bermuda captive breakfast seminar philadelphia marriott downtown philadelphia may 18, 2010

Bermuda Captive Breakfast SeminarPhiladelphia Marriott Downtown

Philadelphia

May 18, 2010

Moderator Scott Gemmell

Why companies form captives Thomas McMahon

Latest ideas in captive use Susan Lane

How to form a Bermuda captive Brad Adderley

Captive Tax Update Bill BaileyKarey Dearden

Bermuda’s captive regulation Shelby Weldon

Why Companies Form Captives

Thomas McMahonPresidentCedar Management Limited

• What is a Captive

• Types of Captives

• Why form a Captive

Topics

• Insurance subsidiary of a commercial/financial company, or a consortium or an association of individuals

• Formed to primarily insure or reinsure the risks of its parent, or of a number of parties with risks in common or unrelated risks

• Usually formed in a specialized environment or “domicile” – “onshore” or “offshore”.

What is a Captive?

• Single Owner

• Multi-owner or Association

• Rent-a-Captive – multiple non-owner

• Protected or Segregated Cell Captive (PCC, SPC SAC) – any of the above

Types of Captive

Why Form a Captive?

1. Information and Control

2. Risk Management Focus

3. Additional Capacity

4. Direct Market Access

5. Flexibility in Program Design

6. “Uninsurable” Risk

7. Financial Stabilizing

8. Profit Centre

1. Information and Control• Influence program design and cost through progressive retentions

• Reliable data for reinsurance purposes

• May assist with rating requirements

• Access to loss data/reserving practice

• Claims handling control• Image preservation• Avoidance of legal precedents• Out of court settlements• Negative publicity management• Damage limitation

2. Risk Management Focus

• As a separate subsidiary of the business, focuses senior management attention on risk.

• Risk manager can use risk management ranking methods to influence premium allocation to business units/divisions

• Use captive surplus to fund risk improvements

• Ring-fence risk funding

• Use contributions to fund loss control projects

3. Additional Capacity• Can act as a direct insurer (where permitted)• Can act as a reinsurer behind a fronting company• Provides insurance coverage through fluctuating insurance cycles = price stabilization• Reduces the dependency for obtaining risk transfer through commercial markets• Strategic layer completion e.g.

• Left with a gap unable to complete property layer at lead underwriter premium• Captive used to write the gap at lead underwriter premium thereby completing the layer• Captive purchased reinsurance at a higher premium, but integrity of pricing for rest of the layer was maintained• Saved the increase layer pricing for the benefit of the insured

4. Direct Market Access

• Allows direct access to reinsurance markets & ART markets

• Wholesale market cheaper than direct markets

• Reinsurance markets less regulated, wider range of solutions – better program design

• May reduce/eliminate brokerage fees

• Collection of reinsurance commissions

5. Flexibility in Program Design

• Acts as a negotiating tool in coverage and pricing with markets

• Allows for customized covers, broader wordings, “manuscript” policy forms

•Coordination of insurance programs throughout multiple jurisdictions: (DIC/DIL covers, global programs)

6. “Uninsurable” Risk

• Such exposures carried on balance sheet

• Create capacity above captive retention

• Can become tax-deductible premium expense

• Transfer liability off balance sheet

• Turn a cost center into a potential profit center – e.g. gradual environmental pollution

7. Financial Stabilizing

• Insulates owner from withdrawal of capacity by conventional markets: pollution, asbestos, flood, windstorm, terrorism…

• Uses its capacity and reservoir of earnings to stabilize premiums during harder markets

• Allows access to multi-year ART programs to spread losses across time

• Dividend release can be harmonized with parent’s capital needs to reduced debt/equity ratios, tax loss offset…

8. Profit Centre

• “Offensive” not “defensive” use

• Attract related third party business, e.g. customer insurance programs

• Diversify risk in captive

• One corporate vehicle to measure risk management performance

Latest ideas on Captive use

Susan LaneVice PresidentAon Global Insurance Managers

• Continued soft market

• Interest rates low

• Below average ROI

• Inflation on the rise

• Cash/liquidity still an issue

• Restricted credit, squeeze on collateral

Current Environment

• Incorporations continue

• Potentially tighter regulations introduced

• Economic situation driving strategic review and uses

• Owners are:– identifying untapped potential cost-saving mechanisms– increasing retentions– accessing excess capital– considering new lines of coverage

