to liability or loss.

(2) For the purposes of this Act, excluding section 24(1)—

(a) a segregated accounts company shall be deemed to be solvent if the general account is able to pay its liabilities as they become due;

(b) a segregated account shall be deemed to be solvent if it is able to pay its liabilities (excluding obligations to account owners in that capacity) as they become due.

(3) Nothing in this Act shall be construed as requiring a company which operates segregated accounts under the authority of a private Act or otherwise to be registered.

(4) For the avoidance of doubt it is declared that, notwithstanding section 18, a segregated accounts company is not by reason only of the operation of segregated accounts carrying on trust business in or from within Bermuda for the purposes of the Trusts (Regulation of Trust Business) Act 2001.


(5) Section 24 of the Insurance Act 1978 shall not apply to an insurer who is registered as a segregated accounts company under this Act.


PART II

REGISTRATION

§3 Application for registration to operate segregated accounts

3 (1) Any company to which the Companies Act 1981 applies—

(a) if it is engaged in insurance business; or


APPLEBY

(b) if it is not so engaged, with the approval of the Minister,

may, by filing a notice under section 5, apply to be registered under section 6. Modified by 2002 : 10

(2) From the date of registration under this Act, a segregated accounts company shall be bound by this Act and from such date it may establish one or more segregated accounts to which this Act shall apply.


§4 Companies to notify Registrar


§5 Notice and documents to be filed

5 (1) The notice shall be in such form as the Registrar may determine but shall contain the following information—


(a) the name of the company which, in cases where the Registrar so directs, shall include the expression "(SAC)";


(b) a statement that the company intends to operate segregated accounts;

(c) the address of the registered office of the company;

(d) the name and address of the segregated account representative of the company;

(e) the nature of the business of the company;

(f) the date of incorporation of the company; and

(g) a statement that the company has made provision to account for segregated accounts in the manner set out in section 16.

(2) Where the company has conducted business prior to its registration, the company, in filing a notice under subsection (1), shall—


(a) file with the Registrar a statutory declaration made by at least two directors as at the date of the notice setting out a true and accurate statement or description of—


(i) the assets and liabilities of the company as at a date within three months prior to the date of the notice;

(ii) any transaction or event which, as of the date of the notice, has occurred, or is expected to occur, between the date of the statement of assets and liabilities prepared pursuant to subparagraph (i) and the date of registration of the company as a segregated accounts company which, if it had occurred before the date of that statement, would have caused material changes to the assets and liabilities disclosed therein; and


(iii) the segregated accounts the company intends to operate and the assets and liabilities which the company proposes to assign to each of those segregated accounts;

and declaring that—

(iv) on registration, the company and each segregated account will be solvent and—


(A) no known creditor of the company will be prejudiced,

(B) the known creditors of the company have consented in writing to


APPLEBY

the company proceeding to register, or

(C) adequate notice has been given in accordance with subsection (3) to all known creditors of the company and no creditor objects to the registration otherwise than on grounds that are frivolous or vexatious;


(v) no creditor of the company will be prejudiced; or

(vi) the creditors of the company have consented in writing to the company proceeding to register; and

(b) attach evidence of the consent in writing to registration of 75% in number of those persons who would, on the registration of the company, be the account owners of the segregated accounts of the company and 75% in number of those persons who would, on the registration of the company, be creditors.


(3) For the purposes of subsection (2)(a)(iv)(C) adequate notice is given if— Modified by 2002 : 10

(a) a notice in writing is sent to each known creditor having a claim against the company that exceeds $1,000; and

(b) notice is published in an appointed newspaper,

in each case stating that the company intends to register and that a creditor of the company may object to the registration within 28 days from the date of such notice, or publication of such notice, as the case may be.

(4) Subject to subsection (5), an account owner or creditor who objects to the registration of the company may apply to the court for the annulment of the registration of the company.


(5) An application under subsection (4) may only be made by— Modified by 2002 : 10

(a) not less than 20% in number of such persons who would, on the registration of the company, be account owners;

(b) not less than 20% in number of such persons who would, on the registration of the company, be creditors; or

(c) not less than 20% in number of such persons as are mentioned in paragraphs (a) and (b) combined who would be account owners or creditors on registration:

provided that an application shall not be made by any person who has voted in favour of the registration or has given to the company a statement in writing duly signed that he, having had notice, consents to the registration.

(6) An application under subsection (4) shall be made within 28 days from the date of registration, and may be made on behalf of the persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose.


(7) On an application under subsection (4) the court may make an order annulling or confirming the registration, either wholly or in part, and on such terms and conditions as it thinks fit, and may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the court for the purchase or other disposition of the interests of dissentient persons, and may give such directions and make such orders as it may think expedient for facilitating or carrying into effect any such arrangement:


provided that no part of the capital of the company or of any segregated account shall be expended in the purchase or other disposition of the interests of dissentient persons.

(8) Where a company— Inserted by 2002 : 10


APPLEBY

(a) has conducted business prior to filing a notice under subsection (1); and

(b) has filed such notice,

it shall cause a copy of the notice to be contemporaneously given to all persons who, on the registration of the company, would be account owners and to its known creditors.

(9) If there is any material alteration of the particulars set out in subsection (2) between the date of the notice filed pursuant to subsection (1) and the date of registration, then the company shall give further notice to the Registrar of such alteration of particulars.


(10) The notice filed pursuant to subsection (1) and any documents accompanying that notice shall be treated as confidential by the Registrar and all public officers having access thereto, but this subsection does not preclude the disclosure of information for the purpose of enabling the Minister to exercise any functions conferred upon him by this Act.


§6 Registration and register of segregated accounts companies

6 (1) The Registrar shall maintain a register of segregated accounts companies. Modified by 2002 : 10

(2) Upon application and upon payment of such fee as may be prescribed under the Government Fees Act 1965, the Registrar, if satisfied—

(a) that the company is capable of complying with this Act; and Modified by 2002 : 10

(b) in the case of a financial institution as defined in section 1(1) of the Bermuda Monetary Authority Act 1969, that the Bermuda Monetary Authority has no objection to the registration,

may register the company as a segregated accounts company. Modified by 2002 : 10

(3) The Registrar may—

(a) impose such conditions on the registration of a company as he may consider necessary to ensure the reputation of Bermuda and in particular, to vet the account owners of segregated accounts and to ensure compliance with this Act;

(b) require the company to take certain steps or to refrain from adopting or pursuing a particular course of action or to restrict the scope of its segregated accounts business in a particular way.

(4) The Registrar may revoke or vary any condition or requirement imposed under subsection (3) by giving notice thereof to the company.

(5) After registering a company pursuant to subsection (2), the Registrar shall issue a certificate showing the date of registration.

(6) The Registrar shall place a copy of the certificate referred to in subsection (5) on the public file maintained by him in respect of the company.

(7) The register shall be available for inspection by members of the public.

(8) Where the Registrar refuses to register a company pursuant to subsection (2), he shall not be bound to assign any reason for his refusal and his decision shall not be subject to appeal or review in any court.

§7 Removal from the register

7 (1) Subject to this section, the Registrar, on receipt of a request in writing by a segregated accounts company attaching thereto evidence of the consent in writing of 75% in



APPLEBY

number of the account owners of the segregated accounts of the company and of 75% in number of any counterparties who are creditors, shall remove the company from the register and the provisions of this Act shall cease to apply to the company.

(2) A request under subsection (1) shall be in such form as the Registrar may determine, but shall include a statutory declaration made by a majority of the directors of the segregated accounts company to the effect that no creditor of the company will be prejudiced by, or that the known creditors have consented in writing to, the removal of the company from the register and shall have attached to the declaration a true and accurate statement of—


(a) the assets and liabilities of the company as at a date within the three months prior to the date of the request;

(b) a description of any transaction or event which, as of the date of the request, is expected to occur between the date of the statement of assets and liabilities prepared pursuant to paragraph (a) and the date of the removal of the company as a segregated accounts company which, if it had occurred before the date of the statement of assets and liabilities, would have caused significant changes to the assets and liabilities disclosed therein; and

(c) the segregated accounts which the company has operated and the assets and liabilities which were linked to each of those segregated accounts.

(3) If there is any material alteration of the particulars set out in subsection (2) between the date of the request given pursuant to subsection (1) and the removal of the company from the register, the company shall give notice to the Registrar of such alteration in particulars.

(4) A segregated accounts company shall circulate contemporaneously with the request to the Registrar under subsection (1) notice of that request to all account owners of the segregated accounts company and to all creditors.


(5) An account owner of a segregated account or any creditor who is aggrieved by a request made pursuant to subsection (1) may, within 21 days of receipt of notice of the request, apply to the Registrar to refuse to remove the segregated accounts company from the register or, if the removal has already occurred, to reinstate the company on the register.


(6) Where an application has been made under subsection (5) and the Registrar has made a decision on the application, any person who is aggrieved by that decision may, within 21 days of the decision, appeal to the court and the court shall hear the matter and make such order as it thinks fit.

(7) The making of a request pursuant to subsection (1) shall not of itself effect the removal of a segregated accounts company from the register and the Registrar in his absolute discretion shall determine whether to give effect to the removal of the company from the register and, in this regard, may require such information from the company as he considers necessary to render such decision.

(8) Without prejudice to the provisions of Part VIII of the Companies Act 1981 (which relates to the powers of the Minister to investigate the affairs of a company), the Registrar may, whether on his own initiative or on application by an account owner or a counterparty, remove a segregated accounts company from the register where the company has materially breached—

(a) the provisions of this Act or a condition or requirement imposed under section 6(3); or

(b) the terms of any direction given pursuant to section 26 or regulation made under section 27,

but the rights and obligations of any account owner and of any creditor shall be unaffected by the removal, and the powers of the company shall continue in respect of such accrued rights and obligations but solely for the discharge thereof.


(9) Where the Registrar intends to remove a segregated accounts company from the


APPLEBY

register pursuant to subsection (8), he shall give the company notice of that intention and, before giving effect to the removal of the company from the register, he shall take into account any representations made by the company within such period as may be specified in the notice.

§8 Provisions relating to operation of segregated accounts pursuant to private Act

8 (1) Where a company has operated segregated accounts by virtue of authority conferred by a private Act and the company has registered—


(a) the provisions of this Act shall apply to that company and, to the extent of any inconsistency between this Act and the provisions of that private Act, the provisions of this Act shall prevail;

(b) subject to paragraph (c), any contracts to which the company was a party on the date of registration shall be construed in accordance with the private Act but contracts renewed or entered into after the date of registration shall be construed in accordance with this Act; and


(c) subsections 17A(1) to (4) shall apply with retrospective effect to any transaction entered into by the company in respect of and between accounts to the same extent that those sections would have applied to that transaction if that company had been a segregated accounts company under this Act at the time of the transaction.

(2) A company which has by virtue of authority conferred by a private Act the right to operate segregated accounts shall, within six months from the operative date or, in the case of a private Act that comes into force after the operative date, within six months of the coming into force of the private Act, give notice of that fact in writing to the Registrar, attaching thereto a copy of the private Act together with a copy of its most recent financial statements.

(3) The notice filed pursuant to subsection (2) and any documents accompanying that notice shall be treated as confidential by the Registrar and all public officers having access thereto, but this subsection does not preclude the disclosure of information for the purpose of enabling the Minister to exercise any functions conferred upon him by this Act.


(4) For the avoidance of doubt it is declared that, where a private Act confers authority on a company to operate segregated accounts but also contains other provisions not pertaining to the operation of such accounts, those other provisions shall not be affected by the registration of the company under section 6.


(5) For the purposes of this section and section 2(3) only, the meaning of the term "transaction" and "segregated account" provided for in this Act shall not be strictly applied and, for the avoidance of doubt, the meaning of the term "segregated account" shall include "separate accounts", "segregated reserves", "suites" or any cognate expressions thereof importing similar meaning (including such terms where capitalised) which may be used in a private Act.


PART III

MANAGEMENT AND ADMINISTRATION

§9 Company to inform persons they are dealing with segregated accounts company

9 A segregated accounts company shall—

(a) inform any person with whom it enters into a transaction that it is a segregated accounts company;


(b) where the transaction relates to a segregated account, for the purposes of that transaction identify or specify that segregated account; and


APPLEBY

(c) include reference to the fact that the company is a company registered under the Segregated Accounts Companies Act 2000 on its letterhead and contracts.


§10 Segregated account representative

10 (1) A segregated accounts company shall appoint and maintain a segregated account representative in Bermuda who shall be a person approved by the Minister as the segregated account representative of the company.


(2) The particulars of the segregated account representative of a segregated accounts company shall be included in the register of directors and officers of the company maintained pursuant to section 92A of the Companies Act 1981.

(3) It is the duty of the segregated account representative within 30 days of—

(a) his reaching the view that there is a reasonable likelihood of a segregated account or the general account of a segregated accounts company for which he acts becoming insolvent; or


(b) it coming to his knowledge or his having reason to believe that the segregated accounts company for which he acts—

(i) has failed to comply with—

(A) any requirement or condition imposed under section 6(3),

(B) any requirement imposed by section 11, 15 or 16, Modified by 2002 : 10

(C) any direction given under section 26, or

(D) any regulation made under section 27; or

(ii) has become involved in any criminal proceedings in Bermuda or elsewhere,

to make a written report to the Registrar setting out all the particulars of the case that are available to him relating to the insolvency, failure or involvement.

§11 Governing instruments and contracts

11 (1) The rights, interests and obligations of account owners in a segregated account shall be evidenced in a governing instrument and the rights, interests and obligations of counterparties shall be evidenced in the form of contracts.


(2) The governing instrument in relation to any segregated account shall be deemed to be governed by the laws of Bermuda and the parties thereto shall be deemed to submit to the jurisdiction of the courts of Bermuda and, in relation to such governing instrument—

(a) a person shall become an account owner and shall become bound by the governing instrument if such person complies with the conditions, if any, for becoming an account owner as set out in the governing instrument;

(b) an account owner shall take such interest in a segregated account as may be stipulated in respect of him in accordance with the terms of the governing instrument and, absent such stipulation or other compelling indication (in the discretion of the directors of the company, exercised reasonably), the extent of the interest of such account owner shall be nil;

(c) if no other provision for management is specified in the governing instrument, the segregated accounts company shall manage the segregated account and may—

(i) appoint and supervise the officers, managers, employees and other persons who have management of the segregated account; and


APPLEBY

(ii) enter into financial arrangements for payment for services including the charging of fees, disbursements and other charges which the manager shall be authorized to withdraw from the segregated account;

(d) unless otherwise provided in the governing instrument, the segregated accounts company may take any action, including—

(i) the amendment of the governing instrument;

(ii) the appointment of one or more managers;

(iii) for the benefit of the segregated account only, the sale, lease, exchange, transfer, pledge or other disposition of all or any part of the assets of the segregated account, or the orderly winding-up of the affairs and termination of the segregated account,

or may provide for the taking of any action to create under the provisions of the governing instrument a class, group or series of account holdings that was not previously outstanding, without the vote or approval of any particular manager or account owner, or class, group or series of managers or account owners;

(e) the segregated accounts company may, if and to the extent that voting rights are granted under the governing instrument, set forth provisions relating to—

(i) notice of the time, place or purpose of any meeting at which any matter is to be voted on;

(ii) waiver of any such notice;

(iii) action by consent without a meeting;

(iv) the establishment of record dates;

(v) quorum requirements;

(vi) voting in person, by proxy or in any other manner; or

(vii) any other matter with respect to the exercise of any voting rights;

(f) unless otherwise provided in the governing instrument in relation to a segregated account, the segregated accounts company may in respect of that account grant to, or withhold from, all or certain managers or account owners, or a specified class, group or series of managers or account owners, the right to vote, separately or with any or all other classes, groups or series of managers or account owners, on any matter, such voting being on a per capita, number, financial interests, class, group, series or any other basis;

(g) unless otherwise provided in the governing instrument in relation to a segregated account, the segregated accounts company in respect of that account may create further segregated accounts to which all or any part of the assets, liabilities, profits or losses linked to any existing segregated account may be transferred, and for the conversion of the interest (or any part thereof) of all or certain account owners in an existing segregated account into interests of account owners in the separate segregated account; and

(h) unless otherwise provided in the governing instrument in relation to a segregated account, the segregated accounts company in respect of that account may set forth provisions therein regarding—

(i) the governance of the business (or any aspect thereof) of the segregated account and the rights, powers and duties of the company, any manager and the account owner and their respective servants, agents, employees, successors or assigns;


APPLEBY

(ii) the identity of the segregated account to which the transaction and any assets or liabilities are linked; and

(iii) the extent of the interest of the account owners and others (if any) therein and subordination thereof (if any).

(3) Any contract governing a transaction with a counterparty, including those executed outside Bermuda, shall include the name of the counterparty, and, unless otherwise provided therein, shall include an implied term that the parties select the law of Bermuda as its governing law and submit to the jurisdiction of the courts of Bermuda.

(4) Unless otherwise expressly agreed in writing by the parties to the transaction—

(a) by virtue of a governing instrument or contract which is binding on those parties in relation to the affected segregated accounts or general account, as the case may be, and which is executed by parties having authority in relation to those accounts; and

(b) in the case of a mutual fund only where the document or documents mentioned in paragraph (a) clearly indicate an intention of the parties to extend liability to more than one segregated account or the general account as permitted by this section and contain a specific reference to this subsection and to subsection 17(5),

any contract pertaining to a transaction shall be deemed to contain a statement that the rights of the counterparty shall not extend to, and the counterparty will not have recourse to, the assets which are linked to any other segregated account or to the general account.

(5) For the avoidance of doubt, it is hereby declared that any provision of a contract or governing instrument relating to the segregation of assets or liabilities of a segregated account shall be governed by and construed in accordance with this Act, and the parties may not contract otherwise in such regard.

§12 Apportionment of assets and liabilities

12 (1) Notwithstanding any other provision of this Act, a segregated accounts company that is not a mutual fund company (and in the case of a mutual fund company only where the relevant contract or governing instrument contains a specific reference to sections 11(4) and 17(5)) may apportion an asset or liability among two or more segregated accounts and the general account.


(2) Where a segregated accounts company has apportioned an asset or liability pursuant to subsection (1), the extent to which the asset or liability is linked to each segregated account shall be clearly indicated in the contract or governing instrument effecting the apportionment.

§13 Amalgamations and consolidations


§14 Issue of securities linked to a segregated account

14 (1) A segregated accounts company may create and issue securities in one or more classes linked to the same segregated account, the proceeds of issue of which shall be included in the assets linked to that segregated account.

(2) Where a segregated accounts company has effected a transaction by issuing a security linked to a segregated account, the issue of the security shall be identified as being linked to the segregated account in the accounts, books and records required to be kept by the company pursuant to this Act.

(2A) Notwithstanding any enactment to the contrary except section 66 of the Companies Act 1981, no record or register or that part of a record or register detailing any ownership of such



APPLEBY

security shall be open to public inspection save that any owner thereof shall be entitled to receive a copy of the information contained therein pertaining to such security.

(2B) For the avoidance of doubt, the provisions of section 65(6) and 66 of the Companies Act 1981 shall not apply to a segregated accounts company that is a mutual fund.


(3) The proceeds of the issue of shares or other securities, other than securities linked to a segregated account, shall be included in the general assets of the segregated accounts company only and the general shareholders shall have no rights to the assets of any segregated account by reason only of being a general shareholder.

§15 Dividends, distributions, redemptions, repurchases and reduction of capital

15 (1) A segregated accounts company may pay a dividend or make a distribution in respect of securities of any class linked to a segregated account whether or not a dividend or distribution is declared on any other class of securities linked to the same or any other segregated account or any other securities issued by the company.


(2) Notwithstanding any other provision of this Act, a dividend shall not be declared or paid, or a distribution declared or made, in respect of shares or other account holdings linked to a segregated account if there are reasonable grounds for believing that—


(a) the segregated account is not, or would after the payment not be, solvent; or

(b) the realisable value of the assets of the segregated account would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

(3) Dividends or distributions in respect of securities linked to a segregated account shall be paid or made on or in respect of those securities by reference only to the assets and liabilities of the segregated account linked to those securities, and not by reference to the general account or any other segregated account, and otherwise in accordance with the rights of such securities.

(4) Section 54 of the Companies Act 1981 does not apply to a segregated accounts company in relation to a dividend or distribution in respect of a segregated account, declared, paid or made under this section.

(5) Notwithstanding subsections 42(2) and 42A(5) of the Companies Act 1981, a segregated accounts company may redeem or repurchase the shares or other account holdings using the assets linked to the relevant segregated account provided that—


(a) on the date of redemption or repurchase, after taking into account the redemption or repurchase, there are reasonable grounds for believing that the relevant segregated account is solvent; or

(b) all creditors with claims linked to that segregated account on that date have expressed in writing their concurrence to the redemption or repurchase.

(6) Sections 15(2)(b), 15(5) and 16(4) shall not apply to a mutual fund. Inserted by 2002 : 10

(7) A segregated accounts company which is a mutual fund may redeem or repurchase for cancellation shares using the assets linked to the relevant segregated account provided that, on the date of redemption or repurchase, there are reasonable grounds for believing that the relevant segregated account is solvent and would remain so after the redemption or repurchase.


(8) A segregated accounts company which is a mutual fund on the redemption or repurchase of shares linked to a segregated account may—


(a) repay the capital paid on such shares out of paid in capital, additional paid in capital or other reserves of the company linked to the relevant segregated account;

(b) pay the premium, if any, out of realised or unrealised profits, additional paid


APPLEBY

in capital or other reserves of the company linked to the relevant segregated account, on such terms and in such manner and at such price as may be determined having regard to the asset value of such shares as ascertained in accordance with the governing instrument.

(9) A segregated accounts company which is a mutual fund on the redemption or repurchase of shares linked to a segregated account may effect the redemption or repurchase out of the assets of the company linked to the relevant segregated account, on such terms and in such manner and at such price as may be determined having regard to the asset value of such shares as ascertained in accordance with the governing instrument.


(10) In any case where a segregated accounts company in respect of a segregated account has share capital, if authorised in a general meeting of the account owners of the segregated account to which the shares are linked and subject to the governing instrument in relation to that segregated account, on such terms as it may decide, the company may reduce its capital in any way, and in particular, without prejudice to the generality of the foregoing power, by—


(a) extinguishing or reducing the liability on any of its shares in respect of capital not paid up;

(b) either with or without extinguishing or reducing liability on any of its shares, cancelling any paid up capital that is lost or unrepresented by available assets; or

(c) either with or without extinguishing or reducing liability of any of its shares and either with or without reducing the number of such shares, paying off any paid up capital that is in excess of the requirements of the company.

(11) No company shall reduce the amount of its share capital in respect of a segregated account—


(a) unless, at a date not more than thirty days and not less than fifteen days before the date on which the reduction of the share capital is to have effect, the company causes a notice to be published in an appointed newspaper stating—

(i) the amount of the capital of the segregated account as last determined by the company;

(ii) the amount to which the share capital of the segregated account is to be reduced; and

(iii) the date on which the reduction is to have effect; and

(b) if, on the date the reduction is to be effected, there are reasonable grounds for believing that the segregated account is not, or after the reduction would not be, solvent.

(12) Unless the governing instrument pertaining to the affected segregated account otherwise provides, where the capital of a segregated account is reduced by the cancellation of shares and part only of a class of shares is to be cancelled, the shares to be cancelled shall be selected—


(a) by lot in such manner as the directors shall determine;

(b) as nearly as may be in proportion to the number of shares of the class registered in the name of each account holder; or

(c) in such other manner as the directors determine with the consent of the majority of the account owners of the class to be cancelled.

(13) Where shares are to be cancelled in order to reduce the capital of a segregated accounts company in respect of a segregated account, the shares shall be acquired at the lowest price at which, in the opinion of the directors, the shares are obtainable, but not exceeding an



APPLEBY

amount, if any, stated in or determined by the governing instrument.

(14) Where a company in respect of a segregated account having share capital reduces the amount of that share capital, then within thirty days after the date as from which the reduction has effect the company shall file a memorandum, with a copy of the notice referred to in subsection (11)(a) in the office of the Registrar stating that this section has been duly complied with.


(15) If any company fails to comply with subsection (11), (12) or (13) every officer of the company shall be liable to a fine of $5,000, and if the company fails to comply with subsection (14) the company shall be liable to a fine of $20 for every day during which such failure continues.


§16 Accounts, records and registers

16 (1) A segregated accounts company shall—

(a) maintain records in accordance with generally accepted accounting principles used in the preparation of the financial statements of the company prepared in accordance with section 84 of the Companies Act 1981 or other accounting principles so that the records shall, to the best of the knowledge, information and belief of the directors and officers of the company, clearly show the share capital, proceeds of rights issues, securities, reserves, assets, liabilities, income and expenses, dividends and distributions that are linked to each segregated account;


(b) maintain a record of each transaction entered into by the company; and Modified by 2002 : 10

(c) maintain a general account which records in accordance with this Act all of the assets and liabilities of the company which are not linked to a segregated account and which discloses any assets intended by the parties to be applied to a risk of any nature, and which therefore exposes such assets to liability or loss.

(2) For the purposes of subsection (1)(a), "reserves" includes retained earnings, contributed surplus and share premium.

(3) The records referred to in subsection (1) shall be kept in accordance with section 83 of the Companies Act 1981, provided that in the case of a segregated accounts company to which the Insurance Act 1978 applies, the records may be kept at the principal office.

(4) The records maintained with respect to a segregated account may be inspected by any account owner of that segregated account, but an account owner shall not have a right to inspect the records relating to any other segregated account or (in such capacity) the general account.


