Overview Of Bermuda Insurance Regulations - Deloitte

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Overview of Bermuda Insurance Regulations Limited Purpose Insurers (“LPI” or “Captives”) January 2019

Table of Contents Overview of reporting landscape 3 Filing requirements 5 Setting up a captive 2019 DCB Holding Ltd. and its affiliates 10 Overview Bermuda Insurance Regulations 2

Overview of reporting landscape 3

Overview of reporting landscape The Bermuda Monetary Authority (“BMA”) recognizes that insurers having varying risk profiles arising from the nature, scale and complexity of their business. Bermuda’s insurance regulation is divided into Commercial Insurers and Limited Purpose Insurers (“LPI” or “captives”). Reporting for Commercial Insurers is more onerous and they are deemed to be Solvency II equivalent. Whereas captives are not and have different capital and reporting requirements. Regulations: Insurance Act 1978 Insurance Account Regulations 1980 Insurance Return and Solvency Regulations 1980 Five basic classes of captive insurance licenses: Class Description Class 1 (General Business) Company is a single parent captive or an affiliate of a group insuring/reinsuring risks or parent or affiliate only. Class 2 (General Business) Owned by two or more unrelated persons and writing their risks or the risk of their affiliates or insuring risks which the BMA approves as arising out of the business of its owners and single parent captives writing up to 20% unrelated business. Class 3 (General Business) Where company insures/reinsures more than 20% but less than 50% unrelated business. Class A (Long Term Business) Wholly owned by one person and intends to carry on long-term business consisting only of insuring the risks of that person; or is an affiliate of a group and intends to carry on longterm business consisting only of insuring the risks of any other affiliates of that group or of its own shareholders. Class B (Long Term Business) Wholly owned by two or more unrelated persons and intends to carry on long-term business not less than 80% of the premiums and other considerations written in respect of which will be written for the purpose of insuring the risks of any of those persons or of any affiliates of any of those persons; or 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. 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 4

Filing requirements 5

Filing Requirements Annually, 6 months after financial year end, captives are required to file Electronic Statutory Financial Return (E-SFR). This includes: Company Information Form Statement of Control Form Statutory Financial Statements (Audited) Form 1A/4 – Statutory Balance Sheet Form 2A/5 - Statutory Income Statement Form 8 – Statutory Statements of Capital & Surplus Notes to the Statutory Financial Statements Auditors Report Loss Reserve Certificate / Actuarial Certificate, if required Alternative Capital Schedule (General Business) Anti-Money Laundering Return (Long Term Business) Own Risk Assessment (includes Risk Register, Risk Appetite, and Investment Guidelines) Schedule I – Schedule of Underwriting Analysis Schedule II – Schedule of Segregated Accounts, if applicable Solvency Page Annual Statutory Declaration 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 6

Bermuda Statutory Accounting vs. U.S. GAAP/IFRS The typical differences between Statutory Accounting and U.S. GAAP/IFRS are as follows: Item Measurement for Statutory Goodwill Not Admitted Prepaid and deferred expenses Not Admitted Intangible assets Not Admitted Deferred tax asset Not Admitted Letters of credits or guarantees that encumber insurers assets 100% of nominal value 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 7

Classes of Insurers – General Requirements for Limited Purpose Insurers (Class 1,2,3,A & B) Class 1 Class 2 Class 3 Class A Class B Minimum paid up share capital 120,000 120,000 120,000 120,000 250,000 Reduction of statutory capital BMA approval prior to any reduction by 15% or more of its total statutory capital as shown in the previous years statutory financial statements Minimum capital & surplus 120,000 Dividend restriction Comply with solvency/liquidity requirements at all times Loss Reserve Specialist Opinions (LRSO) / Actuarial Opinion: Not required to file LRSO unless discounting the loss and loss expense provisions and does not meet the solvency requirements on undiscounted basis OR greater than 30% written professional liability, otherwise required to file LRSO annually. 2019 DCB Holding Ltd. and its affiliates 250,000 1,000,000 120,000 250,000 Comply with solvency requirements at all times Required to file an Required to file an LRSO Actuarial Opinion LRSO every 3 years annually. unless discounts the loss and loss expense provisions and does not meet the solvency requirements on undiscounted basis OR greater than 30% written professional liability, otherwise required to file LRSO annually. Actuarial Opinion Overview Bermuda Insurance Regulations 8