Current Captive Market

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

# of

Glo

bal

Cap

tive

sGlobal Captive Market Growth

Risk Transfer

Corporate Discipline

Tax Strategy

Reinsurance

Marketplace

FinancialR

isks

Allocation

E-Commerce Risks

Loss Reduction

Acquisitions

New Product Offerings

RiskRetention

Liquidity

Most Common Uses

Traditional Captives• Traditional risks e.g. WC; Auto; GL; • Long tail covers seeking tax advantages• Typically $1m+ in expected losses

New Captives

• Used to create income e.g. selling insurance on products (cell phones, extended warranties, tenants insurance)

• Used to resolve problems e.g. lack of capacity/rising costs for Californian earthquake

• Used to insure the uninsurable e.g. emerging liabilities for high tech companies, products liability for pharmaceutical

• Used to enhance cover e.g. employee benefits

Common Uses

• Trade credit

• Legacy liabilities

• Non-US employee benefits

• Customer/Supplier risk

• Group captive participation

• Segregated account conversions

• 831(b) formations

• Wealth management/transfer

Latest Uses

• Usually lowers cost of insurance

• Risk sharing may provides tax benefits

• Owners benefit from returned premiums (dividends) after a defined period

• Group meetings can create beneficial forum discussions

Group Captive Participation

• Use captive to provide customers/suppliers with insurance capacity

• Insulate risks

• Isolate run-off or legacy risks from current risk portfolio

• Asset protection

Segregated Account Conversions

• Commonly known as “Wealth Captives”

• Premiums below $1.2m then election opts not to pay income tax on the underwriting profit (have to pay on investment income)

• Purpose is to allow start up companies the opportunity to get established

• The entity MUST qualify as an insurance company for tax purposes to take this election

• Captives in common ownership are added together to see if $1.2m is exceeded

831 (b) Captives

• Use of a captive to transfer wealth between generations through structuring captive ownership

• Applicable to privately held companies only

• Can be a tax effective way of transferring wealth

• Underwriting profit is received by heirs, not business owners

Wealth Management/Transfer

Trust 1

Grandson

Trust 2

Granddaughter

Auntie Mabel

InheritanceCaptive

Ltd.

Pops Co. 1

Pops Co. 2

Pops Co. 3

Pops Co. 4

Pops Co. 5

Pops Co. 6

Pops Co. 7

Pops Co. 8

OwnCaptive

Pay premiumsto Captive

PaysDividend

Wealth Management/Transfer:Example 1

Trust 1

Grandson

Trust 2

Granddaughter

Auntie Mabel

InheritanceCaptive

Pops Co. 1

Pops Co. 2

Pops Co. 3

Pops Co. 4

Pops Co. 5

Pops Co. 6

Pops Co. 7

Pops Co. 8

No Claims$1m

Dividend

$1m

CaptiveTakes831(b)election

Shareholders paytax at their applicable

rate

Insured deductspremium as expense(Tax Saving $350k)

Wealth Management/Transfer:Example 2

• Understand the capacity and appetite to assume more risk

• Determine future expected losses

• Gauge market response

* Consider the Total Cost Of Risk *

Program Design Consideration

• Indications that P&C market will stay soft

• Organizations continue to assess the value of every $ spent

• Focus on optimizing risk

• Evaluate placing less coverage in the commercial insurance market and increasing retentions

• Combat high cost and availability of collateral

• Increase in global regulation

2010 Outlook

Captives as a strategic risk financing tool are continuing to evolve and deliver benefits to the parent company in

many areas, not just insurance and tax.

