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Overview of Bermuda InsuranceRegulationsLimited Purpose Insurers (“LPI” or “Captives”)January 2019

Table of ContentsOverview of reporting landscape3Filing requirements5Setting up a captive 2019 DCB Holding Ltd. and its affiliates10Overview Bermuda Insurance Regulations2

Overview of reportinglandscape3

Overview of reporting landscapeThe Bermuda Monetary Authority (“BMA”) recognizes that insurers having varying risk profiles arising from the nature, scale andcomplexity 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 arenot and have different capital and reporting requirements.Regulations: Insurance Act 1978 Insurance Account Regulations 1980 Insurance Return and Solvency Regulations 1980Five basic classes of captive insurance licenses:ClassDescriptionClass 1 (General Business)Company is a single parent captive or an affiliate of a group insuring/reinsuring risks orparent or affiliate only.Class 2 (General Business)Owned by two or more unrelated persons and writing their risks or the risk of their affiliatesor insuring risks which the BMA approves as arising out of the business of its owners andsingle 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 ofinsuring 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 ofits own shareholders.Class B (Long Term Business)Wholly owned by two or more unrelated persons and intends to carry on long-term businessnot less than 80% of the premiums and other considerations written in respect of which willbe written for the purpose of insuring the risks of any of those persons or of any affiliates ofany of those persons; or insuring risks which, in the opinion of the Authority, arise out of thebusiness or operations of those persons or any affiliates of any of those persons. 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations4

Filing requirements5

Filing RequirementsAnnually, 6 months after financial year end, captives are required to file Electronic Statutory Financial Return (E-SFR). Thisincludes: 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 affiliatesOverview Bermuda Insurance Regulations6

Bermuda Statutory Accounting vs. U.S. GAAP/IFRSThe typical differences between Statutory Accounting and U.S. GAAP/IFRS are as follows:ItemMeasurement for StatutoryGoodwillNot AdmittedPrepaid and deferred expensesNot AdmittedIntangible assetsNot AdmittedDeferred tax assetNot AdmittedLetters of credits or guarantees thatencumber insurers assets100% of nominal value 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations7

Classes of Insurers – General Requirements for Limited PurposeInsurers (Class 1,2,3,A & B)Class 1Class 2Class 3Class AClass BMinimum paid upshare capital 120,000 120,000 120,000 120,000 250,000Reduction ofstatutory capitalBMA approval prior to any reduction by 15% or more of its total statutory capital as shown in the previous yearsstatutory financial statementsMinimum capital &surplus 120,000Dividend restrictionComply with solvency/liquidity requirements at all timesLoss ReserveSpecialist Opinions(LRSO) / ActuarialOpinion:Not required to fileLRSO unlessdiscounting the lossand loss expenseprovisions and doesnot meet the solvencyrequirements onundiscounted basisOR greater than 30%written professionalliability, otherwiserequired to file LRSOannually. 2019 DCB Holding Ltd. and its affiliates 250,000 1,000,000 120,000 250,000Comply with solvency requirements atall timesRequired to file anRequired to file an LRSO Actuarial OpinionLRSO every 3 years annually.unless discounts theloss and loss expenseprovisions and doesnot meet the solvencyrequirements onundiscounted basisOR greater than 30%written professionalliability, otherwiserequired to file LRSOannually.Actuarial OpinionOverview Bermuda Insurance Regulations8