(5) A segregated accounts company shall prepare or cause to be prepared financial statements in respect of each segregated account and the provisions of sections 84, 88 and 90 of the Companies Act 1981 shall apply, with the necessary modifications, to the preparation of financial statements under this section and any reference in those provisions to "member" shall be construed as a reference to the account owner of the segregated account provided that the account owner of a segregated account may, for the purposes of section 88(1) of the Companies Act 1981, agree in writing to waive his right to have laid before a general meeting financial statements or the auditor’s report thereon for an indefinite period but such waiver shall be expressed to be revocable at the option of such account owner.


(6) Subject to subsection (5), a copy of the financial statements of a segregated account shall be made available to the account owner of a segregated account at such intervals and for such periods as are agreed between the segregated accounts company and the account owner of the segregated account, but in any event shall be made available not less frequently than once in each financial year.


APPLEBY

(7) If—

(a) the records maintained with respect to a segregated account; or

(b) the financial statements of a segregated account,

are not made available for inspection by any account owner of that segregated account, the court may, on application by the affected account owner, by order compel immediate production of the records or financial statements.


(8) A segregated accounts company shall maintain a register of account owners setting out their respective interests in any segregated account together with the particulars required in respect of members of the company as set out in section 65(1) of the Companies Act 1981.

(9) The register of account owners shall not be open to public inspection and in the case of a segregated accounts company which is a mutual fund, the register of account owners shall not be open to inspection by any person without the consent of the company, provided that an account owner shall be entitled to receive a copy of the information in the register pertaining to his interest in the company.


(10) The register of account owners shall be prima facie evidence of any matters by this Act directed or authorised to be inserted therein.


§17 Nature of segregated accounts, application of assets and liabilities

17 (1) Notwithstanding any other provision of this Act, the establishment of a segregated account does not create a legal person distinct from the segregated accounts company.


(2) Notwithstanding any enactment or rule of law to the contrary, but subject to this Act, any liability linked to a segregated account shall be a liability only of that account and not the liability of any other account and the rights of creditors in respect of such liabilities shall be rights only in respect of the relevant account and not of any other account, and, for the avoidance of doubt, any asset which is linked by a segregated accounts company to a segregated account—

(a) shall be held by the segregated accounts company as a separate fund which is—

(i) not part of the general account and shall be held exclusively for the benefit of the account owners of the segregated account and any counterparty to a transaction linked to that segregated account, and

(ii) available only to meet liabilities to the account owners and creditors of that segregated account; and

(b) shall not be available or used to meet liabilities to, and shall be absolutely and for all purposes protected from, the general shareholders and from the creditors of the company who are not creditors with claims linked to segregated accounts.

(3) For the purposes of this Act, the Companies Act 1981 and otherwise at law, the assets recorded in the general account shall be the only assets of a segregated accounts company available to meet liabilities of the segregated accounts company that are not linked to a segregated account.

(4) No assets of the general account may be transferred from the general account to a segregated account unless, on the date from which the transfer is to be effective, and taking into account that transfer, the general account is solvent or all the shareholders and creditors of the general account on that date have expressed in writing their concurrence to the transfer, and in the event a transfer is made to a segregated account in breach of this subsection, on an application by an affected party, the court may declare that the transfer is void, without prejudice to the rights of bona fide purchasers for value without notice.


APPLEBY

(5) Unless otherwise expressly agreed in writing by the affected parties—

(a) by virtue of one or more contracts, governing instruments or other documents which are binding on those parties in relation to the affected segregated accounts or general account, as the case may be, and which are executed by parties having authority in relation to those accounts; and

(b) in the case of a mutual fund only where the documents mentioned in paragraph (a) clearly indicate an intention of the parties to extend liability to more than one segregated account or the general account as permitted by this section and contain a specific reference to this subsection and to subsection 11(4),

where a liability of a segregated accounts company to a person arises from a transaction or matter relating to, or is otherwise imposed in respect of or attributable to, a particular segregated account, that liability shall—

(c) extend only to, and that person shall, in respect of that liability, be entitled to have recourse only to, the assets linked to that segregated account;

(d) not extend to, and that person shall not, in respect of that liability, be entitled to have recourse to, the assets linked to any other segregated account; and

(e) not extend to, and that person shall not in respect of that liability, be entitled to have recourse to, the general account.

(6) Where a liability of a segregated accounts company to a person—

(a) arises otherwise than in respect of a particular segregated account; or

(b) is imposed otherwise than in respect of a particular segregated account,

that liability shall extend only to, and that person shall, in respect of that liability, be entitled to have recourse only to, the general account.

(7) In the event that a segregated account has insufficient assets to pay all of its obligations in full, the order and priority of the rights in relation to assets linked to a segregated account shall (without prejudice to the rights of any parties holding valid security interests against assets linked to that segregated account and any valid preferential claims in respect of that segregated account) be determined by the terms of the governing instrument and any contracts pertaining to that account, and any ambiguity in respect of the order and priority rights shall be resolved as follows:

(a) the claims of creditors shall rank ahead of the claims of account owners;

(b) the claims of creditors inter se shall rank pari passu; and

(c) the claims of account owners inter se shall rank pari passu.

(8) A segregated accounts company may, with the consent in writing of all account owners of, or counterparties who are creditors with claims linked to, a given segregated account, transfer to the general account or another segregated account an asset from the segregated account to which it is linked, if the segregated account to which such asset is linked, taking into account the proposed transfer, remains solvent, and, in the event a transfer is made to the general account in breach of this subsection, on an application by an affected party, the court may declare that the transfer is void, without prejudice to the rights of bona fide purchasers for value without notice.

(9) Any asset transferred in accordance with subsection (8) shall cease to be linked to the segregated account from which it was transferred on the date of the transfer.

(10) Subject to the terms of the governing instrument relating to a given segregated account, on dissolution of the segregated accounts company or termination of the segregated account and after paying creditors of the segregated account, any property linked to that segregated account shall be paid pro rata to the account owners of such segregated account or, if there are no account owners, shall be deemed to fall into the general account.


APPLEBY

(11) Without prejudice to the rights of parties to resolve disputes by reference to arbitration or to the court, where—

(a) there is, on grounds that are reasonable, uncertainty as to whether any given interest in a segregated account is an interest as a counterparty or an interest as an account owner, that interest shall be deemed to be an interest as a counterparty;

(b) a given liability is not linked to a particular segregated account, or where there is, on grounds that are reasonable, uncertainty as to whether the liability is linked to a segregated account, that liability shall be deemed to be the liability of the general account.

§17A Internal transactions

17A (1) Notwithstanding any enactment or rule of law to the contrary— Inserted by 2002 : 10

(a) a segregated accounts company acting in respect of the general account may enter into transactions with the company acting in respect of one or more segregated accounts; and

(b) a segregated accounts company acting in respect of a segregated account may enter into transactions with the company acting in respect of one or more other segregated accounts.

(2) For the avoidance of doubt—

(a) a transaction referred to in subsection(1); and

(b) any transaction between the company in respect of one segregated account and a third party,

shall have effect or otherwise (as the case may be) as the transaction would have done under the general law if the transaction had been entered into between the company and a third party, and without restricting the generality of the foregoing—

(c) such a transaction shall be void, voidable, illegal or reversible at the instance of any creditor of the company in respect of the relevant segregated account or at the instance of the company itself in respect of the relevant segregated account or at the instance of any other person if the transaction would have been void, voidable, illegal, or reversible (as the case may be) by such person under any rule of law (including Part IVA of the Conveyancing Act 1993) which would have applied to the transaction if the transaction had been entered into between the company and a third party in the same circumstances; and

(d) an account owner, counterparty, or receiver of any given segregated account shall have standing to pursue, on behalf of the relevant segregated account, any rights of action (including recourse to arbitration under subsection (4)) available to the segregated accounts company in respect of that segregated account pursuant to this section.

(3) Notwithstanding any enactment or rule of law to the contrary—

(a) where a manager or officer of or other person on behalf of a segregated accounts company or a segregated account is also acting in respect of the general account and one or more of the segregated accounts or in respect of two or more segregated accounts which are entering into a transaction, he may so act notwithstanding any material interests or conflicts which may exist as between the manager, officer or directors or which any of them may have in acting in respect of such accounts; and

(b) where—


APPLEBY

(i) a given segregated account enters into a transaction as described in paragraph (a), and

(ii) the governing instrument of the segregated account so authorises, or a majority of the account owners consent in writing to the entry into of such a transaction,

then the manager, officer or such other person, the segregated accounts company and the company in respect of any segregated accounts (as the case may be) shall not be held liable to the company in respect of that segregated account or any of its account owners in respect of any conflict of interest arising in relation to the transaction.

(4) Any dispute which arises in connection with a transaction under subsection (1)—

(a) as between the company in respect of a given segregated account and the company in respect of any one or more other segregated accounts; or

(b) as between the company in respect of the general account and the company in respect of one or more segregated accounts;

may (notwithstanding any submission to the governing law of choice otherwise provided for in this Act or otherwise) be referred to the court or may be submitted to arbitration under the Bermuda International Conciliation and Arbitration Act 1993 and (if the matter is submitted to arbitration) as if the arbitration were an international commercial arbitration.

(5) If the managers, officers, legal advisers or others representing the company in respect of the separate interests of the affected accounts cannot agree on whether a particular matter should be referred to court or to arbitration, then that matter shall be referred to arbitration.

§17B Creditor enforcement rights limited to account assets

17B (1) There shall be implied (except in so far as the same is expressly excluded in writing) in every contract and governing instrument entered into by a segregated accounts company the following terms:-


(a) that no party shall seek, whether in any proceedings or by any other means whatsoever or wheresoever, to establish any interest in or recourse against any asset linked to any segregated account to satisfy a claim or liability not linked to that segregated account;


(b) that if any party succeeds by any means whatsoever or wheresoever in establishing any interest in or recourse against any asset linked to any segregated account of the company in respect of a liability not linked to that segregated account, that party shall be liable to the company to pay a sum equal to the value of the benefit thereby obtained by him; and


(c) that if any party shall succeed in seizing or attaching by any means or otherwise levying execution against any assets linked to any segregated account of the company in respect of a liability not linked to that segregated account, that party shall hold those assets or their proceeds on trust for the company and shall keep those assets or proceeds separate and identifiable as such trust property.


(2) All sums recovered by a segregated accounts company as a result of any such trust as is described in subsection (1)(c) shall be credited against any concurrent liability pursuant to the implied term set out in subsection (1)(b).

(3) Any asset or sum recovered by a segregated accounts company pursuant to the implied term set out in subsection (1)(b) or (1)(c) or by any other means whatsoever or wheresoever in the events referred to in those subsections shall, after the deduction or payment of any costs of recovery, be applied by the company so as to compensate the segregated account affected.

(4) Notwithstanding subsections 17(4) and (8), in the event of any assets linked to a Modified by


APPLEBY

segregated account being taken in execution in respect of a liability not linked to that segregated account, and in so far as such assets or compensation in respect thereof cannot otherwise be restored to the segregated account affected, the company shall—

2004 :30

(a) cause or procure its auditor, acting as expert and not as arbitrator, to certify the value of the assets lost to the segregated account affected; and

(b) in priority to all other claims against the account transfer or pay, from the assets of the account to which the liability was linked to the segregated account affected, assets or sums sufficient to restore to the segregated account affected the value of the assets lost.

Modified by 2004 :30

§18 Rights and obligations with respect to segregated accounts

18 (1) Notwithstanding any enactment or rule of law to the contrary, any asset of a segregated accounts company which is linked to a particular segregated account is deemed to be owned by the company as a separate fund which does not form part of the general account.



(3) To the extent provided in the governing instrument any person (including an account owner) may give directions to the segregated accounts company or other persons in the management of the segregated account and the managers shall have regard to such directions.

(4) Except to the extent otherwise provided in the governing instrument but subject to subsection (7)(b), neither the power to give directions to the segregated accounts company or other persons nor the exercise thereof by any person (including an account owner) shall cause the person giving directions to be a trustee or officer of the company.

(5) Except to the extent otherwise provided in the governing instrument, the account owners are entitled to the same limitation of personal liability as is enjoyed by members of companies limited by shares under section 158(d) of the Companies Act 1981.


(7) A segregated accounts company may—

(a) sue and be sued in respect of a particular segregated account, and service of process upon the company in accordance with subsection (9) shall be sufficient;

(b) be sued for debts and other obligations or liabilities contracted or incurred by the company in respect of a particular segregated account, and for any damages to persons or property resulting from the negligence of the company acting in the performance of duties with respect to that account.


(c) exercise the same rights of set-off (if any) as between accounts as apply under the general law in respect of companies, including, on an insolvent liquidation of the company, the same rights of set-off which arise in an insolvent liquidation of a company.


(8) The property of a segregated account is subject to orders of the court as it would have been if the segregated account were a separate legal person (and notwithstanding that it is not a separate legal person).

Deleted and Substituted by 2002 : 10

(9) A segregated accounts company may be served with process in the manner prescribed in section 62A of the Companies Act 1981 in all civil actions or proceedings involving or relating to the activities of a segregated account or a breach by the company of a duty to the segregated account, or to any account owner thereof or to a counterparty to a transaction linked thereto.


(10) Except to the extent it may be agreed otherwise by virtue of the governing Deleted and


APPLEBY

instrument or contract, as the case may be, an account owner of a segregated account and any counterparty who is a creditor in respect of a transaction linked to that segregated account shall have an undivided beneficial interest in the assets linked to a segregated account, and, after satisfying in full the claims of creditors of the segregated account, account owners shall share in the profits and losses of the segregated account in such proportions of the residual undivided beneficial interest in the segregated account owned by that account owner as may be specified in any governing instrument relating to such segregated account


(11) An account owner's or counterparty's beneficial interest in a segregated account is personal property notwithstanding the nature of the property of the segregated account.


(12) Except to the extent it may be agreed otherwise by virtue of the governing instrument or contract, as the case may be, an account owner or counterparty has no interest in specific segregated account property.


(13) Except to the extent it may be agreed otherwise by virtue of the governing instrument or contract, as the case may be, but subject to the provisions of the Exchange Control Act 1972, an account owner's or counterparty's beneficial interest in the segregated account is freely transferable.

Deleted and Substituted by 2002 : 10 Modified by 2004 : 30

(14) Subject to the segregated accounts company complying with section 15, and except to the extent it may be agreed otherwise by virtue of the governing instrument or contract, as the case may be, at the time an account owner or counterparty becomes entitled to receive a payment, distribution, allocation or dividend pursuant to any governing instrument, he has the status of, and is entitled to all remedies available to, a creditor of the segregated account with respect to the payment, distribution, allocation or dividend, and the governing instrument or contract may provide for the establishment of record dates with respect to such payment, distribution, allocation or dividend.


(15) To the extent that, at law or in equity, a segregated accounts company or manager has duties (including fiduciary duties) and liabilities relating to a segregated account or to an account owner or to a counterparty—

(a) that company or manager acting under a governing instrument or contract is not liable to the segregated account or to any account owner or counterparty for the company's good faith reliance on the provisions of that governing instrument or contract to which that account owner or counterparty is a party; and


(b) the company's or manager's duties and liabilities may be expanded or restricted by provisions in a governing instrument to which the person is a party.


(16) Subject to section 17B(1)(c) and (2), the provisions of this section and section 11 operate to the exclusion of any rule of law relating to trusts treating with the same subject matter, and no rule of law relating to trusts may be pleaded by any person to augment or modify the operation of this Act, but nothing in this section shall be construed so as to deny—


(a) the remedy of tracing in law and in equity the assets or the proceeds of the assets of any segregated account where such assets or proceeds have been commingled with the assets of any other segregated account or the general account; or

(b) any remedies available under the doctrine of constructive trusts or similar equitable remedies where those remedies would otherwise be available.

(17) To the extent permitted in the governing instruments of the affected segregated accounts, a company in respect of a segregated account may be an account owner of one or more other segregated accounts of the same segregated accounts company.


PART IV


APPLEBY

RECEIVERSHIP AND WINDING UP

§19 Receivership orders

19 (1) Subject to the provisions of this section, if, in relation to a segregated accounts company, the court is satisfied that—

(a) a particular segregated account is not solvent, the general account is not solvent, a liquidation has been commenced in relation to the company, or for other reasons it appears to the court just and equitable that a receiver should be appointed; and


(b) the making of a receivership order under this section would achieve the purposes set out in subsection (3),

the court may make a receivership order in respect of that segregated account.

(2) A receivership order may be made in respect of one or more segregated accounts.

(3) A receivership order shall direct that the business and assets linked to a segregated account shall be managed by a receiver specified in the order for the purpose of—

(a) the orderly management, sale, rehabilitation, run-off or termination of the business of, or attributable to, the segregated account; or


(b) the distribution of the assets linked to the segregated account to those entitled thereto.


(4) No resolution for the winding up of a segregated accounts company of which any segregated account is subject to a receivership order shall be effective without leave of the court.


§20 Application for receivership orders

20 (1) An application for a receivership order in respect of a segregated account may be made by—


(a) the segregated accounts company;

(b) the directors of the segregated accounts company;

(c) any creditor of the segregated accounts company in respect of that segregated account;

(d) any account owner of that segregated account; or

(e) the Registrar.

(2) The court, on hearing an application—

(a) for a receivership order; or

(b) for leave, pursuant to section 19(4), for a resolution for winding up, Modified by 2002 : 10

may make an interim order or adjourn the hearing conditionally or unconditionally.

(3) Notice of an application to the court for a receivership order in respect of a segregated account shall be served upon—

(a) the segregated accounts company;

(b) the Registrar; and

(c) such other persons (if any) as the court may direct,

each of whom shall be given an opportunity to make representations to the court before the order is made.


APPLEBY

§21 Functions and powers of receiver

21 (1) The receiver of a segregated account—

(a) may do all such things as may be necessary for the purposes set out in section 19(3); and

(b) shall have all the functions and powers of the directors and managers of the segregated accounts company in respect of the business and assets linked to the segregated account.

(2) The receiver may at any time apply to the court for—

(a) directions as to the extent or exercise of any function or power; or

(b) the receivership order to be discharged or varied.

(3) In exercising his functions or powers the receiver is deemed to act as the agent of the segregated accounts company in respect of the segregated account, and does not incur personal liability except to the extent that his conduct amounts to misfeasance.


(4) Any person dealing with the receiver in good faith is not concerned to enquire whether the receiver is acting within his powers.

(5) During the period of operation of a receivership order the functions and powers of the directors and managers and any liquidator of the segregated accounts company cease in respect of the business and assets linked to the segregated account in respect of which the order was made.


(6) At any time after the appointment of a receiver in respect of a segregated account, the company or any account owner or creditor of that account may, where an action or proceeding against the company in respect of that account is pending, apply to the court for a stay of those proceedings, and, on such an application being made, the court may stay the proceedings accordingly on such terms as it thinks fit.


§22 Discharge and variation of receivership orders

22 (1) The court shall not discharge a receivership order unless it appears to the court that the purpose for which the order was made has been achieved or substantially achieved or is incapable of achievement.

(2) The court, on hearing an application for the discharge or variation of a receivership order, may make any interim order it thinks fit or adjourn the hearing, conditionally or unconditionally.

(3) When making an order discharging the receiver, the court may release the receiver from liability save in respect of misfeasance.


§23 Remuneration of receiver

23 The remuneration of a receiver and any expenses properly incurred by him shall be payable in priority to all other unsecured claims from the assets linked to the segregated account in respect of which the receiver was appointed but not from any assets of the general account or any assets linked to other segregated accounts.

Repealed and Substituted by 2002 : 10

§24 Winding up of segregated accounts companies

24 (1) Subject to this section, a segregated accounts company shall be wound up in accordance with the provisions of this Act, the Companies Act 1981 and any other Act which applies to the winding up of a company, save that in the event of any conflict, the provisions of this Act shall prevail.

(1A) For the purposes of determining whether a segregated accounts company may be wound up on the ground of insolvency—



APPLEBY

(a) the test of insolvency which applies under section 162 of the Companies Act 1981 and (in the case of an insurance company) section 33 of the Insurance Act 1978 shall apply; and

(b) assets and liabilities linked to segregated accounts shall not be taken into account.

(2) Where—

(a) a petition for the winding up of a segregated accounts company is presented pursuant to Part XIII of the Companies Act 1981 (which relates to winding up); and

(b) the segregated accounts company is solvent under section 2(2) of this Act, Deleted and Substituted by 2002 : 10

the court shall not proceed on the petition on any ground provided for in paragraph (a), (b), (c) or (d) of section 161 of that Act and shall not proceed unless the court is satisfied that to proceed would be just and equitable in all the circumstances.

(3) A segregated accounts company shall not be voluntarily wound up without the consent of the Registrar.


§25 Application of assets

25 (1) Notwithstanding any statutory provision or rule of law to the contrary, in the winding up of a segregated accounts company the liquidator shall deal with the assets and liabilities which are linked to each segregated account only in accordance with this Act and accordingly the liquidator shall ensure that the assets linked to one segregated account are not applied to the liabilities linked to any other segregated account or to the general account, unless an asset or liability is linked to more than one segregated account, in which case the liquidator shall deal with the asset or liability in accordance with the terms of any relevant governing instrument or contract.


(2) The remuneration to be paid to the liquidator shall be apportioned by the liquidator to each segregated account and the general account in such amounts as would best reflect the duties performed by the liquidator and approved by the court.

(3) The liquidator, or any person affected by a decision of the liquidator, may apply to the court for directions in relation to the remuneration of the liquidator.

PART V GENERAL

§26 Directions of Minister to modify the provisions of this Act

26 (1) The Minister may, on the application, or with the consent in writing, of any segregated accounts company or any company intending to file a notice pursuant to section 5, direct that—


(a) any or all of the provisions of sections 5, 7, 11 and 16 shall not apply to such company; or


(b) those provisions or any of them shall apply to it subject to such modifications as may be specified in the direction.

(2) A direction under this section may be made subject to conditions.

(3) A direction under this section may be revoked by the Minister at any time provided that the company shall be given an opportunity to make representations to the Minister before the revocation takes effect.

(4) An application for a direction under this section shall be supported by a statutory declaration made by at least two directors to the effect that no creditor of the company or of any



APPLEBY

segregated account thereof shall be prejudiced by the effect of the direction, if given, or that each creditor has consented in writing to the giving of such direction.

(5) A direction under this section is a public document available for inspection on the records maintained by the Registrar in respect of the company.

(6) A direction under this section is not a statutory instrument having legislative effect.

(7) Where a direction is given under subsection (1), the relevant provision shall have effect subject to the direction.

§27 Minister may make regulations

27 (1) The Minister may make regulations for the better carrying out of the provisions of this Act.

(2) The negative resolution procedure applies to regulations made under subsection (1).

§27A Effect on transaction and interests in a segregated account of infringement of this Act

27A Subject to subsections 17(4) and (8), no transaction or interest in a segregated account shall be void or voidable by reason only that at the relevant time the segregated accounts company fails to comply with, or is in breach of, any provision of this Act.


§28 Suits and actions against Registrar and Official Receiver

28 (1) No suit or action shall lie against the Registrar or Official Receiver or any person acting on their behalf in respect of anything done or omitted to be done in their official capacity in good faith without negligence.

(2) Nothing in subsection (1) shall be deemed to interfere with applications or references to the court under Part XIII of the Companies Act 1981 (which relates to winding up).

§29 Registrar and Official Receiver to be indemnified in respect of foreign suits

29 Neither the Registrar nor the official Receiver shall be required to prosecute, defend or take part in any proceedings outside the jurisdiction of the court unless he is indemnified by or on behalf of the person who wishes him to act against any judgment, order or costs that may be awarded against that person by deed, guarantee or deposit, as he may require.

§30 Offences 30 Any person who—

(a) for any purpose under this Act makes a statement or declaration that he knows or has reasonable grounds to believe to be false, deceptive or misleading in a material particular;

(b) fails to comply with a condition or requirement under section 6(3) or section 9; or


(c) being a segregated account representative, fails to perform his duty under section 10(3),

is guilty of an offence and is liable on summary conviction to a fine of $5000 or imprisonment for 12 months, or both.

§31 Fees 31 The Fifth Schedule to the Companies Act 1981 is amended by the addition of the following—

"C SEGREGATED ACCOUNTS COMPANIES


APPLEBY

In addition to the annual fee or tax otherwise payable under this Schedule a segregated accounts company registered under section 6 of the Segregated Accounts Companies Act 2000 shall pay an annual fee of $250 in respect of each segregated account operated by the company, subject to a maximum annual fee of $1000 in the aggregate."

§32 Commencement

32 This Act comes into operation on such day as the Minister may appoint by notice published in the Gazette.

[Amended by

Segregated Accounts Companies Amendment Act 2002 2002 : 10

Segregated Accounts Companies Amendment Act 2004 2004 : 30]

BERMUDA MONETARY AUTHORITY

INSURA NCE DEPARTMENT

GUIDANCE NOTE #1

ROLE OF THE PRINCIPAL REPRESENTATIVE

MARCH 2005

Role of the Principal Representative Bermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: ROLE OF THE PRINCIPAL REPRESENTATIVE

Introduction 1 The role of the Principal Representative is integral to the Bermuda insurance supervisory

framework. This Note sets out guidance on the role of the Principal Representative. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.

