Monkton Insurance Services Limited

Insurance Accounts Regulations in effect in Bermuda

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Introduction

Captive insurance companies licensed in Bermuda are regulated in accordance with the Bermuda Insurance Act, 1978 and are required to prepare statutory financial statements in compliance with the Insurance Accounts Regulations, 1980. The following is a compilation of the Bermuda Insurance Accounts Regulations, 1980 and all subsequent amending legislation and represents a current statement as at December 31, 1997 of the Bermuda Insurance Accounts Regulations as amended. While every effort has been made to ensure the accuracy of the compilation, no responsibility can be undertaken for any errors which may have inadvertently occurred. Persons seeking advice on the Regulations themselves are recommended to consult their professional advisors.

BERMUDA INSURANCE ACCOUNTS REGULATIONS 1980

Arrangement of Regulations

Schedule 1 - Prescribed Forms of Statutory Financial Statements

Schedule 2 - Notes to Statutory Financial Statements

Schedule 3 - Instructions Affecting the Statutory Balance Sheet

Schedule 4 - Instructions Affecting the Statutory Statement of Income

Schedule 5 - Instructions Affecting the Statutory Statement of Capital and Surplus

Citation - 1. These Regulations may be cited as the Insurance Accounts Regulations 1980.

Interpretation - 2. In these Regulations, except where the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say

"account" includes any of the statements specified in regulation 3(2), and any note or other document annexed or attached to any such statement;

"the Act" means the Insurance Act 1978;

"affiliate", in relation to an insurer, means a body forming part of a group with that insurer;

"association" has the meaning assigned thereto in the definition of "group";

"composite" means an insurer which in the relevant year carried on both general and long-term business;

"fair value determined in good faith", in relation to an investment, held by an insurer, means the value of that investment, being the value that in the opinion of the directors, exercising good faith, that investment would realize on a sale or other disposition of that investment within a reasonable time;

"Form" means any Form in Schedule 1;

"funds held by ceding reinsurers" means fund held by ceding reinsurers under the terms of contracts of insurance;

"group" means any two or more bodies, whether corporate or unincorporate, that are in association, and two bodies shall for the purposes of the Regulations be deemed to be in association if one of them has control of the other or both are under the control of the same person or persons;

"independent", in relation to an appraisal, means that the appraisal is made by a person who

(a) makes such appraisals in the ordinary course of his business; and
(b) is not financially interested in any way in the business of the person whose property is being appraised, apart from the appraisal;

"insurance" has the same meaning as the expression "insurance business" in the Act;

"liability insurance business" means the business of effecting and carrying out contracts of insurance against risks of the persons insured incurring liabilities to third parties;

"loss reserve specialist" means a person approved by the Minister for the purposes of the Act as a person qualified to assess the sufficiency of insurance loss reserves;

"non-admitted", in relation to an asset, means an asset or portion of an asset that is not allowed by these Regulations to be taken into account in preparing the statutory balance sheet;

"policy" or "policy of insurance" means any contract of insurance (including any contract to pay an annuity on human life), whether or not there is in being any instrument in writing evidencing the contract;

"policy loan" means a loan made to a policyholder by an insurer carrying on long-term business on the security of the cash surrender value of the policyholder's policy of insurance;

"policy reserve" means the amount by which the present value of any benefits due under a policy of insurance exceeds the present value of the net premiums payable under the policy;

"products liability insurance" means liability insurance business where the risks, the subject of the contract of insurance, are risks of the persons insured incurring liabilities in relation to the manufacture or sale by them of, or some other dealing by them in, products that are, or may be claimed to be, in some respect defective;

"professional liability insurance" means liability insurance business where the risks, the subject of the contract of insurance, are risks of the persons insured incurring liabilities in relation to the negligent or other exercise by those persons of some professional skill;

"quoted"

