Conyers Bermuda Insurance Update (July 2016)

BERMUDA PUBLIC COMPANIES UPDATE MAY 2016
BERMUDA
INSURANCE UPDATE
JULY 2016
The first half of 2016 has been a significant period for the Bermuda
insurance sector.
The enhanced regulatory status of Solvency II has proven beneficial.
Major insurance groups have started seeking approval for the
Bermuda Monetary Authority to serve as the group supervisor under
the Solvency II regime. In particular, XL Group plc announced that
it will be redomiciling its parent company from Ireland to Bermuda.
This is on the heels of last year’s new commercial insurer formations
and Qatar Reinsurance’s redomicile to Bermuda. Looking ahead to
the next six months of the year, we anticipate a continued increase in
activity in the formation and licensing of new commercial insurers, as
well as a rise in ILS activity with the formation of new cat bond issuers.
Inside this edition of our Bermuda Insurance Update, we feature
commentary on legislative changes and market updates affecting
the industry, as well as news and event highlights.
Conyers’ Insurance Practice By the Numbers
21
US$18.83
billion
60
years
The number of Bermuda insurance
companies listed on the global stock
exchanges, of which, Conyers advises 80%.
Value of four insurance M&A transactions
Conyers has worked on.
The number of years we’ve advised
two-thirds of issuers registered in
Bermuda.
Head Office and Proportionality
On 1 January 2016 the new Section 8C of the Insurance Act, 1978
relating to maintenance of a Head Office in Bermuda became
effective. Under the Section, commercial insurers incorporated and
licensed in Bermuda are required to maintain a head office on the
Island and the insurance business must be directed and managed
from Bermuda. The Section sets out various factors that will be
considered by the Bermuda Monetary Authority (the “BMA”) in
determining whether a commercial insurer complies with this
requirement. These factors include: (i) where the underwriting, risk
management and operational decision-making of the commercial
insurer occurs; (ii) whether the presence of the senior executives
who are responsible for and involved in the decision-making related
to the insurance business are located in Bermuda; (iii) whether
the board meetings occur in Bermuda; (iv) the location where
management meets to effect policy decisions; (v) the residence of
officers, insurance managers or employees of the insurer; and (vi)
the residence of the directors of the insurers. Most, if not all, of the
larger commercial insurers in Bermuda already met the requirement.
However, initially there was concern as to whether some of the
smaller or “limited purpose” reinsurers, such as affiliated reinsurers
and “sidecars”, would meet the criteria without incurring substantial
expense.
Since 1 January 2016 the BMA has given indications to various
stakeholder meetings that when determining whether a commercial
insurer complies with the head office requirements they will apply
the principal of proportionality. The principal of proportionality forms
part of the BMA’s risk-based approach to insurance regulation and the
BMA recognises that insurers have different risk profiles arising from
the nature, scale and complexity of their business. As such, the BMA
recognises that a commercial insurer writing multiple lines of business
with numerous cedants must have a more substantive presence in
Bermuda than a commercial insurer which only reinsures its affiliates.
55%
The increase in special purpose
insurer registrations Conyers
advised on in 2015.
As a result we believe that limited purpose commercial insurers
are more likely to satisfy the head office requirements without
establishing a full standalone office in Bermuda, provided that
the level of activity and decision-making made in Bermuda is
proportionate to the nature, scale and complexity of the business.
BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS DUBAI HONG KONG LONDON MAURITIUS SINGAPORE / conyersdill.com

BERMUDA INSURANCE UPDATE JULY 2016
Insurance Managers Code of Conduct
The BMA has issued a consultation paper setting out its proposal to amend the Insurance Act,
1978 (the “Act”) to enhance its oversight of insurance managers, including the introduction of
the Insurance Manager’s Code of Conduct.
Under the draft Code, insurance managers will be required, among other things, to establish
and document an appropriate corporate governance framework and also establish document
controls, policies and procedures to ensure their business is conducted in a prudent manner and
controls, policies and procedures for the businesses they manage. As with the Insurers Code
of Conduct, the Insurance Manager’s Code of Conduct expressly provides that when the BMA
assesses an insurance manager’s compliance with the Code the BMA will take into account the
nature, scale and complexity of the insurance manager’s business.