Conclusion

How to Form a Captive

Brad AdderleyPartnerAppleby

Preparation

Receive Client Instruction

Completion of Client Questionnaire

Reservation of Name

Registrar of Companies

Engagement Letter & Retainer

KYC

Insurance SubmissionSimultaneously Submit to:

Incorporation Submission

Registrar of Companies; and Bermuda Monetary Authority:

Authorisation and Compliance Division

Insurance Submission

Bermuda Monetary Authority: Insurance Division Assessment & Licensing Committee (ALC) Technical Advisory Group (TAG)

Insurance Submission

Business Plan

Pre-incorporation Information Form

Five Year Financial Projections

Director Information

Shareholder Information

Supporting Documentation

Incorporation

Bermuda Monetary Authority

Issue consent to incorporate

Registrar of Companies

Apply to incorporate

Immediately; or

Delay incorporation for up to six months from the date the

consent is issued

BMA Review Process

Shareholders

Provide more information on owners

Ap

pro

ved

Rejected

Rejected

Review of Application by

ALC & BMA Insurance Division

Request more information until satisfied

Foreign Exchange

letter issued to Registrar

of Companies

Incorporate Company

Insurance Program

Organisation

Review funds to pay up the minimum authorised share capital

Convene initial meetings

Provisional Directors Meeting Statutory Meeting First Board of Directors Meeting

Insurance Licensing

Apply for insurance license

Form 1B

Service Providers

Capital

NB: License will be issued as of the date of application

Commence writing business from the date that the license application is submitted

Post Organisation

Service Providers:

Corporate Secretary

Principal Representative/Insurance manager

Auditor

Loss Reserve Specialist

Banks

Bill BaileySr. Manager & Tax LeaderErnst & Young, Bermuda

Karey DeardenSr. Manager FSO InsuranceErnst & Young, New York

Captive Tax Update

Current Environment

► CFOs are constantly looking for ways to improve cash flow, to reduce expenses and to maximize the use of capital.

► CFOs and Risk Managers are seeking to maximize coverage options while reducing the overall cost of risk.

► Tax Directors of inbound organizations are exploring methods to move funds within the global organization in a tax efficient manner.

Potential Benefits of a Captive Insurance Arrangement

A properly structured captive insurance arrangement may provide the following benefits:

► Expense reduction leading to improved cash flow

► Minimizing capital to fund certain risk exposures by pooling risks

► Centralized management of risk within an organization

► A vehicle to move funds within a global organization in a tax efficient manner

► A profit center for accepting profitable third-party insurance business

How is this accomplished?

► Reserves for retained risks are not deductible for U.S. Federal income tax purposes.

► Insurance premiums paid to a properly structured captive insurance company to fund retained risk should be deductible.

► A captive insurance company can set up deductible insurance reserves.

► A pool of risks is less volatile than a single risk, so less capital is needed to support risk exposures.

► Certain third-party insurance business, e.g., extended warranty insurance, may be profitable business thereby creating a profit center.

► Insurance premiums can generally be paid across borders to fund risk exposures.

► “Insurance” is neither defined in the statute nor the Treasury regulations.

► Judicial precedent provides the following framework for evaluating whether a scenario is an insurance arrangement (LeGierse):► Presence of insurance risk► Risk shifting► Risk distribution► Commonly accepted notions of insurance

► Three Common Structures► Parent/Subsidiary (Carnation, Clougherty Packing)► Brother/Sister (Humana, Kidde, Malone)► Third-party risk (AMERCO, Harper, Sears)

Definition of Insurance for U.S. Federal Income Tax Purposes


Parent/Subsidiary

Premiums

Parent has not shifted its risk to Captive. Balance sheet approach

Premiums paid from Parent to Captive are not deductible.

Captive is not considered an insurance company.

Parent

Captive


Brother/Sister

Parent

Parent has not shifted its risk to Captive. Balance Sheet approach

Premiums paid from Parent to Captive are not deductible.

Subs

Subs generally shift risk to captive.

Premiums paid from Subs to Captive are generally deductible provided certain bona fides are satisfied: premiums are arm’s length, the Captive is adequately capitalized, and the Captive is not propped up.

Captive

Generally treated as an insurance company.