(a) in relation to an investment, means an investment as respects which there has been granted a quotation or permission to deal on a stock exchange in Bermuda recognized by the Minister for the purposes of the Act, or on any stock exchange or over-the-counter market of repute outside Bermuda; and

(b) in relation to the value of an investment, means the market value of that investment, being the value listed on such an exchange or over-the-counter market as aforesaid on the last day of the relevant year,

and "unquoted" shall have a corresponding meaning, so, however, that any investment by an insurer in an affiliate shall not for any purpose of these Regulations be taken to be either a quoted or an unquoted investment;

"regulations" means regulations made under section 53 of the Act;

"relevant year" has the meaning assigned thereto in paragraph (3) of regulation 3;

"section 24(6) composite" means an insurer to which section 24 of the Act does not apply by reason of subsection (6) of that section;

"statutory financial statements" has the meaning assigned thereto in paragraph (2) of regulation 3;

"unearned premiums" means the amount set aside as at the end of an insurer's financial year out of premiums in respect of risks to be borne by the insurer after the end of that year, and calculated pro rata, under contracts of insurance entered into before the end of that year.

(Return to Arrangement of Regulations)

Statutory financial statements - 3. (1) Except as provided otherwise in other regulations, the duties of every insurer in relation to the preparation of statutory financial statements within the meaning of section 15 of the Act shall be those prescribed in these Regulations.

(2) The said statutory financial statements consist of

(a) a statutory balance sheet;
(b) a statutory statement of income;
(c) a statutory statement of capital and surplus;
(d) where the case requires, a statutory open year business revenue statement.

(3) Every insurer shall have a duty to prepare in accordance with the requirements of these Regulations, in respect of its insurance business for each financial year, the statutory financial statements specified in sub-paragraphs (a) to (c) of paragraph (2), and the financial year in relation to which any particular set of financial statements have been, or are to be, prepared is in these Regulations referred to as "the relevant year".

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Balance sheet and statement of income for general business - 4. (1) Subject to paragraph (3), the statutory balance sheet and the statutory statement of income of an insurer which in the financial year carried on no insurance business other than general business shall respectively be in the form set out in Forms 1 and 2.

(2) The statutory statement of income of such an insurer as aforesaid may have annexed to it a statutory open year business revenue statement in the form set out in Form 3, and any such statement may relate to one or more, or all, classes of that insurer's general business.

(3) An insurer which annexes to its statutory statement of income a statutory open year business revenue statement

(a) shall, in preparing Form 1, include in lone 18 thereof the balance from the statutory open year business revenue statement;
(b) shall not, in preparing Form 2, include in line 3, 8, 9, 10, 11, 12 or 17 any amount which would, were it not for this sub-paragraph, have to be included there, if that amount has been included in the insurer's statutory open year business revenue statement.

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Balance sheet and statement of income for long-term insurer - 5. The statutory balance sheet and the statutory statement of income of an insurer which in the relevant year carried on no insurance business other than long-term business shall respectively be in the forms set out in Forms 4 and 5.

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Balance sheet and statement of income for composites - 6. (1) Subject to paragraph (3)

(a) the statutory balance sheet;
(b) the statutory statement of income; and
(c) where the case requires, the statutory open year business revenue statement,

of every composite shall, in respect of its general business, respectively be in the forms called for by regulation 4.

(2) Subject to paragraph (3), the statutory balance sheet and the statutory statement of income of every composite shall, in respect of the composite's long-term business, respectively be in the forms called for by regulation 5.

(3) Subject to paragraph (4), the requirements of paragraphs (1) and (2) shall not apply in relation to any section 24(6) composite, but instead

(a) the statutory balance sheet and the statutory statement of income of a section 24(6) composite shall respectively be in the forms set out in Forms 6 and 7; and
(b) the statutory statement of income of a section 24(6) composite may have annexed to it a statutory open year business revenue statement in the form set out in Form 3, and any such statement may relate to one or more, or all, classes of that composite's general business.

