The face of insurance company regulation in Bermuda is set to change after Government passed the Insurance Amendment Bill 2008 in the House of Assembly earlier this week.

The new bill, which was proposed by Finance Minister Paula Cox, made a number of changes to the Insurance Act 1978, allowing the Bermuda Monetary Authority (BMA) to prescribe standards for an enhanced capital requirement and a capital and solvency return for insurers to comply with, and making new provisions for classes of insurance companies and Special Purpose Insurers (SPIs).

It also allowed for the provision of additional financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) by Class 4 insurers.

The changes came about through a consultation and from International Monetary Fund Offshore Assessment recommendations carried out in 2003 and published in January 2005 to evaluate the regulation of the banking, insurance and securities sectors on the Island and review the financial services legislation and identify steps to be taken to improve the country's regulatory framework.

"Today's amendments will further enhance Bermuda's regulatory framework and ensure that it keeps up with the evolving international standard," said Ms Cox.

The amendment to GAAP reporting for Class 4 insurers would be extended by the BMA to Class 3 commercial sector insurance companies after a recategorisation of the Class 3 section had been completed as per the timeline set out in the Authority's 2009 Business Plan.

The recategorisation of Class 3 insurers, meanwhile, will separate the captive and commercial insurance firms, redefining the Class 3 sector and forming two new sub-classes, namely Class 3A and 3B to allow the BMA to supervise and regulate each range and type of insurer consistently.

Ms Cox revealed that there were 504 Class 3 companies with total capital and surplus of more than $66.7 billion at the end of last year, with the firms writing more than $42 billion in gross premiums and representing about 34 percent of the total number of active insurance companies in the jurisdiction.

In terms of SPIs, Ms Cox recommended that an SPI's minimum share capital be set at $1, the margin of solvency requirement will require that the asset of an SPI exceed its liabilities, an SPI will only be permitted to write 'special purpose business', and will be allowed to fund its insurance liabilities through a debt issuance or some other form of financing approved by the Authority.

Furthermore, she added that a recent study published by Swiss Re indicated that the Insurance Linked Securities market was worth $38 billion in 2007 and is projected to grow to $200 billion in 2013 and $600 billion in 2017.

"The challenge for the Authority is to strike the right balance between maintaining an effective regulatory framework that meets relevant international standards and ensures high standards of behaviour, while fostering an environment that remains attractive to business and enables them to grow and develop successfully," concluded Ms Cox.