Classes of Insurers – Solvency & Liquidity for Limited PurposeInsurers (Class 1,2,3,A & B)Minimum solvencymarginMinimumClass 1Class 2Class 3Class AClass BMUST BE MET ATALL TIMESGreater of: 120,000 capital &surplusOrNet PremiumsWritten (npw) test: 20% of first 6mnpw plus 10% of amounts inexcess of 6mOr 10% of lossreservesMUST BE MET ATALL TIMESGreater of: 250,000 capital &surplusOrNet PremiumsWritten (npw) test: 20% of first 6mnpw plus 10% of amounts inexcess of 6mOr 10% of lossreservesMUST BE MET ATALL TIMESGreater of: 1,000,000 capital &surplusOrNet PremiumsWritten (npw) test: 20% of first 6mnpw plus 15% of amounts inexcess of 6mOr 15% of lossreservesMUST BE MET ATALL TIMESGreater of: 120,000Or0.5% of assetsMUST BE MET ATALL TIMESGreater of: 250,000Or1% of assets** where assets shallbe the total assetsreported on aninsurer’s balancesheet in the relevantyear less the amountheld in a segregatedaccount.** where assets shallbe the total assetsreported on aninsurer’s balancesheet in the relevantyear less the amountheld in a segregatedaccount.Where solvency test Principal Representative must report to theis failedBMA within 30 daysLiquidity ratioPrincipalPrincipal Representative must report to theRepresentative must BMA within 30 daysnotify the BMA; payno dividends untilposition rectified; filerevised business planwithin 30 daysRelevant assets must equal at least 75% of relevant liabilitiesn/a 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations9

Setting up a captive10

Incorporation TimelineBermuda has a short lead-time to establish a captive. A company can generally be registered in the same week an application issubmitted. Following this, the BMA’s Insurance Licensing and Authorization Committee (ILAC) will meet weekly to approve licenseapplications.Typical Timeline Subject to Change on Case-by-Case BasisPre-WorkSelect and obtain acceptanceletters from professionalservices providers, including: Lawyer Auditor Insurance Manager Bank Approved ActuaryAdditionally, prepare relevantpre-incorporationdocuments, including: Ownership Structure Business Plan Capitalization Plan 5-year Financial Projections1BermudaWeek 1Monday Reserve Companyname with Registrar Submit documents toBMA1 Submit application toincorporate toRegistrarFridayAssuming no further infois requested,incorporation is approvedWeek 2Monday Incorporate andcapitalize Company Elect and conveneBoard of Directors Submit insurancelicense application toBMAFridayInsurance license issuedand business operationsmay commenceMonetary Authority 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations11

Professional Service ProvidersLawyer Prepares registrationdocuments, securitymemoranda, andinsurance contracts.AdvisorAuditor Assists in overallanalysis of insuranceprogram. Provides independentassurance of businessrecords.Approved ActuaryInsuranceManager Provides LRSO orActuarial Opinion onreserve adequacy. Serves as PrincipalRepresentative andmanages operations.Bank Holds accounts and/orcollateral in trust. 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations12

Pre-Incorporation DocumentsOwnership 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 officersBusiness 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 providersCapitalization Plan Describe proposed level of capitalization and contributed surplus Identify investors (to evidence sophistication) and funding mechanism (to evidence fullcollateralization), in the case of an SPI Provide, if applicable, collateral trust agreement and any offering documentsFinancial Projections 2019 DCB Holding Ltd. and its affiliates Prepare 5-year pro-forma financial projectionsOverview Bermuda Insurance Regulations13

Ongoing ManagementIn order to appropriately manage day-to-day operations of the Insurer, it is required to appoint a local PrincipalRepresentative to assume responsibility for the Insurer’s legal standing. This role is commonly initially assumed bythe Insurance Manager, who additionally provides services relating to general administration and sManagementServicesManagementInformationSystems 2019 DCB Holding Ltd. and its affiliatesCompliance andStatutoryReportingAdditionally, the elected Board of Directors will beresponsible for the regular organization of theInsurer, including establishing certain managementpolicies. These responsibilities are described on thenext slide.PrincipalRepresentativeOverview Bermuda Insurance Regulations14

OrganizationUpon incorporation of the company, the provisional directors must convene the ‘statutory meeting’, which isessentially the first annual general meeting of shareholders. The ongoing responsibilities of the company’sdirectorship 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 providersAt 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 businessoperations Present and sign audited financial statements 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations15

Contact UsMuhammad KhanGokul SudarsanaPartner 1 441 299 1357muhammad.khan@deloitte.comDirector 1 441 298 1132gokul.sudarsana@deloitte.comHeldar CarreiroDirector 1 441 299 1308heldar.carreiro@deloitte.com 2019 DCB Holding Ltd. and its affiliatesOverview Bermuda Insurance Regulations16