Parent

Subs CaptiveSubs

Premiums

Premiums


Third-Party Risk

Parent

Parent generally shifts its risk to Captive, provided sufficient third-party risk is present. Third-party risk benchmark > 30% of total premium

Premiums paid from Parent to Captive are generally deductible, provided bona fides are satisfied.

Subs

Subs generally shift risk to Captive.

Premiums paid from Subs to Captive generally deductible, provided bona fides are satisfied.

Captive

Generally treated as an insurance company.

Parent

Subs CaptiveSubs

Third-party Risk Premiums

Premiums

Premiums

ExamplesForeign Parent

Subs CaptiveNon US DomicileU.S. Subs

* Premiums

* Note: U.S. federal excise tax likely to apply.

Summary

Scenario should qualify as a brother/sister insurance arrangement provided the bona fides are present.

Premiums paid from U.S. Subs to Captive should be deductible.

Captive should be treated as an insurance company for U.S. federal tax purposes.

Primary Benefits

Capital is minimized by pooling risks.

Management of risk is centralized.

U.S. federal and state tax deductions should be accelerated creating increased cash flow.

Investment earnings not subject to U.S. federal or state taxation.

Funds are moved from the U.S. to a tax efficient jurisdiction of the Foreign Parent.

Examples

Summary

Scenario should qualify as a Third-Party risk arrangement provided the bonafides are present.

Premiums paid from U.S. Subs to Captive should be deductible.

Captive should qualify as an insurance company for U.S. federal income for purposes.

Primary Benefits

Captive acts as a profit center for profitable third-party insurance risks, e.g. extended warranty.

Capital is minimized by pooling risks.

Management of risk is centralized.

U.S. federal and state tax deductions should be accelerated creating increased cash flow.

Investment earnings not subject to U.S. federal or state taxation.

Funds are moved from the U.S. to a tax efficient jurisdiction of the Foreign Parent.

Foreign Parent

Subs CaptiveNon U.S. DomicileU.S. Subs

Fronting Company Customers’ Premium

Third-party reinsurance premiums30% of total premium in Captive

*Note: U.S. federal excise tax likely to apply*Premiums

Tax Update

RECENT

CHANGES

• The IRS announced on January 26, 2010 a proposal that would require certain businesses to provide information about their uncertain tax positions identified in their accounting statements; e.g. FIN 48 (primarily codified in ASC 740-10).

• The Service intends the new schedule to be filed by a business taxpayer with total assets in excess of $10 million if the taxpayer has one or more uncertain tax positions.

• Schedule will be filed with Form 1120, U.S. Corporation Income Tax Return, or other business tax returns.

Uncertain Tax Position Disclosure

• The Schedule will require - A concise description of each uncertain tax position for

which the taxpayer or a related entity has recorded a reserve

- The maximum amount of potential federal tax liability attributable to each position (determined without regard to the taxpayer’s risk analysis of its likelihood of prevailing on the merits).

• “Concise” and “Maximum tax liability” are further embellished.

• Comments are due by June 1, 2010



• Announcement 2010-30– IRS unveils draft Schedule UTP, Uncertain Tax Position

Statement, and instructions– For each identified uncertainty, calculation of the MTA

(Maximum Tax Adjustment) will be required on an annual basis:

• The draft instructions provide a detailed description of how to calculate the MTA

• For transfer pricing and valuation positions, can use a “ranking” approach

– A response on the question of penalties is outstanding, however one option is to seek legislation from Congress to impose new penalties for failure to file the form or to make adequate disclosures.

United States v. Textron Inc.

• First case to test the new aggressive position the IRS is taking regarding the request for tax accrual workpapers.

• The First Circuit vacated the district court’s determination that a public corporation’s tax accrual workpapers were protected from IRS summons by the work-product doctrine.

• The First Circuit held that the work-product privilege was not implicated with regards to the taxpayer’s tax accrual workpapers, because it found that the work papers were not prepared “for” litigation and were thus required to be produced pursuant to an IRS administrative summons.

