Bermuda: good governance for the captive market

Ocorian’s George N. H. Jones discusses key governance considerations for captives and the value added by a good service provider.


From the original protection and indemnity clubs in the 1870s through the initial boom in Bermuda 100 years later of what has since become the traditional model still used today, organisations have been using captive insurance companies to transfer and finance their risks or affiliated organisations’ risks through insurance or reinsurance contracts.

Since the 1970s, Bermuda has been the jurisdiction of choice for captive insurers, notwithstanding there being far more jurisdictions to choose from in the last 20 years. At present, Bermuda still licenses more captive insurers than any other domicile, other than the United States of America, collectively.

Even before a captive insurer can commence writing business it must be incorporated and licensed, and proper governance has always formed a fundamental component of Bermuda’s insurance licensing regime.

Bermuda’s insurance managers, either as standalone one-stop service providers or in collaboration with other Bermuda specialised service providers, have formed a key component to captive insurers satisfying their governance obligations.

The insights and experience developed by Bermuda’s insurance managers over the past 70 years, and the roles and services they fulfil for captive insurers, has found increased relevance in the face of the new global regulatory environment focusing on ‘economic substance’ having evolved in response to the Organisation for Economic Co-operation and Development (OECD) Forum on Harmful Tax Practices and the European Union Code of Conduct Group on Business Taxation ‘fair taxation’ criteria.

That jurisdictions cannot be used to “facilitate the use of structures which attract profits but which do not reflect real economic substance in the jurisdiction”.

In broad terms, this means that if an entity is legally domiciled in a jurisdiction, it ought to be able to demonstrate that it is carrying on business there.


Having an appropriate and effective governance framework is a fundamental requirement of Bermuda’s insurance regimes.

Included as part of the materials submitted in support of the application of any prospective insurer (or insurance intermediary, including insurance managers) to the Bermuda Monetary Authority (the Authority) for consideration during the licensing process, is the requirement to have identified and selected various service providers and key function holders.

For the purposes of this article, those include a principal representative, the corporate secretary and directors, among others.

In many instances, these can be provided efficiently through an appointed insurance manager and other affiliated entities.

As a requirement for successful registration and ongoing operation thereafter, Bermuda requires, among other obligations, that all insures must:

  • Comply with the EU Insurance Code of Conduct;
  • Maintain a principal representative resident in Bermuda whose role it is to report matters of concern to the Bermuda Monetary Authority;
  • Continue to meet the ‘minimum criteria’ of registration, including that:
  • officers and controllers meet a fitness and propriety test;
  • appropriate corporate governance policies and processes are established given the nature, size, complexity and risk profile of the insurer;
  • there are an appropriate number of non-executive directors on the board of the insurer;
  • the business of the insurer is conducted in a prudent manner;
  • the business of the insurer is carried on with integrity and the professional skills appropriate to the nature and scale of the insurer’s activities.

The above list is not exhaustive and has been redacted to those relevant to this article. It is therefore fundamental that the captive insurer ensure those service providers supporting the initial and ongoing satisfaction of the minimum criteria above acknowledges the professionalism and standards required to appropriately discharge those responsibilities.

Insurance Code of Conduct

The Insurance Code of Conduct is issued by the Authority and establishes the duties, requirements and standards insurers must comply with, including the procedures and sound principles the Authority expects to be observed.

The Authority will take into consideration any deemed failures to comply with provisions set out in the Code when determining whether an insurer is meeting its obligation to conduct its business in a sound and prudent manner.

The Authority will interpret compliance with the Code flexibly, in accordance with a principle of proportionality, taking into consideration the nature, scale and complexity of each insurer’s business. However, while a smaller captive insurer may have less stringent expectations than a larger commercial insurer, the fundamentals nevertheless remain the same.

The Code, through general expectations as well as specified governance mechanisms to be embedded in the corporate governance framework as part of the insurer’s obligation to conduct business in a prudent manner, requires all insurers to establish and maintain a sound corporate governance framework, providing for appropriate oversight of the insurer’s business and adequately protecting the interests of policyholders.

The directors and the chief and senior officers are required to adopt an effective risk management strategy and an internal controls framework that has regard for international best practice on risk management and internal controls.

The importance of compliance with the Code and the obligations laid out therein again underscores the need for a captive insurer to ensure those service providers fulfilling these key governance functions fully understand the statutory and fiduciary responsibilities and accountability that are inherent in the respective roles.

Principal representative

The role of the approved principal representative is integral to the Bermuda insurance supervisory framework. While directors and the chief and senior executives of an insurer have primary responsibility for the conduct and performance of the insurer, the principal representative’s statutory responsibilities are owed to the Authority.

The principal representative acts in an ‘early warning’ capacity and has the legislated duty to continuously monitor the insurer and report certain events to the Authority.

The legislative framework in Bermuda requires every insurer to appoint a principal representative who ordinarily resides in Bermuda, and while a director or senior executive of the insurer can be appointed, for captive insurers it is a function that typically ascribed to the Bermuda-registered insurance management company who have the requisite knowledge in insurance and relevant Bermuda laws and regulations.


Directors play a critical role in the successful operation of an insurer. The directors are responsible for reviewing and monitoring managerial performance against corporate strategy at an acceptable level of risk.

Directors must ensure that the business is effectively directed and managed, and conducted with integrity, due care and the professional skills that are suitable.

A board should have an appropriate number and mix of directors to ensure there is an effective level of experience, knowledge, skills and expertise commensurate with the nature, scale and complexity of the insurer’s business.

