The BVI’s insurance regulations have now been updated, including a new regime for SPCs and two new captive categories. Matthew Gilbert, head of the British Virgin Islands team of Maples and Calder in London, and Mungo Lowe, associate, discuss the changes.

The British Virgin Islands Insurance Act 2008 (the “Insurance Act”) and the BVI Insurance Regulations 2009 have now been amended by the BVI Insurance (Amendment) Act, 2015 (the “Amendment Act”) and the BVI Insurance (Amendment) Regulations, 2015 (the “Amendment Regulations”) respectively which both came into force on 1 November 2016.

The new provisions amend the current insurance regime by introducing new business features, streamlining the existing provisions and providing enhanced regulation of the insurance industry. The key changes are discussed below.

Removing Segregation

Under the old regime insurance business was divided into two types, “long term business” and “general business” with BVI insurers prohibited from carrying out both categories at the same time. In a step aimed at modernising the industry these categories of insurance have now been deleted and changed to “life and health insurance business” and “property and casualty insurance business” respectively.

Moreover, it is now possible for an insurer to carry out both classes of insurance business at the same time, subject to the BVI Financial Services Commission (the “Commission”) being satisfied that the insurer may be so licenced having regard to the applicant’s resources and business plan.

Where an applicant applies for a category B licence to carry on life and health business and property and casualty business, there is an additional new requirement that the Commission be satisfied that the applicant is authorised under the laws of its home jurisdiction to carry on both types of insurance business.

New Categories

Under the old regime, a BVI insurer was defined as an insurer holding a licence in one of three categories (categories A, C or D).  Captive insurers could hold either category C (entitling a BVI business company to conduct insurance business, not domestic, including reinsurance business that is not “open market reinsurance”) or category D (entitling a BVI business company to conduct reinsurance business including open market reinsurance business).

The new legislation introduces two new categories of licences purely aimed at captives: category E and category F. A category E licence may be issued to a BVI business company and entitles the holder to underwrite related business activity only, for example in the case of a single parent captive.

A category F licence may be issued to a BVI business company underwriting related party business with a maximum unrelated party (third party) business underwritten in order to qualify as an insurer for any purpose under the laws of a foreign jurisdiction, for example in the case of an industry or association captive. The aim of these changes is to create new opportunities for the carrying out of captive insurance business from within the BVI.

Variation of Existing Licences

To complement the introduction of two new categories of licence, a new section now enables an insurer to apply to the Commission in writing to have its licence varied either to include an additional class of insurance business or to remove a current class of insurance business.

On an application to include an additional class of insurance business, the Commission is empowered to vary the licence if satisfied that such variation is appropriate, meets the requirements of the Insurance Act and is not against the public interest.

Where an insurer applies to remove a current class of insurance business, the Commission may vary the licence if satisfied that such variation will not absolve the insurer from any obligation or liability to which it would otherwise be bound. Additionally, when considering any application to vary a licence, the Commission has broad discretion to impose such conditions as it considers appropriate.

Endorsement on Reinsurance Contract

Where a BVI insurer carries out domestic business which is not rated A++, A+, A or A- there is now a mandatory requirement for that BVI insurer to include in its reinsurance contract an endorsement in the terms set out in Schedule 1 with respect to its domestic business.

The endorsement in the reinsurance contract need not reflect the exact wording contained in Schedule 1 so long as the substance of the endorsement is contained in the reinsurance contract. Additionally, the Commission is empowered to require that a BVI insurer provide it with a copy of its reinsurance contract.

Disposal of BVI insurers

Amendments to the Insurance Act have tightened the regime concerning the disposal of significant or controlling interests in a BVI insurer. It is now a requirement that a BVI insurer shall notify the Commission within 14 days of any change in interest that is not a significant interest or controlling interest. In addition, where a person acquires, sells, transfers, changes or otherwise disposes of a significant interest or controlling interest the Commission is empowered to require a BVI insurer to rescind any acquisition or, in the case of a sale, transfer, charge or other disposition require the person to rescind or reverse the transaction.

Directors of BVI insurers

Amendments to the Insurance Act have introduced more flexibility in situations where, for whatever reason, a BVI insurer has less than the required two directors. Prior to the amendments, if a BVI insurer had less than two directors it was under a strict requirement to notify the Commission immediately and to apply to the Commission within 21 days for approval to appoint a new director.

The amendments have relaxed this strict requirement by introducing a mechanism whereby the Commission can grant a 21-day extension to the 21-day time period to apply if certain conditions are satisfied. Those conditions include the BVI insurer not being aware and not having reasonably been able to know that a director ceased to be a director of the BVI insurer; the death of a director in circumstances where the BVI insurer could not reasonably have appointed a new director within the stipulated period; and where the BVI insurer is going through a restructuring.

Segregated Portfolio Companies

The Insurance Act now includes a specific regime for a BVI insurer to apply to the Commission to be licenced as a segregated portfolio company (SPC). The attraction of SPCs for BVI insurers are that through the use of these entities it is possible to maintain complete segregation between different classes of business written for and on behalf of a segregated portfolio.

Designated Representatives

There is now a requirement that any insurance intermediary in addition to any insurance manager shall appoint a designated representative who must be a fit and proper person as prescribed, be physically resident in the BVI and be approved by the Commission. However, the Commission may exempt an insurance intermediary from appointing a designated representative where the total number of employees of the insurance intermediary is three or less, the annual turnover of the insurance intermediary is not likely to exceed US$200,000, or the nature, size and complexity of the insurance intermediary justifies, in the Commission’s opinion, that the insurance intermediary should be exempted.

Where an exemption is granted, the insurance intermediary is under an obligation to inform the Commission should any material conditions change and a failure to do so is an offence. Likewise, it is an offence if an insurance intermediary fails to appoint a designated representative within 14 days of any date of notification by the Commission of its withdrawal of an exemption.

A person appointed as a designated representative of an insurance manager may now act as a director or senior officer of a BVI insurer. However, a person appointed as a designated representative is restricted from also acting as a director or senior officer of a BVI insurer if he is a shareholder of the BVI insurer. This new section also imposes a limit on persons holding more than ten appointments as designated representative without prior written approval from the Commission.

Regulatory Deposits

The principal changes introduced by the Amendment Regulations concern the introduction of four new regulations which apply to foreign insurers who have opted not to create a trust to maintain assets in the BVI, and BVI insurers that carry on domestic business.

Where a foreign insurer makes such an option, it shall pay to the Commission a deposit either in the amount of $250,000 or in an amount that is equal to the total of its domestic liabilities – whichever is higher. The Commission has the power to direct a lesser deposit where the liabilities of a BVI insurer or specified foreign insurer are less than $250,000.  Contravention of the regulations relating to payment of the regulatory deposit is an offence with a maximum fine of $40,000 as the penalty.

A deposit paid to the Commission may be used to satisfy any outstanding fees or penalties due, the Commission’s costs of any enforcement action taken against that insurer, any costs associated with the winding up of the BVI insurer or specified foreign insurer, and/or any liabilities in respect of insurance policies as at the date of any winding up.