• Next Step: Currently before Supreme Court on a petition for certiorari

Excise Tax – Cascading Theory

• Section 4371 of the Code imposes an excise tax on each policy of insurance, indemnity bond, annuity contract, or policy of reinsurance issued by any foreign insurer or reinsurer

• Revenue Ruling 2008-15 describes the insurance excise tax consequences of insurance premiums paid by one foreign (re)insurer to another• Conclusion: The reinsurance excise tax on reinsurance

policies covering contracts under IRC Section 4371 applies to reinsurance premiums paid by one foreign (re)insurer to another, unless the payee issuing the policies was itself exempt per treaty

Codification of Economic Substance

• The “economic substance” doctrine (IRC 7701(o))

• Revisited as part of the Health Care and Education Affordability Reconciliation Act of 2010 (H.R. 4872)• States that “in the case of any transaction to which the

economic substance is relevant, such transaction shall be treated as having economic substance only if:

• (a) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and

• (b) the taxpayer has a substantial purpose (apart from federal income tax effects) for entering into such transaction.”

Risk Shifting & Risk Distribution

• Revenue Ruling 2009-26: Illustrates applying insurance principles to reinsurance arrangements

• 2 situations:– (a) Company A reinsures multiple policies with Company

B (Company B writes no other business)– (b) Company A reinsures 1 policy with Company B

(Company B writes additional policies with other companies)

• Conclusion: Company B qualified as an insurance company per IRC Section 831 and both situations are considered to be insurance arrangements in the conventional sense as there was appropriate risk shifting and risk distribution.

Bermuda’s Captive Regulation

Shelby WeldonDirector, Insurance Licensing & AuthorisationBermuda Monetary Authority

Bermuda’s Captive RegulationOutline

• Legislation

• Other Guidance

• Class Structure

• Ratios & Margins

• Annual Business Fess

• Bermuda Markets

• Supervisory Model & Risk-Based Framework

• Regulatory Approach

• International Update

• Proposed Enhancements

• Statistics

• Insurance Act 1978

• Insurance Accounts Regulations 1980

• Insurance Returns & Solvency Regulations 1980

• Non-Resident Insurance Undertaking Act 1967

• Segregated Accounts Companies Act 2000


Guidance Notes:

20 separate Guidance Notes issued to date:

• Role of service providers

• Market Conduct

• Corporate Governance

• Risk Management and Internal Controls

• Investment Activity

• Investments in Affiliates

• Enhanced Capital

• Special Purpose Insurers


Code of Conduct

• Establishes duties, requirements and standards to be complied with by insurers including the procedures and sound principles to be observed;

• Application will take into account the insurer’s nature, scale and complexity

• Captive insurers should be mindful of the proportionality principle in establishing a sound corporate governance, risk management and internal controls framework.


CLASS 1

A body corporate is registrable as a Class 1 insurer where that body corporate:-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 its own shareholders


CLASS 2

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 persons or of any affiliates of

any of those persons; orb) 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.


CLASS 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 (a) or (b) above; 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.


CLASS 3

A body corporate is registrable as a Class 3 insurer where that body corporate is not registrable as Class 1, Class 2, Class 3A, Class 3B, Class 4 insurer or Special Purpose Insurer

CLASS 3A

A body corporate that intends to carry on insurance business in circumstances where (a) 50% or more of the net premiums written; or (b) 50% or more of the loss and loss expense provisions represent unrelated business

A body corporate to which this section applies is registrable as a Class 3A insurer if its total net premiums written from unrelated business are less than $50 million.


CLASS 3B

A body corporate that intends to carry on insurance business in circumstances where (a) 50% or more of the net premiums written; or (b) 50% or more of the loss and loss expense provisions represent unrelated business.

A body corporate to which this section applies is registrable as a Class 3A insurer if its total net premiums written from unrelated business are $50 million or more.


CLASS 4

A body corporate is registrable as a Class 4 insurer where –

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 then $100 million; and

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

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.