In order to meet its goals while remaining compliant with its obligations, both the appointment of appropriate directors to the company’s board and an understanding by those directors of their legal, statutory and fiduciary duties are vital components to good corporate governance.

Fiduciary duties Directors should be aware of their fiduciary duties, whereby they must act in good faith for the benefit of the company, use their powers for the purposes for which they are intended and fulfil the duties of their office honestly.

The duties are expected of any and all directors, whether they are executive directors directly employed by the company, independent non-executive directors with no other connection, or non-independent non-executive directors typically provided by an insurance manager or corporate services.

Key fiduciary duties include a duty to:

  • act in good faith in what they consider to be in the best interests of the company and not for any collateral purpose;
  • exercise powers for a proper purpose, namely a purpose that advances the interests of the company as distinct from its shareholders;
  • avoid conflicts of interest by not putting themselves in a position in which their duties and personal interests may clash;
  • avoid making a personal profit from any opportunities arising out of their directorship, even if acting honestly and for the good of the company.

Directors should also exercise whatever skill they possess with reasonable care. This duty has three aspects:

  • Degree of skill: The standard required from a director is that of a person of their particular knowledge and experience.
  • Attention to the business: A director should attend to the affairs of a company diligently. Unless they are an executive director, this does not mean devoting all their time and attention to the management of the company or be an expert in its field of business, but in performing their duties, they must display reasonable care that anyone may be expected to take in the same circumstances.
  • Reliance on others: A director is not liable for the acts of co-directors or company officers solely by virtue of being a director. They can rely in good faith on executives who have been specifically appointed for the purpose of attending to the detail of management. However, directors cannot absolve themselves entirely of their responsibility by delegation to others.

These duties are similarly expected of alternate directors even if their appointment is for the purpose of a single meeting or shadow directors (a person in accordance with whose directions or instructions the directors of a company are accustomed to act).

Insurance managers fully understand that these are the minimum standards expected by any individual they put forward for consideration to serve as a director, and those subsequently appointed are acutely aware of their responsibilities and accountabilities in this regard.

Economic substance

The purpose of economic substance is to create a level playing field between taxable jurisdictions (such as most European countries) and nominal or no tax jurisdictions, by ensuring income streams from certain activities are based on actual local activity to validate the use of these jurisdictions.

Bermuda’s own economic substance regime and relevant governing legislation requires entities carrying on one or more of the defined ‘relevant activities’, which specifically includes insurance, to uphold a substantial economic presence in Bermuda by:

  • being managed/directed in Bermuda;
  • conducting “core income generating activities” in Bermuda;
  • maintaining adequate physical presence in Bermuda;
  • employing adequate and suitably qualified full-time employees in Bermuda;
  • incurring adequate operating expenditure in Bermuda.

Captive insurers already comply with certain of the above requirements by virtue of their compliance with the Bermuda insurance regime and governing legislation, including the Code, relating to corporate governance requiring the following in order to constitute substantial presence in Bermuda:

  • maintaining their registered office in Bermuda;
  • maintaining statutory books, records of accounts, financial statements and registers at their registered office address in Bermuda;
  • having the ability to be served with legal process in Bermuda;
  • appointing a minimum of one director or officer or a representative resident in Bermuda.

For certain captives which require more intensive administration, such as industry group captives with multiple policyholders or those which write third-party business including to clients of the onshore parent, these, by their nature, are more likely to have palpable substance evidenced by dedicated employees and premises.

For other captives, such as those with a single policyholder (its onshore parent) which conduct their offshore operations exclusively through a specialist captive management company, a more mindful review of whether its substance requirements are met may need to be conducted to ensure that all key strategic decisions and core income generating activities are taking place in Bermuda.

Captive insurers should ensure the implementation and ongoing administration of their governance framework incorporates as many of the following as practical in order to remain in compliance with the economic substance obligations:

  • appointing their local corporate secretarial service provider or insurance manager to manage all board meetings;
  • having the chairman and majority of directors forming the quorum for the meetings being physically present in Bermuda for the purpose of the meeting;
  • appointing additional resident directors to the board during this period to ensure a majority of resident directors at meetings;
  • delegating the responsibilities of nonresident directors to resident directors;
  • conducting more important decision-making meetings within the jurisdiction and again having the local corporate secretarial services provider carefully document these decisions within the meetings’ minutes.

Parting thoughts

Given the crucial importance of the many key roles an insurance manager can perform for a captive insurer, these must be clearly set out in a management agreement.

The provisions relating to directors and the chief and senior executives throughout the Code would be applicable to the insurance manager.

Therefore, it is essential that the fitness and propriety of the insurance manager must also be continuously assessed to ensure the insurance manager has a strong risk management and internal controls framework and is sufficiently knowledgeable about jurisdictional laws and regulations to appropriately discharge all of its various responsibilities.

In determining whether it is appropriate for the insurance manager to take on any of the key roles, strong consideration must be given to whether the insurance manager has the capacity and resources to be effective and ensure that the insurer operates in a prudent manner.

Captive solutions

The Ocorian team provide a full suite of administration and fiduciary services to the ILS and captive market from our Bermuda, Cayman and BVI offices, ensuring that all structures remain compliant with applicable regulations in each jurisdiction.

We add value throughout the life cycle, from incorporation and licensing to unwinding and voluntary liquidations when the structure ends its natural life – precision and technical expertise has been the hallmark of our service offerings to this important global industry.

If you would like to discuss how we could support your captive needs, please visit or contact

12 August 2024
5-6 November 2025

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