2 The Bermuda Monetary Authority (the “Authority”) recognizes the need for clarity as to

the scope and implementation of the provisions of the Act 1 if the regulatory system is to command the confidence of both insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, the Guidance is not

intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the appointment and the role of the Principal Representative and provides additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 Other guidelines issued by the Authority contain additional information related to the

criteria and approval process for the Principal Representative. 5 The Authority’s guidance is of general application and seeks to take account of the wide

diversity of institutions that may be licensed under the Act. There may be a need for revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of a revised version.

6 Guidance should be understood as reflecting the minimum standard that the Authority

expects insurers to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004, insurers must take immediate steps to ensure they are in compliance with the Act. In

1 The insurance legislation is comprised of the Insurance Act 1978 (as amended by the Insurance Amendment Acts,

1981, 1983, 1985, 1995, 1998 and 2001) and the regulations promulgated under that Act (the "Regulations"). The Regulations are the Insurance Accounts Regulations 1980 (as amended by The Insurance Accounts Amendment Regulations 1981, 1985 and 1989) and the Insurance Returns and Solvency Regulations 1980 (as amended by The Insurance Returns and Solvency Amendment Regulations 1981, 1985 and 1989). References herein to the "Act" are to the Insurance Act 1978 (as amended) and the Regulations.

2 The legislative summary in this Guideline is not intended to be a substitute for examining provisions of the Act. The

reader is advised to refer to the legislation and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR” refers to the

Insurance Returns and Solvency Regulations 1980.


relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Requirement for a Principal Representative and a Principal Office 7 The Act requires every registered insurer to appoint a Principal Representative resident in

Bermuda and to maintain a principal office in Bermuda. (IA 8(1)) The Principal Representative must be knowledgeable in insurance and is responsible for filing the annual Statutory Financial Return and Statutory Financial Statements, as applicable, and for the maintenance of and custody of the statutory accounting records such as are necessary for the Principal Representative to perform its role. The Principal Representative would generally be either a director, senior financial officer or manager normally resident in Bermuda, or a Bermuda registered insurance management company.

8 Each insurer must obtain the Authority’s approval for its appointment for Principal

Representative (IA 8(1A)). 9 The principal office can be the office of that director or manager, or the office of the

management company. Notification of the Principal Representative and the Principal Office 10 At the time of registration an insurer shall give notice in writing to the Authority of the

location of its principal office and of the particulars of its Principal Representative (IA 8(2)).4 If any of this information is altered, the insurer is required to notify the Authority within fourteen days after the alteration is made (IA 8(3)).

11 Neither the insurer nor the Principal Representative may terminate the Principal

Representative's appointment with less than thirty days' written notice to the Authority or such shorter notice as the Authority may permit (IA 8(3A)). The Authority expects that the departing Principal Representative will remain responsible until a new Principal Representative has accepted the appointment and been approved by the Authority.

Role and Duties of the Principal Representative 12 The Authority expects insurers to be prudently managed. While the board of directors

and the senior management have the primary responsibility for the conduct and performance of the insurer, the Principal Representative acts in an “early warning” role and monitors the insurer’s compliance with the Act on a continuous basis.

4 At the time of registration the insurer is also to give notice in writing of the prescribed particulars of its

insurance manager (if it has one), its approved auditor and any other prescribed person to be engaged or employed in, or connection with, its business. (IA 8(2)(b))


13 The Principal Representative has the legislated duty to report certain events to the

Authority (“reportable events”) (IA 8A). These reportable events include the following: • where the Principal Representative reaches the view that there is a likelihood of the

insurer becoming insolvent; • failure of the insurer to comply substantially with a condition imposed upon the

insurer by the Authority relating to a solvency margin or a liquidity or other ratio; • failure of the insurer to comply with any condition imposed upon the insurer by the

Authority not relating to a solvency margin or a liquidity or other ratio; • failure by the insurer to comply with a modified provision, or with a condition,

specified in a direction given to the insurer by the Authority pursuant to the Authority’s power to modify accounting provisions in certain cases pursuant to Section 56 of the Act;

• where an insurer is a non-resident insurance undertaking (“NRIU”), failure to comply

with an order in force that is issued by the Ministry of Finance, acting on the advise of the Authority, requiring that every NRIU, or every NRIU of a class specified in the order, must:

- maintain invested assets in Bermuda of the value and type approved in the order (IA 20(8));

- must maintain in Bermuda approved assets of a value which is at any time equal to the whole or a specified proportion of the amount of its domestic liabilities (IA 21(5));

- where a NRIU is required to maintain in Bermuda approved assets of a specified value, maintain these assets in Bermuda with a person approved by the Authority for the purposes of the requirements as a trustee (IA 22(5));

• failure by the insurer to comply with a modified provision, or with a condition,

specified in a direction given to the insurer by the Authority pursuant to the Authority’s power to direct that certain qualifying contracts can be designated investment contracts pursuant to Section 57A;

• involvement of the insurer in any criminal proceedings whether in Bermuda or

abroad; and, • the insurer's ceasing to carry on insurance business in or from within Bermuda. 14 The Principal Representative shall notify the Authority of any reportable events forthwith

and must provide a report in writing within 14 days (IA 8A(1)). The report should include all the particulars of the case that are available to the Principle Representative.


Payment of Dividends by a Class 4 Insurer 15 A Class 4 insurer shall not in any financial year pay dividends that would exceed 25% of

its total statutory capital and surplus for the previous financial year, unless at least 7 days before payment of those dividends, it files with the Authority an affidavit signed by at least two directors of the insurer,5 and by the insurer's Principal Representative. The affidavit should state that, in the opinion of those signing, declaration of those dividends has not caused the insurer to fail to meet its solvency margin, for all insurers, and its minimum liquidity ratio, for an insurer carrying on general business. (IA 31B(1))

Management Information 16 The Act provides that the insurer is to maintain at the principal office an accurate list of

all its insurance agents in Bermuda. The insurer is to provide a copy of such list to the Authority if, at any time, the Authority makes a request in writing for the list (IA 8(4)).

17 The Authority expects that an insurer will make arrangements to enable the Principal

Representative to undertake its duties pursuant to the Act on an efficient and effective basis. These arrangements would normally include ensuring that the Principal Representative has access to the management information and people that the Principal Representative reasonably believes is necessary to fulfill its role. This information should be both timely and accurate, and supported by complete and accessible records.

18 Further to paragraph 17 the Authority expects the insurer to maintain adequate books and

records in Bermuda, which are available to the Principal Representative. These records would include:

• all sums of money received and expended by the insurer and the matters in respect of

which the receipt and expenditure takes place; • all premiums and claims relating to the insurer; and, • the assets, liabilities and equity of the insurer. 19 The Authority expects the Principal Representative to take all reasonable steps to fulfill

its responsibilities, including being satisfied that there are no reportable events. Where the Principal Representative does not have access to sufficient information about the insurer, necessary for it to fulfill its responsibilities, the Principal Representative should contact the Authority.

5 One of the directors must be a director resident in Bermuda if the insurer has a director so resident.


End of guidance note. If you have questions on this or other guidance from the Insurance Department please email [email protected] . Please put “Insurance Guidance” in the title of your email.



INSURANCE DEPARTMENT

GUIDANCE NOTE #2

APPOINTMENT, ROLE AND QUALIFICATIONS OF THE INSPECTOR

MARCH 2005

Appointment, Role and Qualifications of the Inspector Bermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: APPOINTMENT, ROLE AND QUALIFICATIONS OF THE INSPECTOR

Introduction 1 The Inspector, appointed pursuant to Section 30 (“Inspector” or “Section 30 Inspector”)

of the Act 1 is an important supervisory tool in the Bermuda insurance supervisory framework. This Note sets out guidance on the appointment and role of the Inspector. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


the scope and implementation of the provisions of the Act if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this Guidance is not

intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the appointment, the role and the qualifications of an Inspector appointed pursuant to Section 30 of the Act and to provide additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 However, interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 The Authority’s guidance is of general application and seeks to take account of the wide



expects insurers and Inspectors to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004, insurers must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority



2 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act. The reader is

advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR” refers to

the Insurance Returns and Solvency Regulations 1980. Appointment, Role and Qualifications of the Inspector Bermuda Monetary Authority March, 2005 Page 2 of 6

encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Appointment of the Section 30 Inspector 6 Where the Authority is satisfied that an investigation of the affairs of an insurer is

required in the interest of policyholders, or of persons who may become policyholders, the Authority may appoint an Inspector to investigate the affairs, or any part of the affairs, of an insurer (IA 30(1)) (“Section 30 inspection”). Additionally, where a Class 4 insurer has failed to file its statutory financial statements or return within 3 months of its filing date, the Authority may appoint an Inspector to investigate the affairs of the Class 4 insurer (IA 18A(5)).

7 In this guidance, any insurer, in relation to whose affairs an Inspector has been appointed,

may be referred to as an "insurer under investigation". 8 This power to appoint an Inspector is a remedial one that is to be used as required.

Section 30 inspections are apart from the routine on-site examination process or “prudential visits”. The prudential visits, which may be carried out pursuant to Section 29A, are to supplement the regular off-site monitoring process carried out by the Authority and are an additional means of evaluating the risk profile of an insurer.

9 Fact-finding, reporting, and evaluation are the most critical aspect of the inspection

activities. The purpose of a Section 30 inspection is to develop information to assist the Authority in its evaluation of the financial condition, solvency and regulatory compliance of the insurer under investigation. The scope of a Section 30 inspection may reflect the risk profile of the insurer, and may cover all areas of an insurer’s affairs – a so-called “full scale review”. The inspection may also be on a focused basis, targeting specific issues or concerns that, for example, may have arisen as a result of a prudential visit or the off-site review process.

10 Examples of instances where an Inspector may be appointed for a risk-focused review

include, but are not limited to: where the Authority requires a report on aspects of an insurer’s systems and controls during a specified period, where specific concerns arise (for example because of past evidence of serious control lapses), or where there may be a need for a more specialized or technical report (e.g. into an institution’s computer systems). Periodically, the Authority may appoint an Inspector to certify the accuracy of a particular prudential return (or of parts of a particular return) previously submitted to the Authority. Material concerns about the accuracy or timeliness of an insurer’s prudential reporting may, in turn, lead to the commissioning of further reporting accountant work - for example, assessing the quality of its management information systems.


Instruction Letter 11 When the Authority decides to appoint an Inspector to investigate the affairs of an

insurer, it will draw up an instruction letter that would usually address the following matters, when relevant and significant:

h the objective and nature of the engagement; h the respective responsibilities of the Authority and the Inspector; h the nature, timing and extent of the Inspector’s work; h the nature of the Inspector’s report, if any; and any other work to be delivered; h responsibility for the payment of the costs of the inspection; h the Inspector’s responsibilities such as objectivity, due care, confidentiality, and

exchange of information and documentation. 12 The instruction letter will be discussed with the Inspector and the insurer under

investigation before being finalized. Ultimately, however, the decision on scope rests with the Authority. When finalized, the Authority will write formally to the Inspector, with a copy to the insurer, requiring the work to be commissioned and stipulating the deadlines to be met.

Right to Information 13 Any insurer under investigation, and any past or present officer, employee or insurance

manager of such an insurer, is to produce to the Inspector, on request, all books, records and documents relating to the insurer under investigation which are in its or his custody or control and, otherwise, to give to the Inspector all assistance in connection with the investigation which it or he is reasonably able to give (IA 30(2)).

14 In investigating the affairs of an insurer under inspection, an Inspector may examine

under oath any past or present officer, employee, or insurance manager of the insurer under investigation in relation to its business, and, for that purpose, may administer an oath accordingly (IA 30(3)(a)). If the Inspector thinks that it necessary for the purposes of his investigation to examine under oath a person who is not a past or present officer, employee, or insurance manager of the insurer under investigation, the Inspector may make application to the Court to examine that person. If it thinks fit, the Court may order that person to attend and be examined on oath before the Court on any matter relevant to the investigation (IA 30(3)(b)).


Inspector’s Reports 15 The Inspector may be required to report, from time to time, to the Authority and shall on

the completion of his investigation report to the Authority (IA 30(4)). Any reports and working papers produced pursuant to a Section 30 inspection are the property of the Authority, and no other person shall be informed of the nature or contents of the report, except for a copy of the final report which will be provided by the inspector to the insurer under investigation (IA 30(4)). Additionally the Inspector shall not disclose to any person, other than the Authority, any information received by him as a result of the performance of his role (IA 52(1)).

16 Any report prepared by the Inspector should include an outline of the steps undertaken in

fulfilling the scope of the work set out in the instruction letter. If applicable, this should include a brief statement as to the procedure, an outline of key tests conducted and of the extent of testing. The report should detail any exceptions found during the review and set out the risks run by the institution in not correcting the particular weakness or deficiency identified. If included in the scope of the assignment, the Inspector should include recommendations and suggestions for actions to ensure compliance with the Act and best practice, and directions for minimizing risks.

17 Where the Authority considers it necessary to reach agreement with the insurer on the

facts and conclusions in the report, the Authority may discuss any preliminary or final reports, or any facts or conclusions contained therein, with the insurer. At the discretion of the Authority a copy of the report may be forwarded to the insurer.

Confidentiality 18 Any investigation under section 30 shall be held in private. 19 The Authority shall generally not disclose any information received pursuant to a Section

30 inspection 4, exceptions include: • if the consent for disclosure is received from the person to whom the information

relates or from whom the information was received (IA 52(1)); • if the information is or has already been made available to the public (IA 52(2)); • if the disclosure of information is for the purpose of enabling or assisting a Section 30

Inspector to carry out an inspection (IA 52(2)); • if the disclosure of the information is necessary for the Authority to discharge its

functions under the Act (IA 52A), for an authority in a country or territory outside Bermuda to exercise functions corresponding to the functions of the Authority under

4 The Authority shall not generally disclose any information received, directly or indirectly, pursuant to the Act.

Sections 52A, 52C and 52C describe some specific exceptions. The disclosure of information in contravention of section 52(1) is an offence under the Act.


the Act (IA 52B(2)), or for the Minister of Finance or any other authority in Bermuda to discharge its regulatory functions (IA 52B(1)); or,

• if the disclosure of information is with a view to the institution of, or otherwise for

the purposes of, any criminal proceedings, whether under the Act or any other Act or, in connection with any other proceedings arising out of this Act (IA 52(5)).

Qualifications of the Inspector 20 Whether the role of Inspector is performed by staff of the Authority or by other suitably

qualified specialists, an inspection is an important supervisory tool. This reliance on the Inspector requires that the Authority exercise a degree of oversight over the fitness and propriety of each Inspector and the effectiveness of the functioning of the Inspector in the required role.

21 Inspections need to be conducted by skilled people that can evaluate and analyze the

information obtained during the inspection. The Authority will provide guidance on the scope and procedures for the inspection. However, Inspectors will need to use their investigative and technical skills when forming views about the information they obtain.

22 When appointing an Inspector, the Authority will consider whether the person is suitably

qualified for the role (IA 30(1)). This requires that the Authority consider whether the Inspector is fit and proper to fulfill the intended role. With due regard to the size and complexity of the insurer under investigation, criteria to assess the fitness and propriety of an Inspector include qualifications, professional proficiency, appropriate practical experience and updated knowledge on developments within its professions, and membership in professional bodies. In addition, the Authority will take into account potential or existing conflicts of interests, and the need for specialized skills.

Expenses Payable by Insurer 23 The expenses entailed by an inspector are payable by the company to the Authority

unless otherwise directed by the Authority (IA 30(5)). End of guidance note. If you have questions on this or other guidance from the Insurance Department please email [email protected] . Please put “Insurance Guidance” in the title of your email.




GUIDANCE NOTE #3

FIT AND PROPER CRITERIA AND APPROVAL PROCESS FOR LOSS RESERVE SPECIALISTS

MARCH 2005

Fit and Proper Criteria and Approval Process for Loss Reserve SpecialistsBermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: FIT AND PROPER CRITERIA AND APPROVAL

PROCESS FOR THE LOSS RESERVE SPECIALIST Introduction 1 The role of the Loss Reserve Specialist is integral to the Bermuda insurance

supervisory model. The primary role of the approved Loss Reserve Specialist is to opine on the adequacy of the loss and loss expense provisions, reflected in insurers’ statutory financial statements and statutory financial returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). This opinion assists the Authority in monitoring the adequacy of loss and loss expense provisions of insurers, as at a certain date, based on information known as at the date of the preparation of the opinion. This Guidance describes the eligibility criteria and the approval process for the Loss Reserve Specialist of an insurer. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.

2 The Authority recognizes the need for clarity as to the scope and implementation

of the provisions of the Insurance Act and related regulations (the ”Act”)1, if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this Guidance Note

is not intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the eligibility criteria and the approval process for Loss Reserve Specialists and to provide additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are in brackets.) 3

1 The insurance legislation is comprised of the Insurance Act 1978 (as amended by the

Insurance Amendment Acts, 1981, 1983, 1985, 1995, 1998 and 2001) and the regulations promulgated under that Act (the "Regulations"). The Regulations are the Insurance Accounts Regulations 1980 (as amended by The Insurance Accounts Amendment Regulations 1981, 1985 and 1989) and the Insurance Returns and Solvency Regulations 1980 (as amended by The Insurance Returns and Solvency Amendment Regulations 1981, 1985 and 1989). References herein to the "Act" are to the Insurance Act 1978 (as amended) and the Regulations.

2 The legislative summary in this Guideline is not intended to be a substitute for provisions of

the Act. The reader is advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980.

“IRASR” refers to the Insurance Returns and Solvency Regulations 1980. Fit and Proper Criteria and Approval Process for Loss Reserve SpecialistsBermuda Monetary Authority March, 2005 Page 2 of 6

4 Other guidelines issued by the Authority contain additional information related to the eligibility criteria and approval process for Loss Reserve Specialists.

5 The Authority’s guidance is of general application and seeks to take account of

the wide diversity of institutions that may be licensed under the Act. There may be a need for revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of revised versions.

6 Guidance should be understood as reflecting the minimum standard that the

Authority expects insurers to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004, insurers must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered under the Act who carry on

general business, and to all Loss Reserve Specialists approved by the Authority pursuant to the Act.

Definitions 8 Loss Reserve Specialist. A Loss Reserve Specialist is a natural person approved

by the Authority as qualified to provide an opinion as to the adequacy of an insurer’s loss and loss expense provisions for its General Business as reported in its statutory financial statements.

Fitness and Propriety of the Loss Reserve Specialist 9 Prior to appointing a candidate for Loss Reserve Specialist, the insurer must

consider whether its candidate meets the eligibility criteria of the Authority and whether the candidate is fit and proper to fulfill its role. This requires considering whether, commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act, the person possesses the appropriate integrity, competency, resources, qualifications and experience. Wherever appropriate, the insurer should seek confirmation of this in advance from the candidate.

10 If an insurer becomes aware at any time that its Loss Reserve Specialist is no

longer fit and proper, the insurer must take timely steps to replace the Loss Reserve Specialist with a person who meets the eligibility and fit and proper criteria.


11 An insurer must provide information when requested by the Authority, to

demonstrate that its candidate for Loss Reserve Specialist meets, or in the case of an incumbent Loss Reserve Specialist continues to meet, the eligibility and fit and proper criteria according to this Guidance Note.

Acceptance of an Engagement 12 Prior to accepting an appointment as the Loss Reserve Specialist, and on an on-

going basis, the candidate must be satisfied that, given the scale and complexity of the business as written by the insurer, the estimation of the liabilities of the insurer pursuant to the Act is within the person’s professional expertise and proficiency, and that the Loss Reserve Specialist is not subject to any conflicts of interests that would affect the Loss Reserve Specialist’s ability to objectively fulfill his or her role.

13 A Loss Reserve Specialist may be an employee of or a consultant to the insurer. In these instances the Loss Reserve Specialist must disclose such a relationship to the Authority. Additionally the Loss Reserve Specialist must confirm in the Letter of Undertaking that the Loss Reserve Specialist is not subject to any actual, potential or perceived conflicts that may prevent the Loss Reserve Specialist from objectively fulfilling his or her role.

Criteria for Approval 14 Prior to approving a person as the Loss Reserve Specialist, the Authority will

assess whether the Loss Reserve Specialist is fit and proper to fulfill the role required. Fit and proper criteria would include whether, commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act, the person possesses the appropriate integrity, competency, resources, qualifications (including membership in relevant associations) and experience.

15 A person will generally be considered fit and proper if the person is:

a) a member in good standing of the Institute of Actuaries (for England and Wales), the Faculty of Actuaries (in Scotland), the Canadian Institute of Actuaries, the American Academy of Actuaries, the Institute of Actuaries of Australia, or the Casualty Actuarial Society (in the US); and

b) meets the education and examination requirements to be considered qualified to sign Statutory loss reserve opinions for general business by their relevant association; and,

c) has experience in loss reserve evaluation for the business as written by the insured.

16 The Authority will not normally approve a loss reserve specialist unless the person meets the criteria as described in paragraph 15. Where an insurer, other


than a Class 4 insurer, can demonstrate to the reasonable satisfaction of the Authority that circumstances exist as to why a person who should be approved as the Loss Reserve Specialist, and that the person otherwise has competency in loss reserve evaluation, appropriate for the insurer, and the person otherwise meets the fit and proper criteria, the Authority may use its discretion to approve the appointment of the person.

17 In the event that an insurer wishes to appoint a Loss Reserve Specialist who does

not appear to meet the criteria of paragraph 15, the insurer should seek preliminary discussions with the Authority in order as to identify any issues that would need to be addressed prior to such an appointment.

18 When making an approval pursuant to paragraph 17, the Authority will give due

regard to the particular circumstances, such as the business as written by the insurer to be opined on. Any such approval given will not be for more than 3 years.

19 While the Loss Reserve Specialist may be an employee of, or consultant to, the

insurer, a person will not be approved as the Loss Reserve Specialist if the person is:

- the chief executive officer, the chief operating officer or the chief financial officer (or a person performing like functions for the insurer); - a director of the insurer; - a person with underwriting authority for the insurer; or, - a person in any other role with the insurer where in the view of the Authority there is a conflict of interests that would affect the Loss Reserve Specialist’s ability to objectively fulfill its role.

Approval Process for Loss Reserve Specialist 20 Before the Authority will approve the appointment of a Loss Reserve Specialist,

as part of the approval process the Authority will require the following information:

• A resume with information about relevant qualifications, including

membership in professional associations, employment history and related work experience

• Copies of certificates and confirming evidence from relevant associations

attesting to the fact that the candidate is a member in good standing of the associations.

• If applicable, a written explanation from the insurer explaining the reason

for any change in the Loss Reserve Specialist • A Letter of Undertaking from the Loss Reserve Specialist


• If applicable, a written explanation from the previously approved Loss

Reserve Specialist of the reasons for the revocation of his appointment by the insurer

• A resignation letter, if applicable, from the previous approved Loss Reserve

Specialist Certificate of Approval 21 The Authority will, upon approval of the candidate issue a certificate of approval.

Such certificate may restrict the approval to current lines of business if the Loss Reserve Specialist has not demonstrated broad insurance expertise. Additionally the certificate will be limited to 3 years or less if the Loss Reserve Specialist does not meet the criteria of paragraph 15.





GUIDANCE NOTE #4

ROLE OF THE LOSS RESERVE SPECIALIST

MARCH 2006

Role of the Loss Reserve SpecialistBermuda Monetary Authority March, 2006 Page 1 of 12

GUIDANCE NOTE: ROLE OF THE LOSS RESERVE SPECIALIST

Introduction 1 The role of the Loss Reserve Specialist is integral to the Bermuda insurance

supervisory framework. The primary role of the approved Loss Reserve Specialist is to opine on the adequacy of the loss and loss expense provisions, reflected in insurers’ statutory financial statements and statutory financial returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). This opinion assists the Authority in monitoring the adequacy of loss and loss expense provisions of insurers, as at a certain date, based on information known as at the date of preparation of the opinion. This Note sets out guidance on the role of the Loss Reserve Specialist. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


of the provisions of the Act 1 if the regulatory system is to command the confidence of both insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.


intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the appointment and the role of the Loss Reserve Specialist and provides additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 Other guidelines issued by the Authority contain additional information related to

the criteria and approval process for Loss Reserve Specialists.

1 The insurance legislation is comprised of the Insurance Act 1978 (as amended by the Insurance

Amendment Acts, 1981, 1983, 1985, 1995, 1998, 2001, 2002 and 2004) and the regulations promulgated under that Act (the "Regulations"). The Regulations are the Insurance Accounts Regulations 1980 (as amended by The Insurance Accounts Amendment Regulations 1981, 1985 and 1989) and the Insurance Returns and Solvency Regulations 1980 (as amended by The Insurance Returns and Solvency Amendment Regulations 1981, 1985 and 1989). References herein to the "Act" are to the Insurance Act 1978 (as amended) and the Regulations.

2 The legislative summary in this Guideline is not intended to be a substitute for examining provisions of

the Act. The reader is advised to refer to the legislation and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR”

refers to the Insurance Returns and Solvency Regulations 1980. Role of the Loss Reserve SpecialistBermuda Monetary Authority March, 2006 Page 2 of 12

5 The Authority’s guidance is of general application and seeks to take account of the wide diversity of institutions that may be licensed under the Act. There may be a need for revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of revised versions.


Authority expects insurers to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004, insurers must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than the filing date of their statutory financial returns filed in respect to 2006 financial year-ends, or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered under the Act who carry on

general business, and to all Loss Reserve Specialists approved by the Authority pursuant to the Act.

Definitions 8 Loss Reserve Specialist. A Loss Reserve Specialist is a natural person approved

by the Authority as qualified to provide an opinion as to the adequacy of an insurer’s loss and loss expense provisions for its General Business as reported in its statutory financial statements.

