, 2014 Introduction to Captives and the Bermuda Domicile

Moderator: Federico Candiolo, Counsel, ASW Law Ltd Panelist(s): Roger Aliaga-Diaz, PhD, Senior Economist, Vanguard Investment Strategy Group Gerardo Filorio, Business Administration, Director, Lockton, Mexico Dr. Marcelo Ramella, Deputy Director, Policy and Research, Policy, Legal Services & Enforcement Department, Bermuda Monetary Authority Tino van den Heuvel, Partner, Tax Attorney, Hill Smith King & Wood New York Introduction to Captives and the Bermuda Domicile

Marcelo Ramella Deputy Director, Policy and Research Policy, Legal Services & Enforcement Department Bermuda Monetary Authority Introduction to Captives and the Bermuda Domicile

Regulatory Overview

The Bermuda Monetary Authority Act 1969 Independent Regulatory Body / Separate from Government Board of Directors Integrated regulator of Bermuda’s Financial Services Sector BMA - Background

Under the BMA Act we are: Issuer of Bermuda’s notes and coins Manages exchange control transactions Regulates & Supervises Insurers Banks, trust companies, investment businesses, investment funds, fund administrators Money service businesses Bermuda Stock Exchange BMA’s Main Functions

Regulatory Framework Legislation The Acts, laws passed by Parliament Regulation The rules and conditions Supervision The way in which the rules are applied

Builds on previous longstanding practice and guidance for governance standards, specifically guidance notes on: Corporate Governance Risk Management Internal Controls Codifies these existing guidance notes on governance standards such that they are now legally binding. Captive insurers should be mindful of the proportionality principle in establishing a sound corporate governance, risk management and internal controls framework The Insurance Code of Conduct

General Business Insurers – Class 1, 2, 3 – Captive Classes – Class 3A, 3B, 4 – Commercial Classes Long-Term Business Insurers (annuity, life, some accident & health) –Class A, B – Captive Classes –Class C, D, E – Commercial Classes SPIs (insurer fully funds liabilities through a debt issuance or some other approved financing mechanism) Insurer Class Structure

Class of Insurer Class 1 100% Related Class 2 <20% Unrelated or Multi-owned Class 3 20% to 50% Unrelated Greater of: a) Minimum Statutory Capital & Surplus $120,000$250,000$1 million b) Premium Test: First $6 million of Net Premium Written 20% Net Premiums Written in excess of $6 million 10% 15% c) Loss Reserve Test: Loss and Loss Expense Reserve 10% 15% General Business Minimum Solvency Margins 32

Class of InsurerClass A 100% Related Class B <20% Unrelated or Multi- owned Greater of: a) Minimum Statutory Capital & Surplus $120,000$250,000 b) Asset Test: Total Assets 0.5%1.5% Long-Term Business Minimum Solvency Margins 33

Captive vs. Commercial Risk-Based Approach Role of Principal Representative and Insurance Manager Insurance Manager On-sites Segregated Accounts Companies (Rent-a- Captives) Bermuda’s Captive Regulation

Bermuda: The World’s Risk Capital Creativity and Innovation Modifying accounting regulations/ Section 56 Directions Other approvals Approving “relevant assets” Admitting assets Regulations consistent with International Standards but applied appropriately for Bermuda Market. Pragmatic Approach to Regulation

How BMA interacts with service providers BMA LawyersAuditorsBanks External Actuaries Insurance Managers/ Principal Reps Other Regulators International Standard Setting Bodies Bermuda Government

Captive registrations: by the numbers Full Year – New insurers registered (up 72% from 53 in 2012) 24 – New captives registered (up 100% from 12 in 2012) YTD April – New insurer registrations (up 5% year-on-year) 4 – New captives registered (flat year-on-year)

International Participation The BMA contributes to international regulatory developments via active participation in international standard setting bodies, e.g. International Association of Insurance Supervisors (IAIS) Financial Stability Board’s Regional Consultative Group for the Americas National Association of Insurance Commissioners (NAIC) Leadership positions/membership of key working groups and committees Bermuda influences, as well as keeps abreast of, global regulatory developments 37

Qualified Jurisdictions Status –NAIC Solvency II Equivalence – European Insurance and Occupational Pensions Authority (EIOPA) Bermuda’s Anti-Money Laundering Regime – International Monetary Fund (IMF) TIMELINE FOR ASSESSMENTS NAIC EIOPA IMF International Developments