(4) A section 24(6) composite may, if it thinks fit, comply with the requirements of paragraphs (1) and (2) voluntarily, and any section 24(6) composite which complies with those requirements need not comply with the requirements of paragraph (3).

(Return to Arrangement of Regulations)

Statement of capital and surplus for all insurers - 7. The statutory statement of capital and surplus of every insurer shall be in the from set out in Form 8.

(Return to Arrangement of Regulations)

Notes to statutory financial statements - 8. (1) Every insurer shall set forth in a general note to its statutory financial statements the matters called for in Part 1 of Schedule 2.

(2) Every insurer shall also set forth

(a) in notes to its statutory balance sheet;
(b) in notes to its statutory statement of income; and
(c) in notes to its statutory statement of capital and surplus, the matters called for by Parts 2, 3, and 4 respectively of that Schedule.

(Return to Arrangement of Regulations)

Instructions relating to statutory financial statements - 9. (1) Every insurer shall comply with the following provisions of this regulation (being provisions containing instructions affecting the preparation of the several statutory financial statements).

(2) In the preparation of the statutory balance sheet the instructions set forth in the several Parts of Schedule 3 shall have effect in accordance with the following rules, that is to say

(a) every insurer shall comply with the instructions in Part 1;
(b) every insurer which in the relevant year carried on no insurance business other than general business shall, in addition to complying with the instructions in Part 1, comply with the instructions in Part 2;
(c) every insurer which in the relevant year carried on no insurance business other than long-term business shall, in addition to complying with the instructions in Part 1, comply with the instructions in Part 3;
(d) every section 24(6) composite shall, in addition to complying with the instructions in Part 1, comply with the instructions in Parts 2 and 3.

(3) In the preparation of the statutory financial statement of income the instructions set forth in the several Parts of Schedule 4 shall have effect in accordance with the following rules, that is to say

(a) every insurer shall comply with the instructions in Part 1;
(b) every insurer which in the relevant year carried on no insurance business other than general business shall, in addition to complying with the instructions in Part 1, comply with the instructions in Part 2;
(c) every insurer which in the relevant year carried on no insurance business other than long-term business shall, in addition to complying with the instructions in Part 1, comply with the instructions in Part 3;
(d) every section 24(6) composite shall

(4) In preparing its statutory statement of capital and surplus every insurer shall comply with the instructions in Schedule 5.

(5) If any instruction in Schedule 3, 4 or 5 requires any amount to be shown or any information to be given in a line of a Form in Schedule 1, that amount or information must be shown or given on that line notwithstanding that that line or that Form may not contain any express direction or indication where the amount or information is to be shown or given.

(Return to Arrangement of Regulations)

Requirements relating to preparation of accounts generally - 10. (1) All accounts shall be prepared in the English language.

(2) All amounts which for any purposes of the Regulations are to be shown in any account of any insurer shall be shown in a single currency, and that currency shall be the currency in which the books and records of the insurer are kept in the insurer's principal office in Bermuda or, where different books and records are kept in different currencies in that office, then the currency in which the majority of those books and records are kept.

Provided that where the Registrar pursuant to the power given to him by section 17(1) of the Act directs the production to him of statutory financial statements, and amounts in those statements are shown in a foreign currency, those amounts must be converted into their Bermudian equivalent before the said statements are so produced.

(3) For the purposes of paragraph (2), the Bermudian equivalent of an amount in a foreign currency shall be the Bermudian dollar equivalent of that amount as converted into Bermudian dollars at the rate of exchange used by any licensed Bank in Bermuda in relation to purchases by that Bank of that foreign currency on the last day of the relevant year.

(4) For all items shown in any account of any insurer (other than a statutory open year business revenue statement) there shall be shown the corresponding amounts for the immediately preceding financial year.

(Return to Arrangement of Regulations)

Offences - 11. (1) Any person who

(a) fails to comply with any duty or prohibition imposed upon him by these Regulations; or
(b) in or in relation to any account makes, or joins in making, any statement which he knows to be false or does not believe to be true,

shall be guilty of an offence against these Regulations.