9 Adequate. In the context of a Loss Reserve Specialist opining on Line 17 of

Bermuda Statutory Financial Statements, means that the held reserve equals or exceeds a reasonable estimate of liabilities.

Appointment of Loss Reserve Specialist 10 Insurers writing general business must appoint a Loss Reserve Specialist in

accordance with the Act, and have this appointment approved by the Authority. The Act sets out the specific circumstances where general business insurers are required to obtain the opinion of a Loss Reserve Specialist (see paragraphs 19 to 21) and accordingly must appoint a Loss Reserve Specialist.

11 Each insurer required to appoint a Loss Reserve Specialist must apply in writing

to the Authority for approval of their candidate for that position. The Authority will confirm in writing its decision concerning the approval or otherwise of the insurer’s candidate for Loss Reserve Specialist.


12 If any of the information included in the application for the Loss Reserve Specialist changes, the insurer shall provide written notice to the Authority of the changes within 14 days of the date of becoming aware of such changes (IA 8(3)).

Change in Loss Reserve Specialist 13 Where there is a change in the Loss Reserve Specialist, the insurer shall provide

written notice to the Authority of the change and the reasons for the change within 14 days of the decision to effect such change. (IA 8(3))

14 Where a Loss Reserve Specialist resigns before the expiration of his or her term

of office or decides not to seek to be re-appointed, and where there are circumstances connected with his resignation which he or she considers should be brought to the attention of the Authority, the Loss Reserve Specialist shall within 14 days give written notice (“resignation letter”) to the Authority of its decision and the reasons for the decision.

15 Where the Loss Reserve Specialist’s appointment is revoked by an insurer, and

where there are circumstances connected with this revocation which the Loss Reserve Specialist considers should be brought to the attention of the Authority, the Loss Reserve Specialist shall provide the Authority with a written statement within 14 days of the circumstances and reasons why, in the Loss Reserve Specialist’s opinion, the Loss Reserve Specialist’s appointment was revoked.

Disqualification 16 The Authority may require that an insurer remove a person occupying the role of

Loss Reserve Specialist where the Authority is satisfied that the person is no longer fit and proper for the role (IA 8B(4)). Criteria for disqualification could include, but are not limited to, where the person:

- Has failed to perform adequately and properly the functions and duties of such

appointment; or, - No longer meets the fit & proper criteria for such an appointment. 17 The Authority shall not revoke its approval unless it has first notified the Loss

Reserve Specialist and the insurer of its intention to do so (IA 8B(5)).


Letter of Undertaking 18 Any new candidate for Loss Reserve Specialist shall provide the Authority with a

letter of undertaking that he or she will perform their functions in accordance with the Act and the standards of their relevant association. Where a Loss Reserve Specialist is approved pursuant to paragraphs 16 to 18 of the Guidance Note ‘Fit and Proper Criteria and Approval Process for the Loss Reserve Specialist’, any new candidate for Loss Reserve Specialist is expected to provide the Authority with a letter of undertaking that he or she will perform its functions in accordance with the Act.

Opinion with Statutory Financial Return 19 Class 2, Class 3 and Class 4 insurers shall include the opinion of a Loss Reserve

Specialist, regarding the insurer’s general insurance loss and loss expense provisions, with the statutory financial return. The opinion of the Loss Reserve Specialist shall be provided annually in the case of Class 3 and Class 4 insurers, and every third year in the case of Class 2 insurers. (IA 18B (1) (2))

20 Class 1 insurers, and Class 2 insurers who are not already required to include a

loss and loss expense provision opinion with the Statutory Financial Return for the relevant year, are required to include the opinion of a Loss Reserve Specialist with their annual Statutory Financial Return (IA 18B(3)):

a) If the gross premiums from professional liability insurance are more than

30% of the gross premium written by the insurer during the year. In such a case the insurer must obtain an opinion of a Loss Reserve Specialist on the loss and loss expense provisions relating to all professional liability insurance 4 business. If the loss provisions for professional liability business cannot be separated from the whole amount of the loss and loss expense provisions, then the opinion of the Loss Reserve Specialist must be provided in respect of the entirety of the insurer’s loss and loss expense provisions. (IA 18B(3); IAR 5)

b) If in prior years the insurer wrote professional liability insurance, and if in

either of the last two years during which the insurer wrote professional liability insurance, an opinion pursuant to (a) above was required. In such a case the insurer must obtain an opinion of a Loss Reserve Specialist in

4 "Professional liability insurance" as meaning liability insurance business where the

risks, the subject of the contract of insurance, are risks of the persons insured incurring liabilities in relation to the negligence or other exercise by those persons of some professional skill.

5 Schedule III, Part II, Line 17


respect of the loss and loss expense provisions relating to all professional liability insurance business in every subsequent year. (IAR 6)

c) If the insurer discounts its loss and loss expense provisions, and the insurer

would not meet its general business solvency margin on an undiscounted basis. (IAR 7). 8

21 The Authority, as it sees fit, may also impose a condition in the license of

any insurer requiring the insurer to include the opinion of a Loss Reserve Specialist on the loss and loss expense provisions with the annual statutory financial return (IA 4(2)).

Failure to Meet Solvency Requirements 22 Where by reason of its total statutory capital and surplus falling to $75,000,000 or

less, a Class 4 insurer fails to meet its general business solvency margin (or has reason to believe that such a failure has occurred), it must file unaudited interim statutory financial statements, covering such period as the Authority may require, and the opinion of a Loss Reserve Specialist in relation to line 17 (the Loss and loss expense provision) of these financial statement. The unaudited interim statutory financial statements and the opinion of the Loss Reserve Specialist are to be filed within 45 days, and are to be filed with a general business solvency certificate in respect of the statements and include a report containing the particulars of the circumstances leading to the failure, the manner by which the insurer intends to rectify the failure, and the date by which the insurer intends to rectify the failure. (IA 31A (1) (2))

6 Schedule III, Part II, Line 17(g)) 7 Sch III, Part II, Line 17(e 8 Loss provisions may be discounted for all insurers (Class 1, 2, 3 and 4) if: both the

amount of the loss provisions and the payment dates of the losses are fixed; neither the amount of the loss provisions nor the payment dates of the losses are fixed but the insurer's approved auditor is of opinion that that amount and those dates are reasonably ascertainable either in the records of the insurer itself or in those of any group of companies of which the insurer is a member; or, if the loss provisions in question were discounted on or before 31st December, 1988 in the insurer's statutory financial statements. (IA Reg, Sch III, Part II, Line 17(c))


Line 17 – Valuation of loss and loss expense provisions 23 Line 17, the provision for loss and loss expense in the statutory balance sheet

provisions includes:

a) An adequate amount set aside by the insurer for gross loss and loss expenses provisions, including for:

- losses reported before, but not paid by, the date of the balance sheet, - losses incurred but not reported to the insurer before the last day of the

relevant year, and, - expenses likely to be incurred in connection with the investigation, ad-

justment and settlement of such losses

b) less a reduction for an adequate amount for estimates for any amounts recoverable (“estimate for reinsurance recoverables”) under a contract of reinsurance in respect of the gross loss and loss expense provisions. (IAR, Sch III, Part II, Line 17 (a), (b))

24 The estimate for reinsurance recoverables is to be reduced for any amounts the

collection of which, in the opinion of the insurer, is doubtful. (IAR, Sch III, Part II, Line 17 (a), (b))

25 The provision for loss and loss expenses may be discounted:

a) Where both the amount of the loss provisions and the payment dates of the losses are fixed; b) Where neither the amount of the loss provisions nor the payment dates of the losses are fixed but the insurer's Approved Auditor and, if applicable, the Loss Reserve Specialist is of the opinion that the amounts and dates are reasonably ascertainable; or, c) Where the loss provisions in question in the insurer’s Statutory Financial Statements were discounted on or before 31st December 1988, and have been discounted in each subsequent year.

26 Where loss provisions are discounted, as allowed, the insurer is required to establish an adequate amount for possible variations in the ultimate amount of the losses, the payment dates of the losses and the applicable interest rates. (IA Reg, Sch III, Part II, Line 17 (d))


27 Where the loss and loss expense provisions are discounted, the Loss Reserve

Specialist is not required to provide an opinion on the rate or rates of interest used for discounting, or the possible variance in the interest rate or rates used for discounting.

28 The insurer is required to disclose in the notes to the Statutory Financial

Statements:

(a) The method of calculating loss and loss expense provisions and provisions for losses incurred but not reported; and,

(b) The amount by which loss and loss expense provisions have been reduced by discounting for the time value of money, and the rates, or the range of rates, of interest used in any such discounting. (IAR, Schedule II, Part II)

Accepted Actuarial Practice 29 It is the responsibility of the Loss Reserve Specialist to be conversant with the

requirements of the Act and its implications for the issuance of his or her opinion. 30 The Loss Reserve Specialist’s estimate of the loss and loss expense provision, 9

and any other matters specified by the Authority, shall be prepared in accordance with accepted actuarial practice and all applicable standards of practice of his or her relevant associations and the Act. Where any provisions of the Act differ from the standards of practice, then the Act shall prevail.

Working papers of the Loss Reserve Specialist 31 The Loss Reserve Specialist shall retain all relevant reports, records and

documents, in either electronic or paper form, and if requested by the Authority these should be made available for review in Bermuda by the Authority or its representative. Such information should be sufficient in and of itself to enable the completion of an independent review of the opinion by another unrelated but qualified Loss Reserve Specialist.

Right to Information 32 An insurer must make any reasonable arrangements that are necessary to enable

the Loss Reserve Specialist to complete his or her assigned responsibilities. This includes promptly complying with any and all reasonable requests for information.

9 Refer to line 17.


Communication of Opinion 33 Where there is a requirement for the opinion of a Loss Reserve Specialist, the

Loss Reserve Specialist shall provide an opinion as to the adequacy of the loss and loss expense provisions (or, if applicable, the portion relating to professional liability business) 10. The Loss Reserve Specialist shall further state the extent to which any instructions in the Act relating to the valuation or presentation of these loss and loss expense provisions have been complied with.

34 The following sets out minimum standards for the presentation, level of detail and

nature of discussion to be included in the communication of the Loss Reserve Specialist opinion. The content of the report should be in eight sections, as described below:

Part 1 - Identification

This section should identify the name of the Loss Reserve Specialist and his or her full address, and the professional qualifications under which the opinion is being rendered. In addition, the Loss Reserve Specialist shall confirm that he or she is a member in good standing of all relevant associations included in the application to the Authority for his or her approval and that he or she still satisfies the fit and proper criteria, with due consideration of the nature, scale and complexity of the insurer’s business.

Part 2 - Scope

This section should identify the insurer involved and the valuation date of the opinion, and provide details defining the business which is the subject of the opinion. This section should clearly identify the sections of the Insurance Act under which the provision is being provided, the relevant lines of the annual statement (or the portion thereof) for which the opinion is being given, and the date of the Statutory Financial Statements of which these lines form a part of.

Part 3 – Conditions and Limitations In this section the Loss Reserve Specialist should provide details

concerning all conditions and limitations specific to the insurer’s business and circumstances. It is not necessary that the Loss Reserve Specialist state general broad statements about risks and uncertainties due to the application of accepted actuarial practice and standards.

10 Reference is to line 17 of the IAR.


Part 4 – Review and Verification of Data

In this section the Loss Reserve Specialist should describe the source and nature of any data analysed as well as the extent of his or her reliance on data or analyses prepared by others. The Loss Reserve Specialist may rely on data provided by the insurer except that the Loss Reserve Specialist should review the data for reasonableness and consistency. The extent of any reviews, or reliance on the data should be clearly stated. However, the Loss Reserve Specialist is required to state that he or she has reviewed or evaluated all data for reasonableness and consistency.

Part 5 – Expression of Opinion

The opinion should be clearly stated without restriction unless the opinion is intended to be a qualified opinion. If the loss reserve specialist issues a qualified opinion, the qualification should disclose the nature and reasons for the qualification. Where reserves have been discounted this should be stated.

Where loss and loss expense reserves are discounted, the Loss Reserve Specialist should state the amount of discount, and the rate or rates of interest used. In addition, where loss and loss expense reserves are discounted, the Insurance Act requires that loss and loss expense reserves include “an adequate amount set aside by the insurer for possible variations in ultimate amount of losses, the payment dates of the losses, and the applicable interest rates” (IAR, Schedule III, Part I, Item 17(d)). Therefore as part of opining on Line 17 where loss and loss expense reserves are discounted, the Loss Reserve Specialist is expected to evaluate the amount set aside, and include a comment in the opinion.

The opinion paragraph should include a sentence which covers at least the points listed in the following illustration: “In my opinion, the amounts of $x carried in line 17 (described above) of the Company’s balance sheet: 1) meet the requirements of the insurance laws of Bermuda; 2) are computed in accordance with accepted loss reserving practice;

and


3) make an adequate provision for all unpaid loss and loss expense obligations of the Company under the terms of its contracts and agreements.”

Where reserves have been discounted the Loss Reserve Specialist should also state:

4) That an appropriate amount has been set aside for possible

variations in the ultimate amount of the losses, the payment dates of the losses and the applicable interest rates.

5) That the amount of discount in the reserves is $d, using rates of

interest used for discounting of i% to j%

Part 6 - Relevant Comment

In this section the Loss Reserve Specialist should include comment on matters that create additional uncertainty in the loss reserves or where the amount of liability is subject to an unusual amount of variance, such as:

- where there has been a material change in the actuarial assumptions or methods employed. The Loss Reserve Specialist should describe the nature of the change and the impact of these changes on the Loss Reserve Specialist’s valuation.

- where the information provided by the company is incomplete or inadequate to complete the evaluation in accordance with accepted loss reserving standards and professional standards. The Loss Reserve Specialist should state this and describe the impact on the Loss Reserve Specialist’s evaluation.

- where the loss reserve specialist has had to select a key assumption with limited analytical support. The Loss Reserve Specialist should state this and describe the impact that the alternative selection(s) would have on the Loss Reserve Specialist’s evaluation.

Part 7 – Work Papers

This section should include a statement describing all actuarial reports, analyses and work products that have been completed, and that these same documents should be made available in Bermuda upon request. Such documents should be sufficient in and of themselves to enable the completion of an independent review of the opinion by another unrelated but qualified Loss Reserve Specialist.


Part 8 - Signature

This section should include the Loss Reserve Specialist’s signature, the relevant professional designations, appointment status (i.e. officer designation, or consultant), the associated firm, and contact information including telephone number, fax number, and email.

End of Guidance Note.

If you have questions on this or other guidance from the Insurance Department please email [email protected] . Please put “Insurance Guidance” in the title of your email.


Bermuda Monetary Authority

Letter of Undertaking for Loss Reserve Specialist March, 2005

Letter of Undertaking – Loss Reserve Specialist

[NOTE: This form of letter was withdrawn by the BMA, together with the original Guidance Note 4, on 21 July 2005. A new Guidance Note 4 was issued in March 2006 but, as of 13 October 2006, no

new form 4A has been issued. Accordingly, this form should be considered to be an unofficial outline of the type of letter required by Guidance Note 4.]

<Please note that this letter is to be used as a standard template by the Authority for where the

Loss Reserve Specialist belongs to a professional organization. Specific situations could require modifications to the letter.>

AddressName AddressLine1 AddressLine2 AddressLine3 AddressLine4 DateToday Dear Sir

RE: <name of the insurer> Pursuant to the Insurance Act 1978 and the related regulations (the “Act”). The purpose of this letter is to confirm your appointment as the Loss Reserve Specialist for (name of the insurer) (the “Company”). Pursuant to the Act, you will provide an opinion on the adequacy of the loss and loss expense provisions, reflected in the company’s Statutory Financial Statements and Statutory Financial Returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). The opinion on the adequacy of the loss and loss expense provisions is intended solely for filing with the Bermuda Monetary Authority and is not intended to be used for any other purpose. By signing below you confirm that you: a) have an understanding of the Act and relevant guidance notes issued by the Authority and that you will perform your duties as Loss Reserve Specialist in accordance with the Act and relevant guidance notes and in accordance with standards and guidance issued by (Name of professional body). b) that you are a member in good standing of (Name of professional body for standards and disciplinary procedures) and a Fellow/Associate of (Name of professional body for relevant professional qualification) and that you have the relevant experience for the business transacted by the Company. c) that you are an employee of/consultant to the Company; and, d) that you do not have know of any reasons why you will not be able to perform your duties and that you are not aware of any actual, potential or perceived conflicts that may prevent you from

performing your role as Loss Reserve Specialist to the Company in accordance with the Act and relevant guidance and in accordance with standards of practice of (Name of professional body). The Authority has issued guidance notes which set out minimum standards for the presentation, level of detail and nature of discussion to be included in the communication of the loss reserve opinion. The Authority has issued guidance notes for the Fit & Proper Criteria for the Loss Reserve Specialist. By signing below you confirm your belief that you meet these criteria. If circumstances arise such that you no longer meet the criteria, that you will notify the Company, and tender your resignation as Loss Reserve Specialist of the Company. If you resign as Loss Reserve Specialist before the expiration of your term of office or if you decides not to seek to be re-appointed, and if there are circumstances connected with your resignation which you consider should be brought to the attention of the Authority, you agree that you will, within fourteen days, give written notice to the Authority of your decision and the reasons for your decision. Where your appointment as Loss Reserve Specialist is revoked by an insurer, and where there are circumstances connected with this revocation which you consider should be brought to the attention of the Authority, you agree that you shall provide the Authority with a written statement, within fourteen days, of the circumstances and reasons why in your opinion, your appointment was revoked. Yours faithfully Bermuda Monetary Authority Signature : ____________________________________________________[Signature] ____________________________________________________[Printed Name] ____________________________________________________[Professional Designations] ____________________________________________________[Contact details] cc: the Company

Letter of Undertaking for Loss Reserve Specialist March, 2005

2



GUIDANCE NOTE #5

FIT AND PROPER CRITERIA AND APPROVAL PROCESS FOR THE APPROVED AUDITOR

MARCH 2005

Fit and Proper Criteria and Approval Process for the Approved AuditorBermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: FIT AND PROPER CRITERIA AND APPROVAL PROCESS FOR THE APPROVED AUDITOR

Introduction 1 The role of the Approved Auditor is integral to the Bermuda insurance

supervisory model. The Approved Auditor’s primary role is to express an independent and objective opinion on whether the statutory financial statements are free of material misstatements and whether the statutory financial returns comply with certain criteria established in the Insurance Act. This reliance on the Approved Auditor requires that the Authority exercise a degree of oversight over the fitness and propriety of each Approved Auditor and the effectiveness of the functioning of the Approved Auditor in the required role. This Guidance describes the fit and proper criteria and the approval process to become the Approved Auditor of a regulated insurer as determined by the Authority. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.

2 The Bermuda Monetary Authority (the “Authority”) recognizes the need for

clarity as to the scope and implementation of the provisions of the Act 1 if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this Guidance is

not intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the fit and proper criteria and the approval process for the Approved Auditor, and to provide additional information about the Authority’s regulatory approach and expectations for these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3


Amendment Acts, 1981, 1983, 1985, 1995, 1998 and 2001) and the regulations promulgated under that Act (the "Regulations"). The Regulations are the Insurance Accounts Regulations 1980 (as amended by The Insurance Accounts Amendment Regulations 1981, 1985 and 1989) and the Insurance Returns and Solvency Regulations 1980 (as amended by The Insurance Returns and Solvency Amendment Regulations 1981, 1985 and 1989). References herein to the "Act" are to the Insurance Act 1978 (as amended) and the Regulations.




“IRASR” refers to the Insurance Returns and Solvency Regulations 1980. Fit and Proper Criteria and Approval Process for the Approved AuditorBermuda Monetary Authority March, 2005 Page 2 of 6

4 Other guidance issued by the Authority may contain additional information on the role of the Approved Auditor.


the wide diversity of institutions that may be licensed under the Act. There may be a need for revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of a revised version.


Authority expects insurers and Approved Auditors to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 insurers and Approved Auditors must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered under the Act and to all auditors

approved by the Authority as the independent auditor of the insurer. Fitness and Propriety of the Approved Auditor 8 Prior to appointing a candidate for Approved Auditor, the Authority expects the

insurer to consider whether its candidate meets the eligibility criteria of the Authority and whether the candidate is fit and proper to fulfill its role. This requires that the auditor possesses the appropriate integrity, competency, resources, qualifications and experience commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act. The insurer should have regard to whether its proposed Approved Auditor possesses or has access to appropriate specialist skill, for example actuarial expertise. Additionally, the Authority expects the insurer to take timely steps to ensure that the auditor that it appoints is independent of the insurer. As appropriate, the insurer should seek confirmation from the auditor.

9 If an insurer becomes aware at any time that its Approved Auditor is not

independent of the insurer, or that it no longer meets the eligibility and fit and proper criteria, the insurer must take timely steps to ensure that it has an independent, and/or fit and proper auditor.

10 An insurer should provide information, in accordance with the reasonable

requests of the Authority, to demonstrate that its candidate for Approved Auditor is independent and/or meets the eligibility and fit and proper criteria, or in the


case of an incumbent Approved Auditor, that the Approved Auditor continues to be independent and to meet the eligibility and fit and proper criteria.

Acceptance of an Engagement 11 Prior to accepting an appointment as the Approved Auditor, the Authority expects

the Approved Auditor to be satisfied that, given the scale and complexity of the insurer, the examination of the insurer pursuant to the Act is within the collective professional expertise and proficiency of the Auditor and other persons performing the engagement.

Criteria for Approval 12 Prior to approving a natural person or a firm of accountants as the Approved

Auditor, the Authority would assess whether the Approved Auditor is fit and proper to fulfill its role. Fit and proper criteria would include whether the Approved Auditor is independent and, whether commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act, the Approved Auditor possesses the appropriate integrity, competency, resources, qualifications and experience. Additional criteria could include whether the proposed Approved Auditor possesses or has access to appropriate specialist skill (e.g. actuarial expertise).

13 A person (either a natural person or a firm of accountants) will generally be

considered a fit and proper person if the person is: i) a member in good standing of the Institute of Chartered Accountants of

Bermuda (“ICAB”) ii) ordinarily resident in Bermuda, and iii) independent of the insurer. Professional Standards 14 Members of ICAB are subject to ICAB’s Rules of Professional Conduct. Among

other matters these rules require the Approved Auditor to conduct himself at all times in a manner which maintains the good reputation of the profession 4 and its ability to serve the public interest, to perform professional services with integrity and due care 5, and when the member is in general practice, to perform professional services in accordance with generally accepted standards of practice

4 Rule 201.1 5 Rule 202 Fit and Proper Criteria and Approval Process for the Approved AuditorBermuda Monetary Authority March, 2005 Page 4 of 6

of the profession 6. Additionally, a member is to maintain his professional competence by keeping informed of, and complying with, developments in professional standards 7 and has a duty to avoid conflicts of interest in respect of a client’s affairs. 8

15 In addition, all practicing members of ICAB are subject to a review of their

quality controls by ICAB. Independence 16 The Authority expects the Approved Auditor to be independent with respect to the

insurer within the meaning of the Rules of Professional Conduct of ICAB. 17 ICAB’s Rules of Professional Conduct determines the auditor’s independence in

terms of the Auditor’s objectivity. The rules provide that members of ICAB who perform assurance or specified auditing procedures engagements shall be and remain free of any influence, interest or relationship, in respect of the client’s affairs, which impairs the member’s professional judgment or objectivity or which, in the view of a reasonable observer, would impair the member’s professional judgment or objectivity.

18 No person having an interest in any insurer otherwise than as an insured, and no

officer, servant or agent of any insurer, shall be eligible for appointment as an approved auditor for that insurer; and any person appointed as an approved auditor to any insurer who subsequently acquires such interest or becomes an officer, servant or agent of that insurer shall cease to be an approved auditor (IA 16(6)).

Approval Process for Approved Auditor 19 Before the Authority will approve the appointment of an Approved Auditor for a

given insurer, as part of the approval process the Authority will require the following information:

• If applicable, a written explanation from the previous Approved Auditor of

the reasons for the cessation of his appointment. • If applicable, a written explanation from the insurer for the change in the

Approved Auditor. • A Letter of Undertaking from the new candidate for Approved Auditor.

6 Rule 206 7 Rule 203.1 8 Rule 210 Fit and Proper Criteria and Approval Process for the Approved AuditorBermuda Monetary Authority March, 2005 Page 5 of 6

Letter of Confirmation 20 The Authority will, upon approval of the candidate, issue a letter to the insurer

confirming the Authority’s approval of the insurer’s candidate for Approved Auditor.





GUIDANCE NOTE #6

ROLE OF THE APPROVED AUDITOR

MARCH 2005

Role of the Approved Auditor Bermuda Monetary Authority March, 2005 Page 1 of 9

GUIDANCE NOTE: ROLE OF THE APPROVED AUDITOR

Introduction 1 The role of the Approved Auditor is integral to the Bermuda insurance

supervisory model. The Approved Auditor’s primary role is to express an independent and objective opinion on whether the statutory financial statements are free of material misstatements and whether the statutory financial returns comply with certain criteria established in the Act. This Guidance sets out guidance on the role of the Approved Auditor. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


clarity as to the scope and implementation of the provisions of the Act 1 if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.


not intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the role of the Approved Auditor, and to provide additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts and the Authority. (The applicable sections of the Act are shown in brackets.) 3

4 Other guidance issued by the Authority may contain additional information on the

criteria and approval process for the Approved Auditor. 5 The Authority’s guidance is of general application and seeks to take account of

the wide diversity of institutions that may be licensed under the Act. There may



2 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act. The reader is advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR” refers to the Insurance Returns and Solvency Regulations 1980.


be a need for revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of a revised version.