Classes of Insurers – Solvency & Liquidity for Limited Purpose Insurers (Class 1,2,3,A & B) Minimum solvency margin Minimum Class 1 Class 2 Class 3 Class A Class B MUST BE MET AT ALL TIMES Greater of: 120,000 capital & surplus Or Net Premiums Written (npw) test: 20% of first 6m npw plus 10% of amounts in excess of 6m Or 10% of loss reserves MUST BE MET AT ALL TIMES Greater of: 250,000 capital & surplus Or Net Premiums Written (npw) test: 20% of first 6m npw plus 10% of amounts in excess of 6m Or 10% of loss reserves MUST BE MET AT ALL TIMES Greater of: 1,000,000 capital & surplus Or Net Premiums Written (npw) test: 20% of first 6m npw plus 15% of amounts in excess of 6m Or 15% of loss reserves MUST BE MET AT ALL TIMES Greater of: 120,000 Or 0.5% of assets MUST BE MET AT ALL TIMES Greater of: 250,000 Or 1% of assets ** where assets shall be the total assets reported on an insurer’s balance sheet in the relevant year less the amount held in a segregated account. ** where assets shall be the total assets reported on an insurer’s balance sheet in the relevant year less the amount held in a segregated account. Where solvency test Principal Representative must report to the is failed BMA within 30 days Liquidity ratio Principal Principal Representative must report to the Representative must BMA within 30 days notify the BMA; pay no dividends until position rectified; file revised business plan within 30 days Relevant assets must equal at least 75% of relevant liabilities n/a 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 9

Setting up a captive 10

Incorporation Timeline Bermuda has a short lead-time to establish a captive. A company can generally be registered in the same week an application is submitted. Following this, the BMA’s Insurance Licensing and Authorization Committee (ILAC) will meet weekly to approve license applications. Typical Timeline Subject to Change on Case-by-Case Basis Pre-Work Select and obtain acceptance letters from professional services providers, including: Lawyer Auditor Insurance Manager Bank Approved Actuary Additionally, prepare relevant pre-incorporation documents, including: Ownership Structure Business Plan Capitalization Plan 5-year Financial Projections 1Bermuda Week 1 Monday Reserve Company name with Registrar Submit documents to BMA1 Submit application to incorporate to Registrar Friday Assuming no further info is requested, incorporation is approved Week 2 Monday Incorporate and capitalize Company Elect and convene Board of Directors Submit insurance license application to BMA Friday Insurance license issued and business operations may commence Monetary Authority 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 11

Professional Service Providers Lawyer Prepares registration documents, security memoranda, and insurance contracts. Advisor Auditor Assists in overall analysis of insurance program. Provides independent assurance of business records. Approved Actuary Insurance Manager Provides LRSO or Actuarial Opinion on reserve adequacy. Serves as Principal Representative and manages operations. Bank Holds accounts and/or collateral in trust. 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 12

Pre-Incorporation Documents Ownership Structure Describe intermediate and ultimate beneficial owners of the proposed company Submit latest audited financial statements where proposed owners are corporate bodies Identify provisional directors and officers Business Plan Describe type of business being assumed Identify desired class of registration Describe intended reinsurance program, if applicable Identify and request any exceptions or modifications under Section 56 of the Act (e.g. parent company loan to be considered a relevant asset for liquidity margin calculation) Identify professional service providers Capitalization Plan Describe proposed level of capitalization and contributed surplus Identify investors (to evidence sophistication) and funding mechanism (to evidence full collateralization), in the case of an SPI Provide, if applicable, collateral trust agreement and any offering documents Financial Projections 2019 DCB Holding Ltd. and its affiliates Prepare 5-year pro-forma financial projections Overview Bermuda Insurance Regulations 13

Ongoing Management In order to appropriately manage day-to-day operations of the Insurer, it is required to appoint a local Principal Representative to assume responsibility for the Insurer’s legal standing. This role is commonly initially assumed by the Insurance Manager, who additionally provides services relating to general administration and information management. Insurance Administration Claims Management Services Management Information Systems 2019 DCB Holding Ltd. and its affiliates Compliance and Statutory Reporting Additionally, the elected Board of Directors will be responsible for the regular organization of the Insurer, including establishing certain management policies. These responsibilities are described on the next slide. Principal Representative Overview Bermuda Insurance Regulations 14

Organization Upon incorporation of the company, the provisional directors must convene the ‘statutory meeting’, which is essentially the first annual general meeting of shareholders. The ongoing responsibilities of the company’s directorship is outlined below: At the Statutory Meeting (and First Board Meeting) Confirm bylaws Elect Board of Directors Officially appoint auditors Elect company officers Appoint other professional service providers At Subsequent Annual General Meetings Renew or reappoint directors, officers, and service providers Establish management policies with respect to investment, dividend, accounting, and all other relevant business operations Present and sign audited financial statements 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 15

Contact Us Muhammad Khan Gokul Sudarsana Partner 1 441 299 1357 muhammad.khan@deloitte.com Director 1 441 298 1132 gokul.sudarsana@deloitte.com Heldar Carreiro Director 1 441 299 1308 heldar.carreiro@deloitte.com 2019 DCB Holding Ltd. and its affiliates Overview Bermuda Insurance Regulations 16

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. Deloitte & Touche is an affiliate of DCB Holding Ltd., a member firm of Deloitte Touche Tohmatsu Limited. Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500 companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 225,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn or Twitter. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. 2019 DCB Holding Ltd. and its affiliates.

Bermuda Statutory Accounting vs. U.S. GAAP/IFRS The typical differences between Statutory Accounting and U.S. GAAP/IFRS are as follows: Item Measurement for Statutory Goodwill Not Admitted Prepaid and deferred expenses Not Admitted Intangible assets Not Admitted Deferred tax asset Not Admitted Letters of credits or guarantees that encumber .

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