If there is one topic that always comes up in major captive conferences, it's the best way to manage your captive now that you've set it up. First-time captive managers are always seeking advice on this area, hanging on every word from speakers on panels on the topic.
Captive governance is vital for a captive and the role of the board of directors is not to be underestimated. A board of governors can provide oversight, be a sounding board and above all keep an eye on the regulatory horizon, something that is vitally important—especially in Bermuda.
At this year's Bermuda Captive Conference there were frequent mentions of the Bermuda Monetary Authority (BMA) and how respected it is. That respect has come from years of decisions and working practices that have constructed an air of authority around the regulator.
As Matthew Carr, partner at Appleby, points out to Captive International, the BMA "astutely" bifurcated captive regulation from its commercial insurance and reinsurance regulatory regime. While Bermuda captive regulation has evolved over time to reflect global best practice, Bermuda captives are not subject the same prudential rigour as their commercial peers, Carr explains.
The Bermuda captive insurance regulatory regime is centred around a risk-based supervisory approach where there is a focus on robust protection for cedants, regulatory transparency and governance excellence. The BMA has enshrined the proportionality principle, whereby assessment of a captive's compliance with the regulations is assessed relative to its nature, scale and complexity.
"As part of the regulatory excellence limb, the BMA has placed greater emphasis on Bermuda-based 'mind and management' (which dovetails with Bermuda's economic substance requirements). This includes having a suite of highly experienced, fit and proper directors to oversee the management of the captive," Carr says.
"Increasingly, the BMA expects captive enterprises to assert normative corporate governance standards and oversight practices which may influence a trend toward the appointment of independent directors."
First published in Captive International, October 2023
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