Authority expects insurers and Approved Auditors to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 insurers and Approved Auditors must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered under the Act and to all auditors

approved by the Authority as the Approved Auditor of the insurer. Appointment of Approved Auditor 8 Every registered insurer must appoint an independent auditor, based in Bermuda,

who is to report annually on the statutory financial statements of the insurer (IA 16(1)). The auditor may be the same natural person or firm of accountants that reports to the shareholders. Although the company shareholders appoint the auditor 4, each insurer must obtain the Authority’s approval for the independent auditor’s appointment as the “Approved Auditor” (IA 16(2)).

9 If an insurer fails to appoint an approved auditor, or at any time fails to fill a

vacancy for such auditor, the Authority may appoint an approved auditor for the insurer and shall fix the remuneration to be paid by that insurer, if not sooner agreed by the insurer and the auditor, within fourteen days (IA 16(7)).

Appointment at Time of Registration 10 Prior to registration the insurer is to notify the Authority, in writing, of its

proposed Approved Auditor. The Authority will confirm its approval of the proposed candidate. The Authority will consider appropriate notice to have been given when the name of the candidate for Approved Auditor is included in the pre-incorporation documentation and the letter of acceptance attached thereto.

11 If any of the information included in the first notice to the Authority changes, the

insurer shall within 14 days, provide written notice to the Authority of the changes (IA 8(3)).

4 Pursuant to Section 89(1) of The Companies Act 1981.


Change in Approved Auditor 12 If there is to be a change in the Approved Auditor, the insurer shall within 14 days

provide written notice to the Authority of the change and the reasons for the change. 5

13 Where there is to be a change in the Approved Auditor, the insurer must obtain

the Authority’s approval for the new Approved Auditor. If any of the information provided to the Authority as part of the approval process for the Approved Auditor changes, the insurers shall within 14 days provide written notice to the Authority of the change. 6

14 Pursuant to The Companies Act 1981, no person shall accept appointment or

consent to be appointed as auditor of a company if he is replacing an auditor who has resigned, been removed or whose term of office has expired or is about to expire, or who has vacated office, until he has requested and received from that auditor a written statement of the circumstances and the reasons why, in that auditor's opinion, he is to be replaced. However, a person may accept an appointment or consent to be appointed as auditor of a company if, within fifteen days after making the request referred to in that subsection, he does not receive a written statement as requested. 7

15 If an insurer proposes to remove an appointed auditor before the expiration of his

term of office, or proposes to replace an approved auditor with a different auditor at the expiration of his term of office, the insurer shall give written notice to the Authority forthwith (IA 16(8)).

16 Where an Approved Auditor resigns, becomes aware that it will cease to be the

Approved Auditor of an insurer, or intends not to seek to be reappointed, the Approved Auditor shall forthwith give written notice to the Authority (IA 16A(1)).

Disqualification 17 The Authority may require that an insurer remove a person occupying the role of

Approved Auditor, where the person is not fit and proper for the role (IA 16(4)). Criteria for disqualification could include, but is not limited to, where the person:

5 IA 8(3) provides that if any of the prescribed particulars about the Approved Auditor,

submitted alter, the insurer is to notify the Authority within fourteen days. 6 Section 8(3) provides that if any of the prescribed particulars about the Approved

Auditor, submitted alter, the insurer is to notify the Authority within fourteen days. 7 Pursuant to sections 89(3A) (3B) of The Companies Act 1981.


• is not independent;

• has failed to perform adequately and properly the functions and duties of such an appointment; or

• does not meet the eligibility criteria for such an appointment of Approved

Auditor. The Authority has issued guidance on the Fit and Proper Criteria for the

Approved Auditor. This guidance should be referred to. 18 The Authority shall not revoke its approval unless it has first notified the auditor

and the insurer of its intention to do so (IA 16(5)). Letter of Undertaking 19 Any newly appointed Approved Auditor shall provide the Authority with a letter

of undertaking that it will perform its functions in accordance with the Act and the standards issued by the Institute of Chartered Accountants of Bermuda (“ICAB”).

Requirement for Audited Statutory Financial Statements 20 The Insurance Act requires an insurer to prepare annual statutory financial

statements, which are to be audited annually by the insurer’s Approved Auditor. (IA 15(1), IA 15(4))

21 Among other purposes, these statutory financial statements are: h to be in a form that enables comparison between the insurer's business for the

current financial year and for the immediately preceding financial year (IA 15(2));

h shall contain information calculated (IA 15(3)): (a) to give as early warning as possible to any person examining the

statements (whether by way of notice of the observance or non-observance by the insurer of any margin of solvency, or in any other way) of any financial or operational difficulties into which the insurer's business has fallen or might appear likely to fall;

(b) to provide the basis on which the Authority or any other authority may

in good time take action under this Act or any other statutory provision to exercise any statutory power available to him or it for the safeguarding of any element of the public interest involved in or affected by the insurer's business.


22 Each insurer is required to keep copies of the statutory financial statements, notes and auditor’s report at its principal office for a period of five years from the filing date. (IA 17(2))

Requirement for Statutory Financial Returns 23 All insurers are required to prepare and submit to the Authority annual statutory

financial returns. (IA 18) Auditor’s Examination

24 The Authority expects the Approved Auditor to conduct its audit in accordance with generally accepted auditing standards (“GAAS”). The Authority expects that U.S., Canadian, U.K. or International GAAS would generally be followed. Where an insurer can demonstrate to the reasonable satisfaction of the Authority that circumstances exist where GAAS from another jurisdiction may be an appropriate selection, the Authority may approve the use of GAAS, other than U.S., Canadian, U.K., or International GAAS.

25 In the event that an insurer wishes to use GAAS from a jurisdiction, other than U.S. Canadian, U.K., or International GAAS, the insurer should seek preliminary discussions with the Authority so as to identify the issues that would need to be addressed prior to the Authority approving a modification under section 56 of the Act.

Right to Information 26 The Authority expects that an insurer will make any arrangements that are

necessary to enable the auditor to perform its role. These arrangements would normally include ensuring that the Approved Auditor is fully informed of the Authority’s requirements for the insurer (such as any conditions on its license or any section 56 accounting modifications.) In addition, the insurer should ensure that its Approved Auditor has access to all relevant data and people that it reasonably believes is necessary to fulfill its obligations. This includes giving its auditor a right of access to its accounting and other records, in whatever form they are held. In complying with this, the insurer should ensure that any of its suppliers under a material outsourcing arrangement (e.g. claims management, information technology support) gives the Approved Auditor the same rights of access.

Approved Auditor’s Report 27 The Approved Auditor is to prepare a report to be included with the annual

statutory financial return filed by the insurer (IRASR 5). The auditor’s report is to be in the form prescribed by the Authority, and is to be signed by the Approved Auditor and addressed to the Authority.


28 In its report the Approved Auditor is required to report that he has carried out an examination of the insurer’s statutory financial statements in accordance with generally accepted auditing standards.8 The report should state the applicable jurisdiction for the GAAS applied.

29 The auditor is further required to express an opinion on the following:

• Whether the statutory financial statements have been prepared in accordance with the requirements of the Act insofar as such provisions relate to accounting and financial reporting matters;

• Whether the Solvency Certificate and Declaration of Statutory Ratios comply,

in all material respects, with the criteria of the Act; (IRASR 7(1)) and

• Whether it was reasonable for the persons signing such solvency certificate to have arrived at the opinions expressed in the certificate, insofar as the opinions relate to accounting and financial matters.

30 An auditor is to qualify his report and include his observations, as he considers

necessary, for bringing the nature and effect of the qualification to the attention of the Supervisor. (IRRSR 7(2) and (3)) A qualification is required in the following circumstances:

(a) There were deficiencies in the audit consisting of: (i) Inability of the auditor to obtain essential information; or (ii) Restrictions on the scope of the audit; or (iii) Some other deficiency or deficiencies; (b) The auditor disagreed with any valuation made in the statutory financial

statements; (c) In some respect or respects the statutory financial statements or the certificates

of solvency or the declaration of the statutory ratios do not in his opinion comply with the requirements of the Act or any applicable Regulations;

(d) The auditor considered an opinion or opinions expressed in a solvency

certificate unreasonable; and (e) The auditor considered that there was a significant doubt as to the insurer’s

ability to continue as a going concern (of insolvency risk).

8 (IRASR 7(1)(a)) currently provides that report is to be prepared in accordance with

accepted auditing standards.


31 Where an Approved Auditor decides to include a material modification of his

report on the insurer’s statutory financial statements and in particular, a material qualification, a denial of his opinion or a statement of adverse opinion, the Approved Auditor shall forthwith give written notice to the Authority (IA 16A(1)(d)). The Auditor shall, as soon as practicable thereafter, furnish the Authority with a copy of his report (IA 16A(2)).

Access to Working Papers 32 The Statement of Principles issued by the Authority, pursuant to section 29F,

provides that the Authority, using the powers under 29A, will conduct routine prudential meetings and visits with insurers. In order to verify information for regulatory purposes, the Authority may send a letter to the Approved Auditor of the insurer requesting the auditor to confirm that the auditor will cooperate with the Authority in its inspection process by providing access to the auditor’s working papers. The Authority expects that the Approved Auditor will write to the insurer to confirm the insurer’s understanding and to give the approved Auditor permission to provide access to the auditor’s working papers. The Approved Auditor should send the signed cooperation letter back to the Authority. As a result of access to the Approved Auditor’s working papers, the Authority should be able to focus more on governance and risk areas in their field inspections.

33 With respect to any information obtained from the Approved Auditor’s working

papers, the Authority shall comply with the confidentiality sections of the Insurance Act.

Communication with the Authority 34 No duty to which an auditor of an insurer may be subject shall be regarded as

contravened by reason of his communicating in good faith with the Authority, whether or not in response to a request made by the Authority, any information or opinion on a matter which is relevant to any function of the Authority under the Insurance Act (IA 16A(3)). This applies to any matter of which an approved auditor of an insurer becomes aware in his capacity as auditor and which relates to the business or affairs of the insurer or any affiliate of that insurer (IA 16A(4)).


Reliance on Specialists 35 When the Approved Auditor uses the work of a specialist, such as an actuary or

loss reserve specialist, as audit evidence in the performance of its examination of an insurer, in accordance with the Act, the Authority expects this reliance to be in compliance with GAAS.




Letter of Undertaking for Approved Auditor March, 2005

Letter of Undertaking – Approved Auditor AddressName AddressLine1 AddressLine2 AddressLine3 AddressLine4 DateToday Dear Sir

RE: <name of the insurer> Pursuant to Section 16(2) of the Insurance Act 1978 (the “Act), the purpose of this letter is to confirm your appointment as the Approved Auditor of (name of the insurer) (the “Company”). Pursuant to the Act, you will conduct an annual audit of the Company's Statutory Financial Statements, Statutory Financial Return, Solvency Certificate and Declaration of Statutory Ratios (the "Statutory Filing") with the objective of issuing a special purpose report addressed to the Bermuda Monetary Authority. We note that your opinion on the Statutory Filing will be based on the information available to the date of substantial completion of your fieldwork. We also note that the Statutory Financial Statements will be prepared in accordance with the Act and Regulations and are not intended to be presented in accordance with generally accepted accounting principles. The report on the Statutory Filing is intended solely for filing with the Bermuda Monetary Authority and is not intended to be used for any other purpose. You will conduct the audit in accordance with auditing standards generally accepted in (include one of the GAAS jurisdictions approved by the BMA) with the objective of expressing an opinion as to whether:

1) the Statutory Financial Statements present fairly, in all material respects, the information therein in accordance with the Act and Regulations 2) the Statutory Financial Statements, Solvency Certificate and Declaration of Statutory Ratios comply, in all material respects, with the criteria established by the Act and Regulations 3) the opinions expressed in the aforementioned Solvency Certificate, insofar as they relate to accounting and financial reporting matters, are reasonable.

Generally accepted auditing standards generally require that an audit be planned and performed to obtain reasonable assurance whether the Statutory Financial Statements are free of material misstatement and whether the Statutory Financial Statements, the Solvency Certificate and the Declaration of Statutory Ratios comply with the criteria established by provisions of the Act and Regulations. In conducting our audit you will examine, on a test basis, evidence supporting the amounts and disclosures in the Statutory Financial Statements and evidence supporting the

compliance of the Statutory Financial Statements, the Solvency Certificate and the Declaration of Statutory Ratios with criteria established by provisions of the Act and Regulations. You will also assess the accounting principles used and significant estimates made by management, as well as evaluate the overall Statutory Financial Statement presentation and the overall compliance of the Statutory Financial Statements, the Solvency Certificate and the Declaration of Statutory Ratios with criteria established by provisions of the Act and Regulations. As required by auditing standards generally accepted in (include one of the GAAS jurisdictions approved by the BMA), you will make specific inquiries of management about the representations embodied in the Statutory Filing and obtain a representation letter from management about these matters. The responses to your inquiries, the written representations, and the results of your audit tests comprise the evidential matter that you will rely upon in forming an opinion on the Statutory Filing. We acknowledge that you cannot provide assurance that an unqualified opinion will be rendered. Circumstances may arise in which it is necessary for you to modify the report or withdraw from the engagement. By signing below you confirm that if you cease to be the Approved Auditor of the Company that, within 14 days of the end of your appointment, that you will give written notice to the Authority of any matter(s) connected with the termination of your appointment which you think ought to be drawn to the Authority’s attention. If there are no such matters, the Authority should be advised that there are no matters to be reported on. In order to perform the audit all records, documentation, and information requested in connection with the audit must be made available by the Company. The Company must disclose all material information to you, and the Company is required to ensure that you receive the full cooperation of the Company’s personnel. The Authority has issued guidance notes for the Fit & Proper Criteria for the Approved Auditor. By signing below you confirm your belief that you meet these criteria. If circumstances arise such that you no longer meet the criteria you will communicate this to the Authority at the earliest opportunity. By signing below you confirm that you are a member of the Institute of Chartered Accountants of Bermuda and that you are not aware of any relationships between the Company and you, that in your professional judgment, may reasonably be thought to bear on your independence. The Rules of Professional Conduct of the Institute of Chartered Accountants of Bermuda deal with the concept of independence in terms of objectivity, and your confirmation is to be made in that context. Yours faithfully Bermuda Monetary Authority Signature of Auditor: __________________________________________________ cc: the Company

Letter of Undertaking for Approved Auditor March, 2005

2

Fit and Proper Criteria – Principal Representative, Insurance Manager and Intermediaries Bermuda Monetary Authority March, 2005 Page 1 of 7



GUIDANCE NOTE #7

FIT AND PROPER CRITERIA – PRINCIPAL REPRESENTATIVE, INSURANCE MANAGER AND

INTERMEDIARIES

MARCH 2005


GUIDANCE NOTE: FIT AND PROPER CRITERIA - PRINCIPAL

REPRESENTATIVE, INSURANCE MANAGER AND INTERMEDIARIES Introduction 1 The objective of this Guidance Note is to set out and describe the criteria the

Bermuda Monetary Authority (“Authority”) will use to determine whether a person is fit and proper to act as Principal Representative or to be registered as Insurance Manager or as a Broker, Agent or Salesman (“the Intermediaries”) under to the Act. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


of the provisions of the Act 1 if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.


not intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the fit and proper criteria with respect to the above approved persons.2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are in brackets.) 3

4 Other guidelines issued by the Authority contain additional information related to the additional criteria and approval process for specific approved persons.








“IRASR” refers to the Insurance Returns and Solvency Regulations 1980.



Authority expects insurers and approved persons to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 insurers and approved persons must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers and approved persons to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to persons who must be approved or registered under the

Act in the following functions: Principal Representative, Insurance Manager, Broker, Agent or Salesman. In order to be considered for approval by the Authority, the person must meet and maintain the fit and proper criteria as described in this Guidance Note. A person may be a natural person or body corporate.

8 When assessing the fitness and propriety of a person, the burden is on the

individual and/or the firm sponsoring the application to satisfy the Authority that the person is fit and proper for the role. Where a person has previously been regarded as fit and proper, the Authority reserves the right to reassess whether that person continues to be fit and proper to hold either the current or proposed new duties.

9 The fit and proper assessment is both an initial test undertaken during

consideration of an application for approval by the Authority and a continuing test in relation to the conduct of the approved person and their relationship with the Authority.

10 The Authority will take into account, as appropriate, the particular function under

the Act that the person is applying for, the particular function(s) under the Act that the person may already be performing, and, if applicable, the current classification and activities of the insurer registered pursuant to the Act for which the applicant proposes to act. As such, a person who is fit and proper for a particular role may not be considered fit and proper for another role with different responsibilities with the same insurer or for a similar position with another insurer. Conversely a person considered unfit for a particular position with a particular employer may be considered fit in different circumstances.

11 It is also important to note that the fit and proper test as applied to one function

(e.g. Principal Representative) may differ from that applied to another function (e.g. Broker).


12 When assessing the fitness and propriety of a person, each case will be considered on its own merits, and may take into account all relevant matters, including, but not limited to, those set out below.

13 When considering each application or when subsequently assessing the fitness

and propriety of persons, the Authority may have regard to current, past and prospective matters. Additionally, the Authority may have regard to the cumulative effect of a number of factors which, when considered in isolation, may not be sufficient to show that the person is not fit and proper to perform a specified duty pursuant to the Act.

Fitness and Propriety Criteria 14 The Authority will have regard to a number of factors when assessing the fitness

and propriety of a person to perform a particular duty pursuant to the Act. The most important considerations will be the person’s:

• Competence and capability; and • Honesty, integrity and reputation.

15 The criteria listed are guidance and will be applied in general terms when the Authority is determining a person’s fitness and propriety. It would be impossible to produce a definitive list of all matters that would be relevant to a particular determination.

16 If a matter comes to the Authority’s attention, which suggests that the person

might not be fit and proper, the Authority will take into account how relevant and how important the matter is to the overall assessment of the fitness and propriety of the person.

17 During the application process, the Authority may discuss the assessment of the

candidate’s fitness and propriety informally with the insurer making the application and may retain any notes of those discussions.

Competence and Capability 18 In determining a person’s competence and capability, the Authority will consider,

as applicable, matters including, but not limited to:

• Whether the person has relevant experience, sufficient skills, knowledge, and soundness of judgment properly to undertake and fulfill their particular duties and responsibilities;

• The diligence with which a person is fulfilling or is likely to fulfill those

duties and responsibilities is also considered, so that the Authority can


assess whether the person does or will devote sufficient time and attention to them.

19 In assessing whether a person has the relevant competence, soundness of

judgment and diligence, the Authority considers whether the person has had experience of similar responsibilities previously, the record in fulfilling them and, where appropriate, whether the person has appropriate qualifications and training. As to soundness of judgment the Authority looks to the person’s previous conduct and decision taking.

Honesty, Integrity and Reputation 20 The probity of the person concerned is very important: it is essential that a person

approved or registered under the Act is of high integrity. In contrast to the fitness elements of this criterion which reflects an individual judgment relating to the particular position that the person holds or is to hold, the judgment of probity reflects much more of a common standard, applicable irrespective of the particular position held.

21 Specifically, the Authority takes into account the person’s reputation and

character. When determining a person’s honesty, integrity and reputation, the Authority will consider matters including but not limited to, those items listed below, which may have arisen in Bermuda or elsewhere:

• Whether the person has been convicted of any criminal offence, this may

include, in particular, any offences of dishonesty, fraud, financial crime or other offences under legislation relating to banks, trust companies, companies mangers, insurance companies, mutual funds, money service businesses, credit unions and building societies, together with such other financial institutions;

• Whether the person has been the subject of any adverse finding or any

settlement in civil proceedings, particularly in connection with investment or other financial business, misconduct, fraud or the formation or management of a body corporate;

• Whether the person has been the subject of, or interviewed in the course

of, any existing or previous investigation or disciplinary proceedings, by the Authority, by other regulatory authorities (including the Authority’s predecessor), clearing houses and exchanges, professional bodies, or government bodies or agencies;

• Whether the person is or has been the subject of any proceedings of a

disciplinary or criminal nature, or has been notified of any potential proceedings or any investigation, which might lead to such proceeding;


• Whether the person has contravened any of the Authority’s regulatory requirements or the rules, regulations, statements of principal or codes of conduct of other regulatory authorities (including the Authority’s predecessor), clearing houses and exchanges, professional bodies, or government bodies or agencies;

• Whether the person has been the subject of any justified complaint relating

to regulated activities in Bermuda;

• Whether the person has been involved with a company, partnership or other organization that has been refused registration, authorization, membership or a licence to carry out a trade, business or profession, or has had such registration, authorization, membership or licence revoked, withdrawn or terminated, or has been expelled by a regulatory body or government body;

• Whether, as a result of the removal of the relevant licence, registration or

other authority, the person has been refused the right to carry on a trade, business or profession requiring a licence, registration or other authority; the Authority should be told about all such occurrences, but will consider the circumstances only where relevant to the regulatory requirements;

• Whether the person, or any business with which the person has been

involved, has been investigated, disciplined, censured or suspended by a regulatory or professional body, a court or tribunal, whether publicly or privately;

• Whether the person has been dismissed, or asked to resign and resigned,

from employment or from a position of trust, fiduciary appointment or similar;

• Whether the person has ever been disqualified from acting as a director or

disqualified from acting in a managerial capacity; and

• Whether, in the past, the person has been candid and truthful in all his dealings with any regulatory body and whether the person demonstrates a readiness and willingness to comply with the Authority’s regulatory requirements and with other legal, regulatory and professional obligations and ethical standards.

22 While any evidence of relevant past misconduct needs to be taken into

consideration, the Authority recognizes that lapse of time, and a person’s subsequent conduct, are factors which may be relevant in assessing whether the person is now fit and proper for a particular position.


Continuing Regard 23 Once an individual has been approved or registered, the Authority has continuing

regard to the performance of the person in the exercising of his or her functions. 24 Imprudence in the conduct of the business, or actions which have threatened

(without necessarily having damaged) the interests of policyholders or clients (or potential policyholders or clients) will reflect adversely on the competence and soundness of judgment of those responsible.

25 Similarly failure of a person to conduct business with integrity and professional

skills will reflect adversely on the probity, competence and soundness of those responsible. This applies whether the matters of concern have arisen from the way the persons responsible have acted or from their failure to act in an appropriate manner.

26 The Authority takes a cumulative approach in assessing the significance of such

actions or omissions – that is, it may determine that a person does not fulfill the criterion on the basis of several instances of such conduct, which, if taken individually, may not lead to that conclusion.

Considerations 27 Conviction for a criminal offence will not automatically mean an application will

be rejected. The Authority treats each application on a case-by-case basis, taking into account the seriousness of, and circumstances surrounding the offence, the explanation offered by the convicted person, the relevance of the offense to the proposed role, the passage of time since the offence was committed and evidence of the person’s rehabilitation.




GUIDANCE NOTE #8

APPOINTMENT AND DUTIES OF THE INSURANCE MANAGER

MARCH 2005

Appointment and Duties of the Insurance Manager Bermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: APPOINTMENT AND DUTIES OF THE INSURANCE MANAGER Introduction 1 The role of the Insurance Manager is integral to the Bermuda insurance supervisory

framework. This Note sets out guidance on the duties of the Insurance Manager. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


the scope and implementation of the provisions of the Act 1 if the regulatory system is to command the confidence of both insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.


intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the appointment and the role of the Insurance Manager and provides additional information about the Authority’s regulatory approach and expectations regarding these matters.2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 Other guidelines issued by the Authority contain additional information related to the

Insurance Manager. 5 The Authority’s guidance is of general application and seeks to take account of the wide



expects Insurance Managers to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 Insurance Managers must take immediate steps to ensure they are in



2 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act. The reader is

advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR” refers to the

Insurance Returns and Solvency Regulations 1980.


compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages Insurance Managers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Definitions 7 An insurance manager is “a person who, not being an employee of any insurer, holds

himself out as manager in relation to one of more insurers, whether or not the functions performed by him as such go beyond the keeping of insurance business accounts and records.” (IA 1(1))

Registration of an Insurance Manager 8 No person shall act as an insurance manager in or from Bermuda unless he is registered

for that purpose by the Authority. (IA 9(1)) 9 Every application for registration as an insurance manager shall be in such form, shall

contain such information and shall be accompanied by such documents 4 as the Authority requires. (IA 10(2))

Suitability of the Insurance Manager 10 In considering an application for registration as an Insurance Manager, the Authority will

consider whether the person is fit and proper for the role, including whether the person has knowledge of the insurance business of the insurer it will manage adequate to enable it or him to act in the capacity. (IA 11)

11 If an Insurance Manager becomes aware at any time that it no longer meets the eligibility

and fit and proper criteria, the Insurance Manager must take timely steps to ensure that it informs the Authority.

12 An Insurance Manager should provide information, in accordance with the reasonable

requests of the Authority, to demonstrate that it meets the eligibility and fit and proper criteria.

Cancellation of Registration 13 The Authority may cancel the registration of an insurance manager: (IA 42(1))

(a) at the request of the insurance manager; or (b) upon any one or more of the following grounds:

4 Applications for an Insurance Managers license are filed with a Form 3, which lists the information

required.