Special Purpose Insurers

• Any insurer that carries on “special purpose business”

• “Special purpose business” means insurance business under which an insurer fully funds its liabilities to the persons insured througha) the proceeds of any one or more of the following –

i. a debit issuance where the repayment rights of the providers of such debt are subordinated to the rights of the person insured; or

ii. some other financing mechanism approved by the Authority

b) cash; andc) time deposits.


Long-Term BusinessInsurance business of any of the following kinds, namely, -

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 a 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;


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 or special purpose business.


Class 1

• Related party business only

• General Business Solvency Margin = $120,000

• Minimum Solvency Margin Test – Net Premiums – 20% of first $6 million, 10% on balance – Loss Reserves – 10%

• Minimum Liquidity Ratio – Value of “relevant assets” shall not be less than 75% of “relevant liabilities”

• No requirement to file the opinion of an Approved Loss Reserve Specialist.


Class 2

• Not less than 80% related party business

• General Business Solvency Margin = $250,000



• Must file the opinion of an Approved Loss Reserve Specialist every third year.


Class 3

• Not less than 51% related party business

• General Business Solvency Margin = $1,000,000



• Must file the opinion of an Approved Loss Reserve Specialist annually.


Annual Business Fees:

Class 1: $971.00

Class 2: $1,737.00

Class 3: $10,500.00

Other Regulatory Requests: $210.00 to $525.00.


• Captive vs. Commercial

• Risk-Based Approach

• Statutory Financial Returns

• Role of Principal Representative and Insurance Manager

• Captive Manager On-sites

• Segregated Accounts Companies (Rent-a-Captives).


Supervisory Model & Risk-Based Framework

• Supervisory Model allows us to respond to the increasingly complex and diverse insurance marketplace

• Focusing our resources to areas where there is an increased likelihood of a risk occurring

• A critical element of the Supervisory Model is our Risk-Based Framework.


• Looks at risk-based on two dimensions – Impact and Likelihood

• Impact – “what would happen if a risk crystallized”

• Likelihood – “what are the chances of a risk crystallizing”

• Our Framework encompasses an “impact hierarchy” and a “likelihood filter”.

Risk-Based Framework


Risk-Based Framework – Objectives

• Carry out legislative responsibilities;

• Observe and adhere to international standards;

• Allocate resources to where risk is most pertinent;

• Detect problems at an early stage and take regulatory action on a timely basis; and

• If an insurer fails, to either return insurer to compliance or effect a timely and effective exit from the market.


Pragmatic Approach to Regulation

• “The World’s Risk Capital”

• Creativity and Innovation

• Section 56 Directions– Modifying accounting regulations– Approving “relevant assets”– Admitting assets– Modifying filing requirements

• Regulations consistent with International Standards but applied appropriately for Bermuda Market.


International Initiatives:• Monitoring and Actively Contributing to International Regulatory

Developments

• International Association of Insurance Supervisors (“IAIS”)– Member of IAIS Executive Committee– Chair the Reinsurance Transparency Group– Authority staff are on a total of 13 IAIS Committees

• Solvency II– Capital Adequacy, Group Supervision, Disclosure & Transparency– Bermuda seeking Solvency II equivalence

• Captive regime is already in accordance with international standards, however, we continue to monitor any global developments relevant to captives.


Enhancements:

• Bermuda Solvency Capital Requirement (“BSCR”) – standard capital model

• Internal Model Review

• Group-Wide Supervisory Regime

• Commercial Insurer Solvency Assessment (“CISA”) – which reflects Solvency II Own Risk and Solvency Assessment (“ORSA”)

• Eligible Capital

• Proportionality Principle.


Class Gross Premium Written

Assets Statutory Capital

Class 1 $3,277,232,857 $15,603,815,853 $10,135,083,342

Class 2 $7,858,056,496 $38,517,761,793 $15,134,032,557

Class 3 $18,357,875,391 $69,874,966,928 $24,279,833,021


WWW.BMA.BM


Questions

Bermuda Market Solutionswww.bermuda-insurance.org

Bermuda Captive Owners Associationwww.bcoa.bm/documents.asp

bermuda captive breakfast seminar philadelphia marriott downtown philadelphia may 18, 2010

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