solvency requirements for the Island's international insurance sector tomorrow.

The awaited amendments to the 1978 Insurance Act, which were first announced last year, will establish four classes for insurers and are aimed at improving the Island's stature as an offshore insurance centre.

The bill provides for stricter reporting requirements for all insurers, although its provisions in many cases will not apply directly until January 1996.

All insurers in Classes 2, 3 and 4 will be required to file financial statements as part of an annual return. Certain of the largest insurers will be required to include in those returns, details of ceded reinsurance.

Such details will include the name of the reinsurer; its rating and by which rating agency; where the reinsurer was incorporated; the amount of reinsurance premiums ceded to it during the relevant year; the amount of reinsurance recoverable from it; the amount of reinsurance balances payable to it; the amount of net reinsurance recoverable from it; the amount of net reinsurance recoverable from it which has been due for less than 180 days; and, the remainder of net reinsurance recoverable from it.

Under the new laws, the principal representative of an insurer has to be approved by the Minister of Finance. Applications made to the Minister will now attract specific fees.

Companies failing to file statutory statements and returns on time can be taken to Magistrates Court. For each week, or part of a week, of the offence the company faces a maximum fine of $500 for Class 1 and 2 insurers; a maximum of $1,000 for a Class 3 or long term insurer; and, $5,000 in the case of a Class 4 insurer.

Companies wishing to avoid court proceedings could simply pay an agreed fine through the Registrar of Companies into the Government's Consolidated Fund.

And when a Class 4 insurer is three months late in filing its statutory statements or returns to the Ministry, the Minister must appoint an inspector to investigate the insurer's affairs.

Class 1 insurers will typically be a single parent captive insuring only the risks of its parent or affiliates, with minimum capital requirements remaining at $120,000 for general business and $250,000 for long term business.

Class 2 insurers are multi-owner captives or group captives insuring risks of its owners and affiliates and up to 20 percent of net premiums from coverages unrelated to captive shareholders. The required minimum capital and surplus is $250,000.

Class 2 insurers will be required to provide every third year, along with their statutory financial return, a statement of opinion from a loss reserve specialist on the loss and loss expense provisions. Such a statement will be expected from Class 3 and 4 insurers annually.

Where gross premiums from professional liability insurance constitute more than 30 percent of the gross premiums written by the insurer during the relevant year, the opinion of the 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 separated, then the opinion of the loss reserve specialist must be given on the whole amount of the loss provisions.

Such an opinion would also be required once a company stops writing the business.

Insurers will also be required to keep certain financial records in Bermuda in order to give statutory backing to the Registrar's guidelines issued at the end of 1991.

Records also required include an insurer's assets, liabilities, equity, premiums and claims.

The 1980 regulations on insurance returns and solvency are being changed to increase the insolvency margin for insurers carrying on general business.

Class 3 Licences are for captives that derive more than 20 percent of their net premium from unrelated risks, and for other insurers and reinsurers writing unrelated risks. A minimum capital and surplus of $1,000,000 is required.

If a Class 3 or 4 insurer fails to meet its general business solvency margin, it must within 30 days file a report to the Minister explaining the circumstances behind the failure and how and when it will be rectified. The company is not allowed to declare or pay any dividends until that failure is rectified.

The minimum solvency margin for Class 3 insurers would be based upon the greater sum yielded by one of two options.

It could be the current 20 percent of the first $6 million of net premium written each year and an increase from 10 percent to 15 percent for net premiums above $6 million.

Or it could be 15 percent of loss reserves, previously set at 10 percent. The highest figure of the two calculations is the option required.

For a Class 4 insurer (comprising excess-of-loss carriers), if its total statutory capital and surplus falls below $100 million as a result of losses or loss expenses, the company must file a revised business plan within 30 days, showing how it intends to make up the shortfall.

If capital and surplus falls to $75 million or less, it must send a report to the Minister within 45 days that includes unaudited interim statutory financial statements, the opinion of a loss reserve specialist and a general business solvency certificate in respect of those statements.

A Class 4 insurer is never allowed to pay dividends that exceed 25 percent of its previous year's total statutory capital and surplus, unless it files an acceptable affidavit with the Registrar seven days before, which states it has not caused the insurer to fail to meet its relevant margins.

Solvency margins will now be based on the greater of two options. The first is 15 percent (up from 10 percent) of loss reserves. The second is 50 percent of net premiums in each financial year. But in computing net premium, the maximum deduction for reinsurance must not exceed 25 percent of gross premiums written.

At present the requirement is for a 5:1 ratio of net premium to capital and surplus. The new changes would change it to a 2:1 ratio.