In addition, the BMA is proposing to make prudential rules to require insurance managers to file
specific details via an Insurance Manager’s Return. The BMA is also proposing to extend
the Anti-Money Laundering/Anti-Terrorist Financing regime to include all insurance managers.
The proposed amendments to the Act will: (i) extend the BMA’s ability to make prudential
rules to cover reporting requirements for insurance managers and to charge a fee for any
modifications or exemptions thereof; (ii) extend the minimum criteria for registration to require
insurance managers to have sufficient professional indemnity insurance cover; (iii) require
notification of the BMA regarding changes to the controllers or officers of insurance managers;
and (iv) provide the power for the BMA to investigate the affairs of insurance managers.
The draft Code of Conduct and Consultation Papers may be found on the BMA’s website
www.bma.bm under Insurance/Consultation Papers. The BMA has indicated they wish to make
the relevant amendments to the Act as soon as possible and require insurance managers to be
in compliance by 1 December 2016.
RECENT AND UPCOMING EVENTS
BERMUDA
LONDON
Bermuda Captive
Conference
June 13-15, 2016
Trading Risk Awards
June 16, 2016
BERMUDA
BERMUDA
BILTIR Conference
September 27, 2016
ALARYS Congress
Bermuda 2016
September 25-27, 2016
BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS DUBAI HONG KONG LONDON MAURITIUS SINGAPORE / conyersdill.com

BERMUDA INSURANCE UPDATE JULY 2016
LEGAL UPDATES
European Parliament and Council Approve Bermuda as
Solvency II Equivalent
As we have previously reported, in November 2015 the European
Commission published a Delegated Act which recognised Bermuda’s
commercial insurance regulatory framework as being equivalent
to the regulatory standards applied to European insurance and
reinsurance companies. Following a review by the European
Parliament and Council, the Delegated Act was published in the
Official Journal of the European Union on 4 March 2016 and the grant
of full equivalence came into force on 24 March 2016 and applies from
1 January 2016.
The Contracts (Rights of Third Parties)
Act 2016 (the “3 rd Party Act”)
The Act was recently passed by the Bermuda Legislature and is now
fully operative. The 3 rd Party Act is significant in that it permits parties
to vary the common law doctrine of “privity of contract”, which
provides that only parties to a contract may enjoy the benefits and
enforce the provisions of that contract.
Under the 3 rd Party Act, persons not specifically party to a contract
may now be entitled to benefit from and enforce the terms of the
contract, subject to certain restrictions. The Act is similar to third
party rights legislation enacted in the UK and several other common
law jurisdictions.
Application and Exceptions
While the doctrine of privity of contract may now be varied in
Bermuda, it has not been abolished as contracting parties are
required to “opt in” to the 3 rd Party Act’s provisions. In order for
the 3 rd Party Act to apply, the contracting parties must expressly
identify the third party (either by name, as a member of a class or as
answering a particular description) and agree that the third party may
enforce the applicable terms of the agreement. The third party does
not necessarily have to be in existence as of the date of the contract;
all that is required is that they be clearly identified.
The 3 rd Party Act, generally, applies to all contractual provisions,
including indemnities and exculpations and other limits of liability.
There are also certain contracts, which are specifically excluded,
including bills of exchange, employment agreements, promissory
notes and other negotiable instruments, rights conferred by a
company’s memorandum of association or bye-laws, contracts for the
carriage of goods by sea or roads or for the carriage of cargo by air
and letters of credit.
The Act is also important in Bermuda’s insurance space as, amongst
other things, it removes uncertainty about the legal enforceability of
so-called “cut-through” clauses or endorsements in insurance and
reinsurance contracts, which parties have wanted to use in Bermuda
over the years. Under this new legislation, as noted, there must be
express contracting into the legislation (i.e. parties must opt in)
whereas the legislation in other jurisdictions works the other way and
applies unless there is a contracting out. Thus, parties will need to
take particular care in drafting the wording of such clauses.
Such clauses will, like any contractual terms, be subject to the normal
fraudulent preference and transactions at an undervalue rules
applying at the time the cut through clause is entered into. However,
provided the transaction is a bona fide commercial transaction for
proper consideration, between solvent parties, there is now little
danger of the common law rules of privity applying to upset the
operation and enforceability of cut through clauses.