(i) that materially false, misleading or inaccurate information was supplied by the insurance manager or on his behalf for the purposes of any provision of the Act;

(ii) that two years have elapsed since the insurance manager’s registration, and the

insurance manager has not commenced to carry on business; (iii) that the insurance manager has ceased to carry on business; (iv) that the insurance manager has persistently failed to pay fees due under the

Act; (v) that the insurance manager has not complied with a condition attached to his

registration or with a requirement made of him under the Act or the regulations;

(vi) that the insurance manager has been convicted of an offence against a

provision of the Act; (vii) that the insurance manager has been convicted by a court (whether in

Bermuda or elsewhere) of an offence involving fraud or dishonesty; or (vii) that in the opinion of the Authority, the insurance manager has not been

carrying on business in accordance with sound insurance principles.

14 Before it cancels the registration of an insurance manager, the Authority shall give the insurance manager notice in writing of the grounds on which it purposes to cancel the registration, and shall afford the insurance manager an opportunity to make an objection in writing within 30 days after receipt of the notice. The Authority shall take into consideration any such objection and, if it decides to cancel the registration, cause the order of cancellation to be served on the insurance manager. (IA 42(2))

15 The cancellation of the registration of the insurance manager shall take effect twenty-one days after the date of service, or on a later date if so specified in the cancellation order. (IA 42(2))

Appointment of an Insurance Manager 16 Prior to accepting an appointment as the Insurance Manager, the Authority expects the

Insurance Manager to be satisfied that, given the scale and complexity of the insurer, the management of the insurer pursuant to the Act is within the professional expertise and proficiency of the Insurance Manager.

17 An insurer is not required to appoint an Insurance Manager and can instead be self-

managed.


Appointment of Insurance Manager at Time of Registration of the Insurer 18 If applicable, at the time of registration, an insurer is to notify the Authority, in writing,

of the appointment of its insurance manager, including the particulars of the insurance manager. (IA 8(2(b))

Change in the Insurance Manager 19 If there is a change in the insurer’s Insurance Manager, within fourteen days, the insurer

shall provide written notice to the Authority of the change (IA 8(3)) Duties of the Insurance Manager 20 An Insurance Manager shall maintain an accurate list of all insurers for which he acts as

Insurance Manager and provide the Authority with a copy of that list if the Authority provides a written request for it. (IA 28)

21 Where the Authority appoints an inspector to investigate the affairs of an insurer, it is the

duty of any past or present insurance manager of such an insurer, to produce to the inspector, on request, all books, records and documents relating to the insurer under investigation which are in its or his custody or control. In addition, the insurance manager is otherwise to give to the inspector all assistance in connection with the investigation, which it or he is reasonably able to give. (IA 30(2))

Management Information 22 The Authority expects that an Insurance Manager, in conjunction with the insurer, will

allow the Principal Representative to undertake its duties pursuant to the Act on an efficient and effective basis. These arrangements would normally include ensuring that the Principal Representative has access to the accounts and records maintained by the Insurance Manager. This information should be both timely and accurate, and supported by complete and accessible records. The Insurance Manager should make arrangements with the insurer to ensure that the information held by the Manager is updated in a timely manner.

23 Further to paragraph 22, the Authority expects the Insurance Manager to maintain

adequate books and records in Bermuda, which are to be available to the Principal Representative. These records would include:

• all sums of money received and expended by the insurer and the matters in respect of

which the receipt and expenditure takes place; • all premiums and claims relating to the insurer; and, • the assets, liabilities and equity of the insurer.


Contractual Arrangements between the Insurance Manager and the Insurer 24 There should be a formal agreement (“management agreement”) between the insurance

manager and the insurer. The management agreement will describe and govern the relationship between the parties and set out the respective functions, duties and responsibilities.





GUIDANCE NOTE #9

FIT AND PROPER CRITERIA AND APPROVAL PROCESS FOR APPROVED ACTUARY

MARCH 2005

Fit and Proper Criteria and Approval Process for Approved ActuaryBermuda Monetary Authority March, 2005 Page 1 of 6

GUIDANCE NOTE: FIT AND PROPER CRITERIA AND APPROVAL

PROCESS FOR THE APPROVED ACTUARY Introduction 1 The role of the Approved Actuary is integral to the Bermuda insurance

supervisory model. The primary role of the Approved Actuary is to opine on the adequacy of the Total Long-term Business Insurance Reserves, reflected in insurers’ statutory financial statements and statutory financial returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). This opinion assists the Authority in monitoring the adequacy of Total Long-term Business Reserves of insurers, as at a certain date, based on information known as at the date of the preparation of the opinion. This Guidance describes the eligibility criteria and the approval process for the Approved Actuary of an insurer. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.


of the provisions of the Insurance Act and related regulations (the ”Act”)1, if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, the Guidance Note

is not intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the Approved Actuary and provides additional information about the Authority’s regulatory approach and expectations regarding these matters. 2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are in brackets.) 3






“IRASR” refers to the Insurance Returns and Solvency Regulations 1980. Fit and Proper Criteria and Approval Process for Approved ActuaryBermuda Monetary Authority March, 2005 Page 2 of 6

4 Other guidelines issued by the Authority contain additional information related to the role of the Approved Actuary.




Authority expects Approved Actuaries to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 Approved Actuaries must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages Approved Actuaries to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered as Long-term insurers under the

Act, and to all Approved Actuaries approved by the Authority pursuant to the Act. Definitions 8 Approved Actuary. An Approved Actuary is a natural person approved by the

Authority as qualified to provide an opinion as to the adequacy of an insurer’s Total Long-term Business Reserves as reported in its statutory financial statements.

Fitness and Propriety of the Approved Actuary 9 Prior to appointing a candidate for Approved Actuary, the insurer must consider

whether its candidate meets the eligibility criteria of the Authority and whether the candidate is fit and proper to fulfill its role. This requires considering whether, commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act, the person possesses the appropriate integrity, competency, resources, qualifications and experience. Wherever appropriate, the insurer should seek confirmation of this in advance from the candidate.

10 If an insurer becomes aware at any time that its Approved Actuary is no longer fit

and proper, the insurer must take timely steps to replace the Approved Actuary with a person who meets the eligibility and fit and proper criteria.


11 An insurer must provide information when requested by the Authority, to demonstrate that its candidate for Approved Actuary meets, or in the case of an incumbent Approved Actuary continues to meet, the eligibility and fit and proper criteria according to this Guidance Note.

Acceptance of an Engagement 12 Prior to accepting an appointment as the Approved Actuary, and on an on-going

basis, the candidate must be satisfied that, given the scale and complexity of the business as written by the insurer, the estimation of the liabilities of the insurer pursuant to the Act is within the person’s professional expertise and proficiency, and that the Approved Actuary is not subject to any conflicts of interests that would affect the Approved Actuary’s ability to objectively fulfill his or her role.

13 An Approved Actuary may be an employee of or a consultant to the insurer. In these instances, the Approved Actuary must disclose such a relationship to the Authority. Additionally the Approved Actuary must confirm in the Letter of Undertaking that the Approved Actuary is not subject to any actual, potential or perceived conflicts that may prevent the Approved Actuary from objectively fulfilling his or her role.

Criteria for Approval 14 Prior to approving a person as the Approved Actuary, the Authority will assess

whether the Approved Actuary is fit and proper to fulfill the role required. Fit and proper criteria would include whether, commensurate with the nature, scale and complexity of the insurer’s business and the requirements and standards of the Act, the person possesses the appropriate integrity, competency, resources, qualifications (including membership in relevant associations) and experience.

15 A person will generally be considered fit and proper if the person is:

a) a member in good standing of the Institute of Actuaries (for England and Wales), the Faculty of Actuaries (in Scotland), the Canadian Institute of Actuaries, the American Academy of Actuaries, the Society of Actuaries in the U.S., the Institute of Actuaries of Australia, or a person recognized by the Authority as an actuary;

b) meets the education and examination requirements to be considered qualified

to sign Statutory reserve opinions for long-term business by their relevant association; and,

c) has experience in reserve evaluation for the long-term business as written by

the insurer.


16 The Authority will not normally approve a person unless they meet the criteria as described in paragraph 15.

17 While the Approved Actuary may be an employee of, or consultant to, the insurer,

a person will not be approved as the Approved Actuary if the person is:

• the chief executive officer, the chief operating officer or the chief financial officer (or a person performing like functions for the insurer);

• a director of the insurer; • a person with underwriting authority for the insurer; or, • a person in any other role with the insurer where in the view of the

Authority there is a conflict of interests that would affect the Approved Actuary’s ability to objectively fulfill its role.

Approval Process for Approved Actuary 18 Before the Authority will approve the appointment of an Approved Actuary, as

part of the approval process the Authority will require the following information: • A resume with information about relevant qualifications, including

membership in professional associations, employment history and related work experience.

• Copies of certificates and confirming evidence from relevant associations

attesting to the fact that the candidate is a member in good standing of the associations.

• If applicable, a written explanation from the insurer explaining the reason

for any change in the Approved Actuary. • A Letter of Undertaking from the Approved Actuary. • If applicable, a written explanation from the previously Approved Actuary

of the reasons for the revocation of his appointment by the insurer. • A resignation letter, if applicable, from the previously Approved Actuary.


Certificate of Approval 19 The Authority will, upon approval of the candidate issue a certificate of approval.

Such certificate may restrict the approval to specific lines of business if the Approved Actuary has not demonstrated broad insurance expertise.





GUIDANCE NOTE #10

ROLE OF THE APPROVED ACTUARY

MARCH 2005

Role of the Approved Actuary Bermuda Monetary Authority March, 2005 Page 1 of 10

GUIDANCE NOTE: ROLE OF THE APPROVED ACTUARY

Introduction 1 The role of the Approved Actuary is integral to the Bermuda insurance supervisory

model. The primary role of the Approved Actuary is to opine on the adequacy of the Total Long-term Business Insurance Reserves, reflected in insurers’ statutory financial statements and statutory financial returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). This opinion assists the Authority in monitoring the adequacy of Total Long-term Business Reserves of insurers, as at a certain date, based on information known as at the date of the preparation of the opinion. This Guidance describes the eligibility criteria and the approval process for the Approved Actuary of an insurer. The Guidance Notes are intended to provide information on the application of the Insurance Act and corresponding regulations.

2 The Authority recognizes the need for clarity as to the scope and implementation of the

provisions of the Insurance Act and related regulations (“the Act”)1 if the regulatory system is to command the confidence of both insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this Guidance Note is not

intended to be exhaustive. The Authority, through the Guidance, hereby sets out its understanding of the legal provisions affecting the Approved Actuary and provides additional information about the Authority’s regulatory approach and expectations regarding these matters.2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 Other guidelines issued by the Authority contain additional information related to the fit

and proper criteria of the Approved Actuary. 5 The Authority’s guidance is of general application and seeks to take account of the wide

diversity of institutions that may be licensed under the Act. There may be a need for



2 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act.

The reader is advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR”

refers to the Insurance Returns and Solvency Regulations 1980.


revision of the Guidance Notes from time to time. Material changes in the Guidance will be published, generally through the issue of a revised version.


expects Approved Actuaries to observe at all times. For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 Approved Actuaries must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages Approved Actuaries to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered as Long-term insurers under the Act, and

to all Approved Actuaries approved by the Authority pursuant to the Act. Definitions 8 Approved Actuary. An Approved Actuary is a natural person approved by the Authority

as qualified to provide an opinion as to the adequacy of an insurer’s Total Long-term Business Reserves as reported in its statutory financial statements.

9 Total Long-term Business Reserves. The Total Long-term Business Reserves is the

total of insurer’s reserves on the statutory balance sheet for:

• Reserves for reported claims; • Reserves for unreported claims; • Policy reserves – life; • Policy reserves – accident and health; • Policyholders’ funds on deposit; • Liability for future policyholders’ dividends and Other Insurance reserves – long-

term business; less any applicable reinsurance recoverable less an allowance for doubtful accounts.

Appointment of Approved Actuary 10 Insurers registered as Long-term insurers must appoint an actuary in accordance with the

Act, and have this appointment approved by the Authority. (IA 26) 11 Each insurer required to appoint an actuary must apply in writing to the Authority for

approval of their candidate for Approved Actuary. The Authority will confirm in writing its decision concerning the approval or otherwise of the insurer’s candidate for Approved Actuary.


12 If any of the information included in the application for the Approved Actuary changes, the insurer shall provide written notice to the Authority of the changes within 14 days of the date of becoming aware of such changes (IA 8(3)).

Change in Approved Actuary 13 Where there is a change in the Approved Actuary, the insurer shall provide written notice

to the Authority of the change and the reasons for the change within 14 days of the decision to effect such change. (IA 8(3))

14 Where an Approved Actuary resigns before the expiration of his or her term of office or

decides not to seek to be re-appointed, and where there are circumstances connected with his resignation which he or she considers should be brought to the attention of the Authority, the Approved Actuary shall within fourteen days give written notice (“resignation letter”) to the Authority of its decision and the reasons for the decision.

15 Where the Approved Actuary’s appointment is revoked by an insurer, and where there

are circumstances connected with this revocation which the Approved Actuary considers should be brought to the attention of the Authority, the Approved Actuary shall provide the Authority with a written statement within fourteen days of the circumstances and reasons why, in the Approved Actuary’s opinion, the Approved Actuary’s appointment was revoked.

Disqualification 16 The Authority may revoke approval of a person as an Approved Actuary, where the

person: • Is not fit and proper for the role; • Has failed to perform adequately and properly the functions and duties of such

appointment; or, • No longer meets the fit and proper criteria for such an appointment. Letter of Undertaking 17 Any new candidate for Approved Actuary shall provide the Authority with a letter of

undertaking that he or she will perform their functions in accordance with the Act and the standards of his or her relevant association.


Approved Actuary’s Opinion 18 An insurer registered as a long-term insurer must include with its annual statutory return,

an opinion from its Approved Actuary opining on the adequacy of the insurer’s Total Long-term Business Reserves as reflected in the insurer’s statutory financial statements and statutory financial returns. (IA 27(1))

19 In addition, to other conditions imposed by the Act, before an insurer, who carries on

long-term business, can declare and pay a dividend to any person other than a policy-holder or move assets out of the long-term segregated fund, the insurer must obtain a opinion from its Approved Actuary opining on the adequacy of the insurer’s Total Long-term Business Reserves. (IA 24(5))

20 Where the Authority directs an insurer who carries on long-term business to complete a

valuation of its long-term liabilities outstanding at the date specified in the direction, the insurer is also required to include an opinion from its Approved Actuary opining on the adequacy of the insurer’s valuation. (IA 27(2))

21 Where an insurer intends to transfer long-term insurance (but not reinsurance) business to

another insurer, at least one of which is licensed under the Act, the insurer must petition the Court to sanction a scheme of transfer. The Court shall not entertain such a petition unless the petition is accompanied by a report on the scheme prepared by an Approved Actuary (IA 25(3)). The Approved Actuary may or may not be the Approved Actuary for either insurer, and may be appointed specifically for the proposed scheme. The Approved Actuary’s report should describe the long-term business being transferred and opine on the adequacy of the liabilities.

Line 27 – Valuation of Total Long-term Business Reserves 22 Line 27, the Total Long-term Business Reserves in the statutory balance sheet (as at the

date of the financial statement date or the reporting date for an approved actuary’s certificate (“the reporting date”)), is: - the sum of: i) Line 20: Reserves for reported claims includes amounts provided by the insurer in

respect of claims reported to the insurer not later than the reporting date; ii) Line 21: Reserves for unreported claims includes amounts provided by the insurer

for claims arising from incidents which have occurred but have not yet been reported to the insurer as at the reporting date;

iii) Line 22: Policy reserves – life includes actuarially computed amounts which are

adequate to provide future guaranteed benefits as they become payable under the provisions of in-force life insurance (including life contract benefits such as disability waiver of premium, disability income benefits and additional accidental


death benefits), annuity, and supplemental contracts with life contingencies policies. This does not include reserves in respect of accident and health policies;

iv) Line 23: Policy reserves – accident and health includes actuarially computed

amounts which include an active life reserve (including unearned portion of current premium, additional reserves and rate credits) and a claims reserve.

v) Line 24: Policyholders’ funds on deposit includes funds consisting of premiums

paid in advance of the due date, valued at the amounts received by the insurer including any interest credits which are due on such funds.

vi) Line 25: Liability for future policyholders’ dividends is the amount of dividends

payable, as declared by the directors, on participating life policies which qualify for such dividends, valued at the amount declared; and,

vii) Line 26: Other insurance reserves – long-term business included any other

actuarially computed reserves required by the terms of life or accident and health contracts or as a result of special riders or options attaching to any such contract, which are not provided for in lines 22-25;

- Less: As applicable, for each line described above any amounts recoverable under reinsurance contracts (“estimates for reinsurance recoverables”).

23 The estimates for reinsurance recoverable are to be reduced for any amounts the collection of which, in the opinion of the insurer, is doubtful. (IAR, Schedule III, Part II, item 21 & 22)

24 Actuarially computed amounts, as described above, are reserves computed in accordance

with accepted actuarial practice. 25 The insurer is required to disclose in the notes to the statutory financial statements:

(a) The method of calculating the amounts under each of Lines 20 to 26; and,

(b) The method of calculation and the range of significant or material interest rates and mortality factors used in the calculation of Line 22: Policy reserves – life.

Accepted Actuarial Practice 26 It is the responsibility of the Approved Actuary to be conversant with the requirements of

the Act and its implications for the issuance of his or her opinion. 27 The Approved Actuary’s estimate of the Total Long-term Business Reserves and any

other matters specified by the Authority, shall be prepared in accordance with accepted actuarial practice and all applicable standards of practice of his or her relevant


associations and the Act. Where any provisions of the Act differ from the standards of practice, then the Act shall prevail.

Working papers of the Approved Actuary 28 The Approved Actuary shall retain all relevant reports, records and documents, in either

electronic or paper form, and if requested by the Authority these should be made available for review in Bermuda by the Authority or its representative. Such information should be sufficient in and of themselves to enable the completion of an independent review of the opinion by another unrelated but qualified Approved Actuary.

Right to Information 29 An insurer must make any reasonable arrangements that are necessary to enable the

Approved Actuary to complete his or her assigned responsibilities. This includes promptly complying with any and all reasonable requests for information.

Communication of Opinion 30 Where there is a requirement for the opinion of an Approved Actuary, the Approved

Actuary shall provide an opinion as to the adequacy of the Total Long-term Business Reserves. The Approved Actuary shall further state the extent to which any instructions in the Act relating to the valuation or presentation of these Total Long-term Business Reserves had been complied with.

31 It is expected that each communication of the opinion will be clear and complete. 32 The following sets out minimum standards for the presentation, level of detail and nature

of discussion to be included in the communication of the Approved Actuary opinion. The content of the report should be in eight sections, as described below:

Part 1 - Identification

This section should identify the name of the Approved Actuary and the professional qualifications under which the opinion is being rendered. In addition, the Approved Actuary shall confirm that he or she is a member in good standing of all relevant associations included in the application to the authority for his approval and that he or she still satisfies the fit and proper criteria, with due consideration of the nature, scale and complexity of the insurer’s business. Where the Approved Actuary is a member of the American Academy of Actuaries, this should be noted.

Part 2 - Scope

This section should identify the insurer involved and the valuation date of the opinion, and provide details defining the subject business which is the subject of the opinion. This section should clearly identify the sections of the Insurance Act under


which the provision is being provided, the relevant lines of the statutory financial statement (or the portion thereof) for which the opinion is being given, and the date of the statutory financial statements which these lines form a part of.

Paragraph 3 – Conditions and Limitations In this section the Approved Actuary should provide details concerning all conditions

and limitations specific to the insurer’s business and circumstances. It is not necessary that the Approved Actuary state general broad statements about risks and uncertainties due to the application of accepted actuarial practice and standards.

Paragraph 4 – Review and Verification of Data

In this section, the Approved Actuary should describe the source and nature of any data analyzed as well as the extent of his reliance on data or analyses prepared by others. The Approved Actuary may rely on data provided by the insurer except that the Approved Actuary must review the data for reasonableness and consistency. The extent of any reviews, or reliance on the data should be clearly stated. However, the Approved Actuary is required to state that he or she has reviewed or evaluated all data for reasonableness and consistency.

Where the Approved Actuary has relied on the verification of data based on work done by the Approved Auditor, this reliance should be mentioned.

As long-term business reserves are estimated using projections of future cash flow and interest income, the Approved Actuary is expected to review the assets of the company in selecting assumptions about future cash flow, and interest income.

Paragraph 5 – Expression of Opinion

The opinion should be clearly stated without restriction unless the opinion is intended to be a qualified opinion. If the Approved Actuary issues a qualified opinion, the qualification should disclose the nature and reasons for the qualification.

The opinion paragraph should include a sentence which covers at least the points listed in the following illustration:

“In my opinion, the amounts of $x carried in line 27 (described above) of the

Company’s statutory balance sheet: 1) meet the requirements of the insurance laws of Bermuda; 2) are computed in accordance with accepted actuarial reserving practice;


3) make an adequate provision for the total long-term business liabilities of the Company under the terms of its contracts and agreements.”; and

4) the rate or rates of interest, cash flows, and the rate or rates of mortality, accident,

sickness, or other contingencies used in calculating amounts in line 27 are appropriate to the circumstances of the company, and the policies in force.”

Paragraph 4) requires the Approved Actuary, where appropriate, to review the assets of the company for the purpose of selecting appropriate assumptions. Furthermore, these assumptions should be appropriate to provide the opinion statement in paragraph 3).

Paragraph 6 - Relevant Comment

In this section the Approved Actuary should include comment on matters that create additional uncertainty in the Total Long-term Business Reserves, such as:

• where there has been a material change in the actuarial assumptions or methods

employed. The Approved Actuary should describe the nature of the change and the impact of these changes on the uncertainty of the Approved Actuary’s valuation.

• where the information provided by the company is incomplete or inadequate to complete the evaluation in accordance with accepted reserving standards and professional standards. The Approved Actuary should state this and describe the impact on the uncertainty on the Approved Actuary’s evaluation.

• where the Approved Actuary has had to select a key assumption with limited analytical support. The Approved Actuary should state this and describe the impact that the alternative selection(s) would have on the uncertainty in the Approved Actuary’s evaluation.

Paragraph 7 – Work Papers

This section should include a statement describing all actuarial reports, analyses and work products that have been completed, and that these same documents should be made available in Bermuda upon request. Such documents should be sufficient in and of themselves to enable the completion of an independent review of the opinion by another unrelated but qualified Approved Actuary.

Paragraph 8 - Signature

This section should include the Approved Actuary’s signature the relevant professional designations, appointment status (i.e. officer designation, or consultant), the associated firm, and contact information including address, telephone number, fax number, and email.



Letter of Undertaking for Approved Actuary March, 2005

Letter of Understanding – Approved Actuary

<Please note that this letter is to be used as a standard template for where the Approved Actuary belongs to a professional organization. Specific situations could require modifications to the

letter.> AddressName AddressLine1 AddressLine2 AddressLine3 AddressLine4 DateToday Dear Sir

RE: <name of the insurer> Pursuant the Insurance Act 1978 and the related regulations (the “Act”). The purpose of this letter is to confirm your appointment as the Approved Actuary for (name of the insurer) (the “Company”). Pursuant to the Act, you will provide an opinion on the adequacy of the long-term business reserves, reflected in the company’s Statutory Financial Statements and Statutory Financial Returns, and any other matters specified by the Bermuda Monetary Authority (the “Authority”). The opinion on the adequacy of the long-term business reserves is intended solely for filing with the Bermuda Monetary Authority and is not intended to be used for any other purpose. By signing below you confirm that you: a) have an understanding of the Act and relevant guidance notes issued by the Authority and that you will perform your duties as Approved Actuary in accordance with the Act and relevant guidance notes and in accordance with standards and guidance issued by (Name of professional body). b) that you are a member in good standing of (Name of professional body for standards and disciplinary procedures) and a Fellow/Associate of (Name of professional body for relevant professional qualification) and that you have the relevant experience for the business transacted by the Company. c) that you are an employee of/consultant to the Company; and, d) that you do not have know of any reasons why you will not be able to perform your duties and that you are not aware of any actual, potential or perceived conflicts that may prevent you from

performing your role as Approved Actuary to the Company in accordance with the Act and relevant guidance and in accordance with standards of practice of (Name of professional body). The Authority has issued guidance notes which set out minimum standards for the presentation, level of detail and nature of discussion to be included in the communication of the Approved Actuary’s opinion. The Authority has issued guidance notes for the Fit & Proper Criteria for the Approved Actuary. By signing below you confirm your belief that you meet these criteria. If circumstances arise such that you no longer meet the criteria, that you will notify the Company, and tender your resignation as Approved Actuary of the Company. If you resign as Approved Actuary before the expiration of your term of office or if you decides not to seek to be re-appointed, and if there are circumstances connected with your resignation which you consider should be brought to the attention of the Authority, you agree that you will, within fourteen days, give written notice to the Authority of your decision and the reasons for your decision. Where your appointment as Approved Actuary is revoked by an insurer, and where there are circumstances connected with this revocation which you consider should be brought to the attention of the Authority, you agree that you shall provide the Authority with a written statement, within fourteen days, of the circumstances and reasons why in your opinion, your appointment was revoked. Yours faithfully. Bermuda Monetary Authority Signature : __________________________________________________[Signature] ____________________________________________________[Printed Name] ____________________________________________________[Professional Designations] ____________________________________________________[Contact details] cc: the Company

Letter of Undertaking for Approved Actuary March, 2005

2



GUIDANCE NOTE #11

MARKET CONDUCT FOR DOMESTIC INSURANCE BUSINESS – INSURERS AND

INTERMEDIARIES

MARCH 2005

Market Conduct for Domestic Insurance Business – Insurers and Intermediaries Bermuda Monetary Authority March, 2005 Page 1 of 8

GUIDANCE NOTE: MARKET CONDUCT FOR DOMESTIC INSURANCE BUSINESS – INSURERS AND INTERMEDIARIES

Introduction 1 Requirements for the conduct of insurance business help to strengthen consumer

confidence in the insurance market. The Bermuda Monetary Authority (the “Authority”) expects insurers and intermediaries, who write, advise or are otherwise involve in the placement of domestic insurance business in or from Bermuda to uphold themselves to a certain level of conduct. This note sets out the guidance for market conduct for writers of domestic insurance business.


of the provisions of the Act 1 if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this Guidance Note

is not intended to be exhaustive. The Authority will do its best through this Guidance Note to set out its understanding of the legal provisions affecting market conduct, and to provide additional information about the Authority’s regulatory approach and expectations for these matters.2 Interpretation of statutes is ultimately a matter for the Bermuda courts. (The applicable sections of the Act are shown in brackets.) 3

4 The Authority’s guidance is of general application. There is likely to be a need

for the Guidance to be revised and developed over time. Material changes in the Guidance will be published, generally through the issue of a revised version.

5 Any guidance provided is intended to be reflective of minimum standards that

should be observed in all cases. While this Guidance Note attempts to be as objective as possible, it is not intended to be exhaustive. In areas where any



2 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act. The reader is advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

3 “IA” means the Insurance Act 1978. “IAR” means the Insurance Accounts Regulations 1980. “IRASR” refers to the Insurance Returns and Solvency Regulations 1980.


guidance is not specific, insurers and intermediaries should be guided by the Guidance’s underlying spirit.

6 For references in these Guidance Notes with respect to the changes in legislation

contained in the Insurance Amendment Act 2004 insurers must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Definitions 7 Domestic business under the Act means “insurance business where, whether the

contract of insurance is made in Bermuda or elsewhere, the subject-matter of the contract is either – (a) property that at the time of the making of the contract is in, or in transit to or from Bermuda; or (b) the life, safety, fidelity or insurable interest of an individual who at the time of the making of the contract is ordinarily resident in Bermuda; or (c) a risk of a company formed in Bermuda that is not an exempted company within the definition of that expression in section 127 of the Companies Act 1981.” 4

8 Customer is a person to whom a good or service is provided by an insurer or

intermediary, and includes policyholders. 9 Insurer has the meaning under the Act and means “a person carrying on

insurance business.” 5. 10 Intermediary refers to a person registered with the Authority pursuant to The

Insurance Act 1978, as an insurance agent, insurance broker or an insurance salesman. An Authorized Intermediary is an intermediary who is authorized by the insurer to advise or place domestic insurance business on behalf of the insurer.

Application 11 This guidance applies to all insurers licensed to write domestic business in or

from Bermuda and to all intermediaries who advise on place domestic insurance business. For clarification, this Guidance does not apply to the insurance business written by those insurers which is not domestic business.

12 Where an insurer or intermediary is subject to this Guidance, but is unable to

comply with all parts, it must provide full details and reasons to the Authority for non-compliance and must obtain a written exemption from the Authority.

4 Refer to Section 1 (1) of the Act. 5 Refer to Section 1 (1) of the Act. Market Conduct for Domestic Insurance Business – Insurers and Intermediaries Bermuda Monetary Authority March, 2005 Page 3 of 8

General Provisions 13 The objectives of this Guidance are to ensure that, with respect to domestic

business, an insurer or intermediary: (a) acts with high standards of integrity and fair dealing in the conduct of their

business; and, (b) acts with due skill, care and diligence in providing services, including any

services which it has indicated a willingness to provide. Integrity and Fair Dealing 14 An insurer or intermediary shall observe high standards of integrity and fair

dealing in the conduct of its business. 15 An insurer or intermediary has an obligation to avoid misleading and deceptive

acts or representations. It should not seek to exclude or restrict any duty or liability to a customer that it has under a legislative framework and/or accepted practices. Additionally, it should not seek to rely unreasonably on any provision of a contract seeking to exclude or restrict any such duty or liability.

16 An insurer or intermediary should either avoid any conflict of interest arising or,

where a conflict arises, should ensure fair treatment to all its customer by disclosure, internal rules on confidentiality, declining to act, or otherwise as appropriate.

17 An insurer or intermediary should not unfairly place its interest above those of its

customers and, where a properly informed customer would reasonably expect it would place the customer’s interest above its own, the insurer or intermediary should live up to that expectation.

Skill, Care and Diligence 18 An insurer or intermediary should act with due skill, care, and diligence in the

conduct of its business and in its dealings with customers or potential customers. 19 Where an insurer or intermediary is responsible for providing advice or exercising

discretion for or in relation to customers, it must be able to demonstrate that the advice, or exercise of discretion, is appropriate for the customer.

20 An insurer or intermediary must transact its business (including the establishment,

maintenance, transfer or closure of business relationships with its customers) in an expeditious manner.


Information About Customers 21 Where an insurer or intermediary is responsible for providing advice or exercising

discretion for its customers, it must seek from them such information about their circumstances and objectives as may be appropriate with regard to the services requested. Documentary evidence must be maintained in this respect.

22 An insurer or intermediary may only exercise its power or its discretion for a

proper purpose. 23 Information, which a customer might reasonably expect to be confidential, should

be treated as such. Disclosure and Information 24 An insurer or intermediary should take reasonable steps to give a customer, in a

comprehensible and timely way, information to assist the customer to make a balanced and informed decision and shall avoid misleading or deceptive representations or practices. This includes communicating:

• relevant and meaningful information in a timely and comprehensive manner to

enable the customer to make a balanced and informed decision before entering into a contract;

• the benefits and risks to the customer in a fair and balanced way; • the obligations of the parties involved, being the insurers, intermediaries and

the customer, in a clear and understandable way, for the duration of the contract, including such matters as whether the intermediary is compensated by commission, or whether the intermediary is independent or associated with the particular insurance company;

• complaints handling and other contractual arrangements; and

• the duty of customers to disclose material information. 25 Similarly, an insurer or intermediary should be ready to provide a customer with a

full and fair account of the fulfillment of its responsibilities to him. The frequency with which additional information is to be disclosed during the course of the contract depends on the type of contractual arrangement.

26 An insurer or intermediary should take reasonable care that the information

disclosed by him is accurate in all material respects, not misleading, easily understandable, and available in writing or appropriate electronic means.


Customer Assets 27 Where an insurer or intermediary has control of or is otherwise responsible for

assets belonging to a customer which it is required to safeguard, it should arrange proper protection for them, by way of segregation and identification of those assets or otherwise, in accordance with the responsibility it has accepted.

Complaints Procedure 28 An insurer or intermediary shall have procedures in place, as applicable, to deal

with customer complaints effectively and fairly through a simple and equitable process. These procedures should be well disclosed and easily accessible. A record of the details of the complaint, the insurer’s or intermediary’s response and any action taken as a result, shall also be made and maintained

29 The Authority expects each insurer (or intermediary, as appropriate) with

domestic business to appoint a Market Conduct Compliance Officer, who is responsible for ensuring compliance with this Guidance and for reporting at least annually to the Board of Directors (or a sub-committee of the Board) on the insurer’s or intermediary’s compliance with this Guidance.

Advertisements 30 An insurers or intermediary should ensure that advertisements:

(a) do not contain a statement, promise or forecast which is untrue or misleading;

(b) are not designed in such a way as to distort or conceal any relevant subject

material; (c) are clearly recognizable as advertisements;

(d) where appropriate, state that the investment value is not guaranteed or that

the value may fluctuate; (e) do not contain a statement relating to taxation benefits unless it contains

appropriate qualifications to show what it means in practice and to whom such benefits apply; and

(f) do not contain a statement relating to past performance unless:

i) the basis on which such performance is measured is clearly stated and the presentation is fair;


ii) it is accompanied by a warning that past performance is not necessarily a guide to future performance; and

iii) the past performance is relevant to the investment or the services

offered by the investment provider.

31 In the case of long-term business, each insurer or intermediary in its promotional material, should endeavour to impress on clients that a whole life or endowment policy is intended to be a long-term contract and that surrender values, especially in early years, are frequently less than the total amount of premiums paid.

Authorized Intermediaries 32 Insurers are required to take responsibility for the appointment and activities of

authorized intermediaries. In this respect, insurers shall:

• ensure all authorized intermediaries are registered with the Authority; • ensure that all authorized intermediaries provide prospective customers

with the name of the insurer represented by the authorized intermediary and the types of product(s) the authorized intermediary is authorized to sell and/or advise on behalf of the insurer; and,

33 When an insurer, subject to this Guidance, grants terms of business to an

authorized intermediary, that insurer shall:

• Have a terms of business agreement completed and signed by the authorized intermediary to require the intermediary to warrant that the agreement does not breach any legal obligations and that the authorized intermediary will clearly explain the risks inherent in the product to the client; and

• take measures to monitor the performance of the authorized intermediary,

including complaints made against the authorized intermediary with respect to advice or sales made by the authorized intermediary on behalf of the insurer.

Intermediary Disclosure 34 An intermediary is required to give customers information on its status,

specifically whether it is independent or associated with particular insurance companies, and whether it is authorized to conclude insurance contracts on behalf of an insurer or not.


Policy Statement and Training 35 An insurer (or intermediary, if appropriate) is required to have a policy statement

on how to treat customers fairly and to comply with this Guidance that is communicated to all staff, and to have systems and provide training to ensure compliance with the policies by their employees and any authorized sales representatives.

Compliance 36 An insurer or intermediary shall establish and maintain systems and controls to

enable ongoing monitoring of compliance with this Guidance and ensure controls and procedures are properly documented.

37 Compliance with this Guidance will be checked by the Authority when it

performs on-site inspections of domestic insurers. During the on-site inspection, the Authority may include in its review, among other matters the following:

• reviewing the insurer’s policy for compliance with this Guidance and any

related training; • checking the sufficiency and adequacy of the information given to

consumers; • reviewing record of complaints, including the frequency and nature, and

the timing and resolution of the matters raised in the complaints; • reviewing the frequency and nature of any litigation arising from market

conduct matters; and • generally assessing observance of the market conduct standards and

consumer regulations. End of guidance note. If you have questions on this or other guidance from the Insurance Department please email [email protected] . Please put “Insurance Guidance” in the title of your email.




GUIDANCE NOTE #12

CORPORATE GOVERNANCE

MARCH 2005

Corporate Governance Bermuda Monetary Authority March, 2005 Page 1 of 12

CONTENTS Page 1. Background 3 2. Introduction 5 3. Application 6 4. Definitions 7 5. Effective Corporate Governance 7 6. Relationship between the Board and the Authority 11 7. Assessment of Corporate Governance 11


GUIDANCE NOTE: CORPORATE GOVERNANCE BACKGROUND 1.1 In October 2003, the International Association of Insurance Supervisors (“IAIS”)

adopted revised Insurance Core Principles (“ICPs”). The 28 core principles offer new guidance for the effective operation of supervisory systems. Since consideration of the governance and decision-making processes of insurance companies is a key component of insurance supervision, a core principle addressed corporate governance specifically. Several other core principles also impact directly on corporate governance.

1.2 The requirement to promote good corporate governance is receiving increased

international attention. 1.3 The Insurance Division of the Bermuda Monetary Authority (the “Authority”) is

continually evolving its supervisory regime to reflect changes in the Bermuda market, and to recognize and to incorporate into its supervisory and regulatory model, as appropriate for the Bermuda market, international best practices for the supervision of insurance.

1.4 The Authority wishes to provide guidance to boards of directors and management of

insurers about the Authority’s expectations on corporate governance and related matters. This guidance includes specific recommendations contained with IAIS Core Principles of Supervision.

1.5 The Authority’s approach to the supervision of insurance is a risk-based approach.

This means that the Authority, to the extent possible, identifies, assesses, prioritizes, and minimizes the likelihood of events or circumstances occurring with might prevent the Authority from achieving its objectives. Further to this the Authority assesses the risks posed by an insurer by gaining an understanding of a licensed insurer’s operations, the risks it faces and how it deals with these risks. The consideration of the governance and the decision-making and control processes of an insurer is a key component of this assessment process. This approach to supervision is in contrast to a transaction-oriented review.

1.6 In implementing this approach the Authority aims to use its resources to focus

attention on insurers and activities where there is a greater likelihood of a risk crystallizing and its impact having repercussions for policyholders and the continued development of a viable, competitive and innovative Bermuda insurance market. Additionally, the Authority aims to be proportionate in its approach to supervision and to consider the costs and benefits of its regulatory and supervisory processes.

1.7 Any guidance issued for corporate governance should be principle based, such that it

can be adapted according to the nature of an insurer’s customer and the characteristics


of the risks assumed. It is the responsibility of the Board to determine which specific provisions of this guidance should be applied taking into account the size, nature, complexity and risk profile of the business of the insurer. When as part of its supervisory process, the Authority assesses the effectiveness of an insurer’s corporate governance, the degree of applicability and weighting of individual elements in this guidance will depend on the size, nature, complexity and risk profile of each insurer. For example, the Authority recognizes:

• that a wholly owned insurer who conducts primarily or exclusively related party

business using an insurance manager will not require the same systems as a publicly traded Class 4 company;

• that where an insurer who conducts primarily related party business is managed by

an insurance manager, the manager may provide oversight and guidance to the insurer;

• that insurers or reinsurers which only insure the risks of their owners and are part

of the same organization (e.g. captive insurance companies) may pose less risk to the public than other insurers and reinsurers, and that it may be appropriate for the corporate governance structure for these entities to be less complex; 1

• that Bermuda has many licensed insurers which are administered by management

companies in Bermuda and that the corporate governance structure for these insurers will be different than for insurers not administered by management companies.

1.8 For references in these Guidance Notes with respect to the changes in legislation


1 As stated in the IAIS Principles on Minimum Requirements for Supervision of Reinsurers approved in

October 2002 “where captives only insure the risks of their owners and are part of the same organization they may not pose the same risk to the financial system and separate regulations may be established recognizing this reduced risk.” This approach is also consistent with International best practices as described by the International Association of Insurance Supervisors, which recognize that the principles adopted in a jurisdiction should take into account the domestic context and industry.


INTRODUCTION 2.1 Insurers must be prudently managed. The prime responsibility for the sound and prudent

management of an insurer rests with the board of the insurer. Corporate governance refers to the rules and procedures put in place within a corporation for the management and control of its business and affairs. What makes structures and policies work in practice are a knowledgeable and competent board, with a clear understanding of its role and strong commitment to, carrying it out.

2.2 Individual insurers will adopt different approaches to corporate governance, taking into

account the nature, scope, complexity, and risk profile of its organization. The supervisory process will take this into consideration in the evaluation of individual insurers.

2.3 This guideline provides information to boards of directors and management of insurers

about the expectations of the Authority on corporate governance and related matters, and the factors that the Authority will take into account in assessing the quality of governance of each insurer.

2.4 The Bermuda Monetary Authority (the “Authority”) recognizes the need for clarity as to

the scope and implementation of the provisions of the Act 2 if the regulatory system is to command the confidence of insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

2.5 While the Authority aims to provide clarity as to its approach, this Guidance Note is not

intended to be exhaustive. The Authority will do its best through this and other guidance notes to set out its understanding of the legal provisions affecting corporate governance, and to provide additional information about the Authority’s regulatory approach and expectations regarding these matters. 3

2.6 Other guidance issued by the Authority may contain additional information on corporate

governance or related matters. 4



3 The legislative summary in this Guideline is not intended to be a substitute for provisions of the Act. The

reader is advised to refer to the provisions of the Act and not to rely on the interpretation of those provisions contained in this Guideline.

4 The Authority has issued separate guidance notes on a number of subject matters directly impacting on

corporate governance and the decision making process, including risk management and internal controls, investments, and insurance activities.


2.7 The Authority’s guidance is of general application and seeks to take account of the wide

diversity of institutions that may be licensed under the Act. There is likely to be a need for the Guidance to be revised and developed over time. Material changes in the Guidance will be published, generally through the issue of a revised version.

APPLICATION 3.0 High standards of corporate governance are important for all registered insurers. In

managing its affairs, an insurer should have regard to such principles of good corporate governance, as it reasonably considers applicable to it. It is the responsibility of the Board to determine which specific provisions of this Guidance should be applied taking into account the size, nature, complexity and risk profile of the business of the licensed insurer.

3.1 As part of its supervisory process, the Authority will look for indications that, overall, processes or procedures for effective corporate governance are in place, that they are appropriate to the individual insurer, and that they are operating effectively. The Authority will formulate its overall judgment on the effectiveness of an insurer’s corporate governance based on a variety of indicators. The degree of applicability and weighting of individual elements in this guidance will depend on the nature, scope complexity and risk profile of each insurer.

3.2 All registered insurers are expected to comply with the standards in this Guidance. 3.3 The Authority recognizes that security commissions, stock exchanges, governments and

international bodies, and others have issued laws, guidance or best practices on corporate governance (“other standards”), and that these other standards are evolving rapidly in many areas of corporate governance. The Authority expects registered insurers to be aware of other emerging and in-force standards that are applicable to their organizations (which may depend, for example, on whether the institution is a publicly-traded entity 5) and to consider and, where appropriate, incorporate these into the institution’s governance practices. The Authority also recognizes that these other standards may overlap or exceed some of the expectations for corporate governance described in this and other guidance issued by the Authority, and that developments in these other standards may have an implication for insurers with respect to time and effort involved in meeting these other standards.

3.4 The Authority’s supervisory approach is forward-looking (the Authority seeks to be

preventative) and risk-based. The Authority’s guidance for corporate governance is principle based and is of general application. Where other standards for corporate

5 For example, management of Securities and Exchange Commission (“SEC”) registrants are required to

evaluate and report on internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.


governance are consistent with the Authority’s expectations for corporate governance as described in this and other guidance, and where the Authority can rely on an insurer’s compliance with these other standards, it is not the intention of the Authority to require a company to undergo additional costs in order to comply with both the Authority’s guidance as well as the other standards.

DEFINITIONS 4.1 Board – The term board refers to either the entire board of directors of the insurer or,

where applicable, to a committee of the board that has been delegated a particular element of board oversight.

4.2 Management comprises either persons employed by an insurer who exercise senior

management responsibilities or the Insurance Manager for an insurer. Senior management responsibilities means having primary responsibility for one or more of the following: • High-level decision-making; • implementing strategies and policies approved by the board; • developing processes that identify, manage and monitor risks incurred by the

insurer; • monitoring the appropriateness, adequacy and effectiveness of the risk management

and internal control system.

EFFECTIVE CORPORATE GOVERNANCE

5.0 The board is ultimately accountable and responsible for the performance and conduct of the insurer. It should have a balance of appropriately skilled, experienced and qualified individuals who can apply informed and independent judgment to the governance of the licensed entity. It should ensure that the insurer is effectively directed and managed, and its business is conducted in a sound and prudent manner with integrity, due care and professional skills appropriate to the nature and scale of its activities. In seeking to ensure that the objectives of this Guidance are met, the insurer must exercise its judgement in determining an effective approach to corporate governance, taking into account the nature, scope, complexity, and risk profile of its organization, and also having regard to the cost effectiveness of the rules and procedures.

5.1 Corporate governance encompasses the means by which directors and management of

an insurer are held accountable for their actions and for the establishment and implementation of oversight functions and processes. The value of good corporate governance lies in its contribution to both the prosperity and accountability of the insurer. There is no one standard model of corporate governance. A corporate


governance framework specifies the distribution of rights and responsibilities among different participants in management of the company and sets out the rules and procedures [practices] for making decisions, and for the management and control of the insurer’s business and affairs. Corporate governance includes corporate discipline, transparency, independence, accountability, and responsibility. Corporate governance also includes compliance with legal and regulatory requirements.

5.2 Risk management and internal controls systems are integral parts of a corporate governance framework. Risk management and internal control systems and practices may also differ depending on the size and complexity of the insurer, and the nature of the insurer’s risk exposures. 6

5.3 Best practices for governance practices are continuously evolving. The Authority

expects the board to be aware of emerging best practices that are applicable to their institution, and will look for indications that these have been considered and, where appropriate, incorporated into the institution’s governance practices.

EFFECTIVE BOARD PERFORMANCE Structure of the Board 5.4 In addition to complying with the Companies Act 1981, the board of an insurer shall

comprise a suitable number of directors that enables it to carry out its functions effectively and efficiently, taking into account the activities and business volume of the insurer. Collectively board members should have the appropriate breadth of experience, ability and integrity to conduct the business of the insurer, taking account of potential conflicts of interest.

5.5 To enable the board to make sound decisions in the best interests of the insurer,

independent and objective opinions are essential. While certain governance structures, including those described in this guideline, can encourage independence, the Authority does not view any one structure as guaranteeing independence. What matters is that a particular structure and the board’s behaviour are effective, taking into account the ownership structure and particular circumstances of the financial institution, such as whether the insurer is a wholly-owned subsidiary or is a non wholly-owned entity. Independence is normally a matter of the board demonstrating its ability to act independently of management when appropriate.

Oversight Responsibilities 5.6 The following is a list of basic oversight responsibilities that the board should consider

when establishing and assessing the effectiveness of an insurer’s corporate governance

6 As discussed in footnote 2, the Authority has issued a separate guidance note for risk management and

internal controls.


framework. The degree of applicability of these oversight responsibilities will depend on the nature, scope, complexity and risk profile of each insurer: 1) clearly setting out its responsibilities toward, and commitment to the principles of

good corporate governance principles in respect of the licensed entity; 2) satisfying itself that the insurer is organized in a way that promotes the effective

and prudent management of the institution and the board’s oversight of that management;

3) approving and reviewing the broad business strategies and significant policies of

the insurer, including the means of attaining them, and procedures for monitoring and evaluating the progress toward them. Adherence to the policies and strategies are reviewed regularly, and at least annually;

4) as appropriate, having in place and monitoring independent risk management

functions that identifies and monitors the material risks related to the type of business undertaken. As appropriate, the board of directors establishes and monitors audit functions, actuarial functions, strong internal controls and applicable checks and balances;

5) where applicable, distinguishing between the responsibilities, decision-making,

interaction and cooperation of the board, chairman, chief executive and management;

6) requiring a clear division of responsibilities to ensure a balance of power and

authority, so that no one individual has unfettered powers of decision; 7) appointing and dismissing management. The board must ensure that management

are fit and proper, and compensated in a manner that is consistent with appropriate incentives;

8) having access to accurate, relevant and timely information. Where stakeholders

participate in the corporate governance process, they should have access to relevant information;

9) where the insurer writes domestic business, providing oversight of the market

conduct activities of the insurer, including setting out policies that address conflicts of interest, fair treatment of customers and information sharing with stakeholders, and reviewing these policies regularly;

10) where appropriate, establishing standards of business conduct and ethical

behaviour for directors, management and other personnel. These include policies on private transactions, self-dealing, preferential treatment of favoured internal and external entities, covering trading losses, and other inordinate trade practices of a


non-arm’s length nature. This includes ensuring that the insurer has an on-going, appropriate and effective process of ensuring adherence to those standards; and

11) collectively ensuring that the insurer complies with all relevant laws, regulations,

guidance notes, industry standards and any established codes of conduct. As applicable, this may include identifying an officer or officers with responsibility for ensuring compliance with relevant legislation and required standards of business conduct, and who reports to the board of directors at regular intervals.

Responsibilities of Management 5.7 Management is responsible for:

• overseeing the operations of the insurer and providing direction to it on a day-to-day

basis, subject to the objectives and policies set out by the board of directors and in compliance with applicable laws and regulations.

• providing the board of directors with recommendations, for its review and approval,

on objectives, strategy, business plans and major policies that govern the operation of the insurer.

• facilitating the board’s oversight role, by providing accurate, relevant and timely

information to the board, enabling the board to review business objectives, strategy and policies, to hold management accountable for its performance, and to determine whether the insurer is operating in an appropriate control environment. Management also facilitates effective oversight through fostering candid and robust board discussions.

• ensuring that the independent oversight functions, such as internal audit, actuarial,

compliance and risk management, have the resources and support to do their work and the capacity to offer objective opinions and advice to the board and to management.

Insurance Managers 5.8 Where the company employs a registered insurance manager, the board shall ensure

that the duties, responsibilities and authorities of the registered insurance managers are clearly set out in the management agreement or contract of employment under which they or any nominated employee are appointed and that they are clear as to the requirements of the preceding paragraphs.

5.9 A licensed insurance manager, where employed, shall be charged by the board to deal

with issues of compliance relating to relevant laws and standards of business conduct.


RELATIONSHIP BETWEEN THE BOARD AND THE AUTHORITY 6.0 An insurer and its board and management are expected to deal with the Authority in an

open and cooperative manner. There is a need for candour and cooperation in an insurer’s relationship with the Authority. Insurers are required to advise the Authority promptly of any matter that might reasonably be expected to affect their authorisation to carry on business in Bermuda or might materially affect the interests of the policyholders of the Bermuda entity.

6.1 Where a Bermuda insurer conducts insurance business outside Bermuda, it should notify the Authority in writing if its right to conduct that business ceases, or if the insurer’s right to conduct insurance business has been limited or otherwise adversely affected under a law of the jurisdiction in which the business is being conducted. Notification must be provided with 14 days of the event occurring.