The 3 rd Party Act does not have retroactive effect; however, where
a contract is entered into prior to the 3 rd Party Act and provides for
third party rights in accordance with the 3 rd Party Act, those rights
will automatically become enforceable by the third party on the
commencement date of the 3 rd Party Act without further action by the
parties. After commencement, parties may also, of course, amend the
terms of a prior agreement to include third party rights.
Enforcement by Third Parties
Where the 3 rd Party Act’s requirements have been met, a third party
can enforce the terms of the contract and can avail itself of any
remedy that would be available to the contracting parties, including
those related to breach of contract, damages, injunctions and specific
performance. However, a third party will not have any better rights
or remedies than those available to the contracting parties. Thus, if
a contract limits recovery or otherwise limits a right of a contracting
party, the third party will similarly be limited in terms of what actions
or recoveries are available to it. There is protection against double
liability, so that, where complete or partial recovery has been made by
a contracting party, the Court may reduce any award to a third party
by the amount recovered by the contracting party.
Variation of Contract and Assignments
Once rights have been extended to a third party, the contracting
parties are restricted in their ability to vary such rights as
between themselves and the third party where: (i) the third party
communicated its assent to the term to the party against whom the
term is enforceable (a “promisor”); (ii) the promisor is aware that the
third party has relied on the term; or (iii) the promisor can reasonably
be expected to have foreseen that the third party would rely on the
term and the third party has in fact relied on it. In these situations the
third party must consent to any variation or rescission of the contract
unless it has contractually agreed otherwise.
Finally, the 3 rd Party Act permits a third party to assign its third
party rights under a contract to another person in the same way
as a contracting party may assign its rights, unless the contract
specifically provides otherwise or on a proper construction of the
contract, the rights are personal to the third party.
In summary, under this new Bermuda law, contracting parties may
now extend rights to third parties, where desired, thus reducing
the burden of entering into multiple agreements to affect the same
contractual intent. The Act further enhances Bermuda’s commercial
laws and, again, demonstrates the Island’s responsive legislative
framework for business.
BERMUDA BRITISH VIRGIN ISLANDS CAYMAN ISLANDS DUBAI HONG KONG LONDON MAURITIUS SINGAPORE / conyersdill.com

BERMUDA INSURANCE UPDATE JULY 2016
AWARDS AND ACCOLADES
KEY CONTACTS
BERMUDA
CHARLES G.R. COLLIS
Director
charles.collis@conyersdill.com
+1 441 299 4918
CHAMBERS GLOBAL
Corporate & Finance
Sole Band 1 Firm
in Bermuda, with 17
Top-Ranked lawyers
LEGAL 500
18 Bermuda
Lawyers Ranked
Tier 1 Corporate and
Commercial
CHRIS GARROD
Director
chris.garrod@conyersdill.com
+1 441 299 4923
“a dominant force in the market,
with a strong bench of lawyers who
offer expertise across the board”
“experts in IPOs, M&A and
insurance, as well as securitisation,
ship and aircraft finance, and
corporate restructuring”
DAVID J. DOYLE
Director
david.doyle@conyersdill.com
+1 441 299 4902
MICHAEL FRITH
Director
michael.frith@conyersdill.com
+1 441 278 7969
IFLR 1000
10 Ranked
Corporate
Lawyers
“unrivalled experience
and expertise in Bermuda...
even competitors acknowledge
the excellence of Conyers. There
is no denying that Conyers has
the broadest corporate practice
and is the best-established law
firm in the jurisdiction.”
WWL AWARDS
Who’s Who Legal
Bermuda Firm
of the Year
Bermuda Firm of the Year
every year since 2006
SOPHIA GREAVES
Director
sophia.greaves@conyersdill.com
+1 441 294 5929
Founded in 1928, Conyers Dill & Pearman is an international law firm advising on the laws of Bermuda, the
British Virgin Islands, the Cayman Islands and Mauritius. With a global network that includes 130 lawyers
spanning eight offices worldwide, Conyers provides responsive, sophisticated, solution-driven legal advice
to clients seeking specialised expertise on corporate and commercial, litigation, restructuring and insolvency,
and private client and trust matters. Conyers is affiliated with the Codan group of companies, which provide
a range of trust, corporate secretarial, accounting and management services.
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