ASSESSMENT OF CORPORATE GOVERNANCE 7.0 The Authority will formulate its overall judgment on board effectiveness and quality of

governance of an insurer based on a variety of indicators, the most important of which are findings from off-site monitoring and on-site examinations. As part of its supervisory process, the Authority will look for indications that, overall, processes or procedures are in place, that they are appropriate to the individual institution, and that they are operating effectively.

7.1 When assessing the board’s effectiveness in guiding the insurer and overseeing its

activities effectively, the Authority may consider whether the board members and management have the level of competence for their roles, and whether they have the appropriate ability and integrity to conduct insurance business, taking account of potential conflicts of interests. Additionally, the Authority will consider the collective breadth of experience and the caliber of the board. Appropriate ability can generally be judged from the level of a person’s professional or formal qualifications or relevant experience within the insurance and financial or other related businesses. The knowledge and experience required depends upon the position and responsibility of the functionary within the insurer.

7.2 Bermuda’s approach to the supervision of insurance is risk-based. In contrast to a transaction-oriented review, this approach focuses on understanding the quality and reliability of an insurer’s governance programs, risk management processes and controls, internal controls; and independent and effective oversight (e.g. via audit and compliance) of business and operational activities and methodologies. Through the on-site visits, this approach aims at raising the level of dialogue between the Authority and the insurer, and enhancing the Authority’s understanding of the insurer’s governance umbrella, respective roles and accountability, and the “tone at the top”.




GUIDANCE NOTE #13

RISK MANAGEMENT AND INTERNAL CONTROLS

MARCH 2005

Risk Management and Internal Controls Bermuda Monetary Authority March, 2005 Page 1 of 8

GUIDANCE NOTE: RISK MANAGEMENT AND INTERNAL CONTROLS

Introduction 1 Insurers must be prudently managed. The prime responsibility for the sound and

prudent management of an insurer rests with the board of the insurer. Corporate governance refers to the rules and procedures put in place within a corporation for the management and control of its business and affairs. Risk management and internal controls systems are an integral part of a corporate governance framework. Risk management and internal control systems and practices may differ depending on the size and complexity of the insurer, and the nature of the insurer’s risk exposures. This guidance note sets out factors that the board of directors and the management of an insurer should consider when establishing and implementing risk management and internal control systems and procedures.


clarity as to the scope and implementation of the provisions of the Insurance Act and related regulations (“the Act”)1 if the regulatory system is to command the confidence of both insurers and policyholders. It seeks, therefore, to ensure that those operating in Bermuda have a good understanding of the nature of the requirements and of the Authority’s approach in implementing the Act.

3 While the Authority aims to provide clarity as to its approach, this guidance note

cannot be exhaustive. The Authority will do its best through this and other guidance notes to set out information about its regulatory approach and expectations regarding a registered insurer’s risk management and internal control systems.

4 Other guidance issued by the Authority may contain additional information on

risk management and internal control systems or related matters.2 5 The Authority’s guidance is of a general application and seeks to take account of

the wide diversity of institutions that may be licensed under the Act. There is likely to be a need for the Guidance to be revised and developed over time.



2 Risk management and internal controls directly impact on an insurer’s corporate governance.

The Authority has issued separate guidance notes on a number of subject matters relating to corporate governance and the decision making process, including corporate governance, investments, and insurance activities.


Material changes in the Guidance will be published, generally through the issue of revised versions.



Application 7 This guidance applies to all insurers registered under the Act. 8 In managing its affairs, an insurer should have regard to the principles of good

risk management and internal controls. Taking into account the size, nature, complexity and risk profile of the business of the licensed insurer, the board must exercise its judgement in determining the nature and scope of the risk management and internal control systems and practices that are necessary. It is the responsibility of the board to determine which specific provisions of this guidance should be applied

9 As part of its supervisory process, the Authority will look for indications that,

overall, processes or procedures for effective risk management and internal control systems are in place, that they are appropriate to the individual insurer, and that they are operating effectively. The Authority will formulate its judgment on the effectiveness of an insurer’s risk management and internal control systems based on a variety of indicators. The degree of applicability and weighting of individual elements in this guidance will depend on the size, nature, complexity and risk profile of each insurer. For example, the Authority recognizes that insurers which only insure or reinsure the risks of their owners and are part of the same organization may pose less risk to the public than other insurers or reinsurers, and that it may be appropriate for the risk management and internal control policies and procedures for these entities to be less complex than for other insurers.3

10 The Authority recognizes that security commissions, stock exchanges,

governments and international bodies, and others have issued laws, guidance or best practices on risk management and control processes (“other standards”). The

3 As stated in the IAIS Principles on Minimum Requirements for Supervision of Reinsurers

approved in October 2002 “where captives only insure the risks of their owners and are part of the same organization they may not pose the same risk to the financial system and separate regulations may be established recognizing this reduced risk.” This approach is also consistent with international best practices as described by the International Association of Insurance Supervisors, which recognize that the principles adopted in a jurisdiction should take into account the domestic context and industry.


Authority expects registered insurers to be aware of other emerging and in-force standards that are applicable to their organizations (which may depend, for example, on whether the institution is a publicly-traded entity 4) and to consider and, where appropriate, incorporate these into the institution’s risk management practices. The Authority also recognizes that these other standards may overlap or exceed some of the expectations for risk management and internal controls described in this and other guidance issued by the Authority, and that developments in these other standards may have an implication for insurers with respect to time and effort involved in meeting these other standards.

11 The Authority’s supervisory approach is forward-looking (the Authority seeks to

be preventative) and risk-based. The Authority’s guidance for risk management and internal controls is principle based and is of general application. Where other standards for risk management and internal controls are consistent with the Authority’s expectations as described in this and other guidance, and where the Authority can rely on an insurer’s compliance with these other standards, it is not the intention of the Authority to require a company to undergo additional costs in order to comply with both the Authority’s guidance as well as the other standards.

Role of the board 12 The board of directors, along with management, is responsible for suitable

prudential oversight of the risk management and internal control systems, strategies and policies. Insurers should review their policies and practices regularly to ensure that they remain appropriate in light of changing circumstances and in light of how policies and practices have performed.

13 Development and implementation of an adequate and sound system of internal

controls is normally the responsibility of management. The board of directors, however, is ultimately responsible for ensuring that such a system is established and maintained.

RISK ASSESSMENT AND MANAGEMENT Risk management processes 14 The types of risks assumed and the relative importance of particular types of risks

in an insurer’s risk management process will differ depending on the insurer’s business and risk tolerance. Risk management means, in part, understanding the quality of assets and the nature of associated liabilities. An insurer should identify, understand, and manage the significant risks that it faces.

4 For example, management of Securities and Exchange Commission (“SEC”) registrants

are required to evaluate and report on internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.


15 Risk management systems and practices will differ depending on the size and complexity of the insurer, and the nature of its risk exposures. The risk management process should be tailored to the particular nature of the insurer and can, for example, have different degrees of centralization or decentralization and be organized in different ways. It should enable the board and senior management to meet their organization-wide responsibilities. Comprehensiveness is a key attribute of effective risk management.

16 Insurers should implement and maintain sound and prudent risk management

policies and systems capable of promptly identifying, measuring, assessing, reporting and controlling their risks. The circumstances of each insurer are unique, and the risk management systems and practices will differ, depending on the scope and size of the insurer and the nature of its risk exposures. Whatever the particular approach to risk assessment and management, every insurer should have integrated policies that, taken together, apply to the insurer’s significant activities regarding the corporate philosophy on risk management, the insurer’s permissible exposure to risk, objectives of risk management, delegation of authorities and responsibilities, and processes for identifying, monitoring and controlling/managing risk.

17 Insurers should be in a position to identify all material risks, financial and non-

financial, that they face, assess their potential impact and have policies in place to manage them effectively. The insurer should establish an appropriate tolerance level or risk limit for material sources of risk.

18 Insurers should regularly review the market environment in which they operate,

draw appropriate conclusions as to the risks posed and take appropriate actions to manage adverse impacts of the environment on the insurer’s business.

19 The primary components of a sound risk management process include policies,

procedures and practices that:

● clearly delineate lines of responsibility for managing risk; ● set in place adequate systems for measuring risk; ● create appropriately structured limits on risk taking; ● establish effective internal controls; and ● describe comprehensive and timely risk monitoring and reporting.


20 While the risk management systems of an insurer should address all material

risks, the following categories should be addressed in an insurer’s risk management systems:

• credit risk; • investment risk, including liquidity risk; • insurance underwriting risk; • market risk; • business risk; • group risk; • legal/litigation risk; • systems and operations; • external risk; and • reputational risk.

INTERNAL CONTROLS Internal control Mechanisms 21 A system of internal control is critical to effective risk management. 22 Internal controls refers to a control system within an organisation which oversees

the proper conduct of its business and affairs. Internal controls encompass the policies, processes, culture, tasks and other aspects of an insurer that support the achievement of the insurer’s objective. A sound internal control system facilitates the efficiency of operations, contributes to effective risk management, assists compliance with applicable laws and regulations, and strengthens capacity to respond appropriately to business opportunities.

23 Among other matters, the purpose of internal controls is to verify that:

• the business of an insurer is conducted in a prudent manner in accordance

with policies and strategies established by the Board of Directors; • transactions are only entered into with appropriate authority;


• assets are safeguarded; • accounting and other records provide complete, accurate, verifiable and timely

information; and • management is able to identify, assess manage and control the risks of the

business and hold sufficient capital for these risks. Internal Control Weaknesses 24 The board of directors, or a committee of the board, should receive, at least

annually, reporting on the effectiveness of the internal controls. Material internal control deficiencies should be reported to the board or suitable committee in a timely manner and addressed promptly.

Operations 25 Insurers should have in place adequate operational procedures. Internal controls

should ensure effective and efficient operations, and should address the organizational structure, in particular:

• duties and responsibilities including clear delegation of authority; • decision-making procedures; • separation of critical functions as far as can be reasonably undertaken; and • internal checks and balances.

26 This may be satisfied, at the Board’s direction, by reliance upon the systems adopted by a licensed insurance manager.

Financial Management 27 There should be clearly established accounting procedures and reconciliation of

accounts.

28 The accounting and other records should be complete and accurate, and can be used to compile financial statements, management information and returns in line with the requirements of the Act.


Compliance 29 The internal and external audit, actuarial and compliance functions, as applicable,

are part of the framework for internal control, and should test adherence to the internal controls as well as to applicable laws and regulations.

30 Depending on the nature and scope of the insurer’s business, the Authority may

expect the insurer to have an on-going internal audit function of a nature and scope appropriate to the business. This includes ensuring compliance with all applicable policies and procedures and reviewing whether the insurer’s policies, practices and controls remain sufficient and appropriate for its business.

31 Where there is an internal audit function, the internal audit function should:

i) have unfettered access to all the insurer’s business lines and support

departments;

ii) assess outsourced functions;

iii) have appropriate independence, including reporting lines to the board of directors;

iv) have status within the insurer to ensure that management reacts to and acts

upon its recommendations;

v) have sufficient resources and staff that are suitably trained and have relevant experience to understand and evaluate the business they are auditing; and

vi) employ a methodology that identifies the key risks run by the institution and

allocates its resources accordingly.

32 If requested, the insurer should provide the Authority with access to reports of the internal audit function.

Outsourcing 33 Insurers may outsource functions either externally to third parties or internally to

other affiliated entities. The insurer should have oversight and clear accountability for all externally outsourced functions as if these functions were performed internally and subject to the normal standards of internal controls.

End of guidance note.

If you have questions on this or other guidance from the Insurance Department please

email [email protected] . Please put “Insurance Guidance” in the title of your email.




GUIDANCE NOTE #14

INSURANCE ACTIVITY

MARCH 2005

Insurance Activity Bermuda Monetary Authority March, 2005 Page 1 of 5

GUIDANCE NOTE: INSURANCE ACTIVITY

Introduction 1 The prime responsibility for the sound and prudent management of an insurer

rests with the board of the insurer. Since insurance is a risk taking activity, insurers should evaluate and manage the risks that they underwrite and have the tools to establish an adequate level of premiums. An insurer’s systems and practices relating to insurance activity may differ depending on the size and complexity of the insurer and the nature of the insurer’s risk exposures. This note sets out guidance on an insurer’s insurance activities.




cannot be exhaustive. The Authority will do its best through this and other guidance notes to set out information about its regulatory approach and expectations regarding an insurer’s insurance activity.


insurance activities. 5 The Authority’s guidance is of a general application and seeks to take account of

the wide diversity of institutions that may be licensed under the Act. There is likely to be a need for the guidance to be revised and developed over time. Material changes in the guidance will be published, generally through the issue of revised versions.






Application 7 This guidance applies to all insurers registered under the Act. 8 In seeking to ensure that the objectives of this guidance are met, having regard to

the size, nature, complexity and risk profile of the business of the registered insurer, the board must exercise its judgement in determining the nature and scope of the insurer’s insurance activity and the related procedures and standards. It is the responsibility of the board to determine which specific provisions of this guidance should be applied.


overall, processes or procedures for insurance activity are in place, that they are appropriate to the individual insurer, and that they are operating effectively. The Authority will formulate its overall judgment on the effectiveness of an insurer’s risk management and internal control based on a variety of indicators. The degree of applicability and weighting of individual elements in this guidance will depend on the size, nature, complexity and risk profile of each insurer as well as whether some processes have been outsourced to an affiliate or external entity. For example, the Authority recognizes that insurers which only insure or reinsure the risks of their owners and are part of the same organization may pose less risk to the public than other insurers, and that it may be appropriate for the underwriting policies and procedures for these entities to be less complex than for other insurers.2

Insurance Activities 10 Underwriting is the process by which an insurer determines whether and under

what conditions to accept a risk. Weaknesses in the controls and systems surrounding the underwriting process can expose an insurer to the risk of unexpected losses which may threaten the capital position of the insurer.

11 Insurers use actuarial, statistical, or financial methods for estimating liabilities and determining premiums. If these amounts are materially underestimated, the consequences for the insurer can be significant and in some cases fatal. In particular, premiums charged could be inadequate to cover the risk and costs, insurers may pursue lines of business that are not profitable, and liabilities may be underestimated, masking the true financial state of the insurer.

2 As stated in the IAIS Principles on Minimum Requirements for Supervision of Reinsurers approved in

October 2002 “where captives only insure the risks of their owners and are part of the same organization they may not pose the same risk to the financial system and separate regulations may be established recognizing this reduced risk.” This approach is also consistent with international best practices as described by the International Association of Insurance Supervisors, which recognize that the principles adopted in a jurisdiction should take into account the domestic context and industry.


Underwriting policy 12 Insurers manage the risks they take on through a range of techniques including

pooling and diversification. Every insurer should have in place strategic underwriting policies (underwriting guidelines) approved and reviewed regularly by the board of directors.

13 It is important that the board of directors and management of an insurer recognize that they have the prime responsibility for the sound and prudent management of an insurer’s underwriting strategy.

14 Insurers should evaluate the risks that they underwrite, and establish and maintain

an adequate level of premiums. Insurers should also have systems in place to control their expenses related to premiums and claims, including claims handling and administration expenses. Management on an on-going basis should monitor these expenses.

15 Insurers should establish premiums based on reasonable assumptions to enable the

insurer to meet its commitments. 16 Insurers may be involved in derivative activities in connection with their

insurance activities or through the transformation of the exposure into a derivative.3 An insurer should ensure that all derivatives underwritten, including embedded options in life insurance products, have been properly identified and properly priced.

Reinsurance

17 Reinsurance management refers to the selection, monitoring, review and control of reinsurance arrangements. For this purpose, reinsurance arrangements also include financial reinsurance and alternative risk transfer products.

18 Insurers should have a clear strategy to mitigate and diversify risks, such as

defining limits on the amount of risk retained, taking out appropriate reinsurance cover or using other risk transfer arrangements consistent with its nature, business and capital position. This strategy is an integral part of the insurer’s overall underwriting policy and must be approved and regularly monitored and reviewed by the board of directors.

19 The reinsurance program should be appropriate for the size, business mix and complexity of operations of the insurer and provide coverage appropriate to the level of capital of the insurer and the profile of the risks it underwrites.

3 Insurers are also involved in derivatives in connection with their investment activities. The Authority

has issued a separate guidance note on an insurer’s investment activities.


20 The reinsurance program should, among other matters, address how the reinsurance is to be purchased, how reinsurers will be selected, including how to assess their security, and what collateral, if any, is required at any given time.

21 If requested, an insurer’s reinsurance arrangements should be available for review

by the Authority. End of guidance note. If you have questions on this or other guidance from the Insurance Department please email [email protected] . Please put “Insurance Guidance” in the title of your email.




GUIDANCE NOTE #15

INVESTMENTS

MARCH 2005

Investments Bermuda Monetary Authority March, 2005 Page 1 of 7

GUIDANCE NOTE: INVESTMENTS

Introduction 1 Insurers must be prudently managed. The prime responsibility for the sound and

prudent management of an insurer rests with the board of the insurer. An investment portfolio carries a range of investment-related risks that might affect the insurer’s solvency. Insurers must manage their investments in a sound and prudent manner that is consistent with the risk profile of the company. This note sets out guidance on an insurer’s investment activities.




cannot be exhaustive. The Authority will do its best through this and other guidance notes to set out information about its regulatory approach and expectations regarding an insurer’s investment management activity.


investments or related matters. 2 5 The Authority’s guidance is of a general application and seeks to take account of

the wide diversity of institutions that may be licensed under the Act. There is likely to be a need for the guidance to be revised and developed over time. Material changes in the guidance will be published, generally through the issue of revised versions.



2 An insurer’s approach to the management of its investments directly impacts on an

insurer’s corporate governance. The Authority has issued separate guidance notes on a number of subject matters relating to corporate governance and the decision making process, including corporate governance, risk management and internal controls, and insurance activities.


6 For references in these Guidance Notes with respect to the changes in legislation contained in the Insurance Amendment Act 2004 insurers must take immediate steps to ensure they are in compliance with the Act. In relation to other matters contained in the Guidance Notes, the Authority encourages insurers to come into compliance as soon as possible and, in any event, not later than 31st December 2005 or a later date as may be agreed with the Authority in a particular case.

Application 7 This guidance applies to all insurers registered under the Act. 8 In seeking to ensure that the objectives of this guidance are met, having regard to

the size, nature, complexity and risk profile of the business of the registered insurer, the board must exercise its judgement in determining the nature and scope of the investment management activity and the related procedures and standards that are necessary. It is the responsibility of the board to determine which specific provisions of this guidance should be applied.


overall, processes or procedures for investment management are in place, that they are appropriate to the individual insurer, and that they are operating effectively. The Authority will formulate its judgment on the effectiveness of an insurer’s approach to investment management based on a variety of indicators. The degree of applicability and weighting of individual elements in this guidance will depend on the size, nature, complexity and risk profile of each insurer. For example, the Authority recognizes that insurers which only insure or reinsure the risks of their owners and are part of the same organization may pose less risk to the public than other insurers or reinsurers, and that it may be appropriate for the investment management policies and procedures for these entities to be less complex than for other insurers.3

Prudent person 10 Insurers must manage their investments in a sound and prudent manner that is

consistent with the risk profile of the company. Insurers need to identify, measure, report and control the main risks. The board of directors of an insurer should establish, and the insurer adhere to investment policies, standards and procedures that a reasonable and prudent person would apply in respect of a portfolio of investments to avoid undue risk of loss and obtain a reasonable return.

3 As stated in the IAIS Principles on Minimum Requirements for Supervision of Reinsurers

approved in October 2002 “where captives only insure the risks of their owners and are part of the same organization they may not pose the same risk to the financial system and separate regulations may be established recognizing this reduced risk.” This approach is also consistent with international best practices as described by the International Association of Insurance Supervisors, which recognize that the principles adopted in a jurisdiction should take into account the domestic context and industry.


Role of the board 11 The Authority expects that the board of directors will be ultimately responsible

for the oversight of investment management, regardless of the extent to which associated activities and functions are delegated or outsourced. Key staff involved with investment activities should have the appropriate levels of skills, experience and integrity.

Valuation of investments 12 Insurers are required to value investments in accordance with the Act. Investment strategy 13 Insurers should have an overall strategic investment policy for both on-balance

sheet and off-balance sheet items, approved and reviewed annually by the board of directors that addresses the following main elements:

• the risk profile of the insurer; • the determination of the strategic asset allocation, that is, the long-term asset

mix over the main investment categories; • the establishment of limits for the allocation of assets, for example, by types

of instruments, geographical area, markets, sectors, counterparties, investment grades and currency;

• the extent to which the holding of some types of investments are restricted or

disallowed, for example illiquid or volatile assets or derivatives; • the conditions under which the insurer can pledge or lend assets; • an overall policy on the use of financial derivatives and structured products

that have the economic effect of derivatives; • clear accountability for all investment transactions and associated risks, and • contingency plans to mitigate the effects of deteriorating investment market

conditions. 14 The Board of Directors should review the adequacy of the overall investment

policy, at least annually, considering the company’s activities, its overall risk tolerance, its long-term requirements and its solvency position.


Monitoring and Control 15 The insurer’s insurance risk management systems should cover the risks

associated with investment activities that might affect the coverage of technical provisions and/or solvency margins (capital).4 The main risks include market risk, credit risk, currency risk, liquidity risk and failure in the safe-keeping of assets (including the risk of inadequate custodial agreements).

16 Insurers should have in place adequate systems of internal controls to ensure the

safeguarding of assets, that investment activities are properly supervised and adherence to the investment policy, as well as in compliance with legal, accounting, and regulatory requirements.5 Insurers should have in place procedures to ensure the timely identification of internal control weaknesses and operating system deficiencies.

Asset/Liability Matching 17 Insurers should have in place effective procedures for monitoring and managing

their asset/liability position to ensure that their investment activities and asset positions are appropriate to settle their liabilities when they come due.

Derivatives and similar commitments 18 A derivative is a financial asset or liability whose value depends on (or is derived

from) other assets, liabilities or indices (the “underlying asset”). Derivatives are financial contracts and include a wide assortment of instruments, such as forwards, futures, warrants and swaps. These features can be embedded in hybrid instruments. Derivatives have inherent risks that should be managed properly.

19 An insurer should have comprehensive systems in place, forming part of its wider

investment risk management systems, for the identification, control, valuation and reporting of derivatives and other assets and/or liabilities that the insurer is required to disclose in its financial reporting.

20 The insurer should have in place an appropriate policy for the use of derivatives,

formulated, approved and regularly reviewed for adequacy by the directors. The policy should be consistent with the insurer’s activities, its overall strategic investment policy, its asset/liability management strategy and its risk tolerance.

4 The Authority has issued a separate guidance note for risk management and internal

controls. This should be referred for additional information about the Authority’s regulatory approach and expectations regarding these matters.

5 The Authority has issued a separate guidance note for risk management and internal

controls. This should be referred for additional information about the Authority’s regulatory approach and expectations regarding these matters.


21 The policy should address:

• the purposes for which derivatives may be used; • the establishment of appropriately structured exposure limits, taking into

account the uncertainty caused by market, credit, liquidity, cash flow, operational and legal risk;

• the extent to which the holding of some types of derivative is restricted or not

authorised; for example, where the potential exposure cannot be reliably measured, the closing out or disposal of the derivative could be difficult due to its lack of marketability (as may be the case with over-the-counter instruments) or the illiquidity of the market, or where independent (i.e. external) verification of pricing is not available;

• the responsibilities of the directors and management with regard to the use of

derivatives, and the necessary qualifications and experience required of those directors and staff managing and dealing with such transactions; and

• a framework of accountability for derivative functions, so that such activities

are properly overseen and regularly reviewed by the board and, as applicable, by internal and external audit.

22 The insurer should have risk management and internal control systems in place,

covering the risks from derivatives to ensure that:

• the risks arising from all derivative transactions undertaken by the insurer can be analysed and monitored individually and in aggregate, and monitored and managed in an integrated manner with similar risks arising from non-derivatives activities so that exposures can be regularly assessed on an aggregated basis; and

• derivatives activities are properly overseen and that transactions have been

entered into only in accordance with the insurer’s approved policies and procedures, and legal and regulatory requirements. These controls ensure appropriate segregation between those who measure, monitor, settle and control derivatives and those who initiate transactions.

23 Insurers should have:

• in place personnel with appropriate skills to vet models and to price the instruments used, and that pricing follows market convention. These functions should also be separate from any responsibilities for investment decisions and related trading; and


• the appropriate capability to verify pricing independently where the use of ‘over-the-counter’ derivatives is permitted under the insurer’s policy.

Minimum Margin of Solvency 24 Insurers are required to maintain assets in accordance with the Act such that the

insurer meets the minimum margin of solvency for general business and/or minimum margin of solvency for long-term business, as applicable [at all times]. [IARSR 10, 12]

Minimum Liquidity Ratio for General Business 25 Insurers who write general business are required to maintain assets in accordance

with the Act such that the insurer meets the minimum liquidity ratio for general business [at all times]. [IARSR 11]

Value of the Insurer’s Assets at Year End 26 Where an insurer writes general business, the insurer must state on the general

business solvency certificate whether in the opinion of the two directors signing the certificate the value of the insurer’s assets at the end of the year was in the aggregate at least equal to the statutory balance sheet asset value. [IRSR 8(1)(d)]

27 Where an insurer writes long-term business, the insurer must state on the long-

term business solvency certificate whether in the opinion of the two directors signing the certificate the value of the insurer’s assets at the end of the year was in the aggregate at least equal to the statutory balance sheet asset value. [IRSR 9(1(c))]



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