(2) In sub-paragraph (b) of paragraph (1), the expression "make a statement" includes, in relation to any statement made, a wilful omission to state something that is material.

(Return to Arrangement of Regulations)

SCHEDULE 1

PRESCRIBED FORMS OF STATUTORY FINANCIAL STATEMENTS

Form 1 - Statutory Balance Sheet (General Business)

Form 2 - Statutory Statement of Income (General Business)

Form 3 - Statutory Open Year Business Revenue Statement (General Business)

Form 4 - Statutory Balance Sheet (Long-term Business)

Form 5 - Statutory Statement of Income (Long-term Business)

Form 6 - Statutory Balance Sheet (Section 24(6) Composite)

Form 7 Statutory Statement of Income (Section 24(6) Composite)

Form 8 - Statutory Statement of Capital and Surplus

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SCHEDULE 2

NOTES TO STATUTORY FINANCIAL STATEMENTS

Part 1 - Matters to be set forth in a General Note to the Statutory Financial Statements

1. The name of the person or persons ultimately having power (whether directly or through having control of some other person or persons who directly or indirectly control the insurer) to control the insurer and, where the persons having the ultimate power are a body corporate, the place of incorporation of that body corporate.

2. The general nature of the risks underwritten by the insurer.

3. The insurer's significant accounting policies, the nature of any change made during the relevant year in those policies and the effect, if determinable, of that change on the statutory financial statements.

4. The basis of recognition of premiums, investment and commission income.

5. The method used to translate amounts denominated in currencies other than the currency of the statutory financial statements, the amounts, if material, gained or lost on such translation and the manner in which those gains or losses are treated in those statements.

6. Any foreign exchange control restrictions affecting assets of the insurer, with particular reference to money balances which cannot be transferred to the insurer because of reasons that are not insurance reasons.

7. Any contingencies or commitments calling for special mention (for example, a commitment involving an obligation requiring abnormal expenditure, or the conclusion of a long lease).

8. Any default made by the insurer in relation to the principal, interest, sinking fund or redemption provisions of any securities issue made, or any credit agreement entered into, by it.

9. The gross amount of arrears of dividend on preferred cumulative shares, and the date to which those dividends were last paid.

10. The amount of any loan made during the relevant year by the insurer, to any director or officer of the insurer, not being a loan made in the ordinary course of business.

11. The amount of any obligation in respect of retirement benefits relating to employees of the insurer arising from service prior to the end of the relevant year remaining to be charged against operations, and the basis on which the insurer proposes to charge that amount.

12. Any transaction made or other event occurring between the end of the relevant year and the date of the auditor's report and materially affecting the statutory financial statements, not being a transaction made or an event occurring in the ordinary course of business.

13. Any other information which in the opinion of the directors is required to be disclosed if the statutory financial statements are not to be misleading.

(Return to Arrangement of Regulations)

Part 2 - Matters to be set forth in the Notes to the Statutory Balance Sheet

Information required to be given

[Note: The numerals refer to the numbers of the line of the statutory balance sheet]

1. Cash and time deposits
Any encumbrance on cash or time deposits must be disclosed. Examples of such encumbrances are: irrevocable letter s of credit; amounts held for security or as collateral against a liability of the insurer or an affiliate; any other use restriction such for example as that the funds in question are held in escrow or in a custodial account.

3. Unquoted investments
The method of valuation of any unquoted investment must be described. Where a valuation is made

(a) of bonds or debentures at other than amortized cost; or
(b) of equities (whether preferred or ordinary) by any method other than the cost method or any equity method of valuation,

the reasons shall be stated.

4. Investment in mortgage loans on real estate
The method of valuation must be described. Where a valuation is made on any investment by any method other than the cost method or the equity method of valuation the reasons shall be stated.

5. Investment in mortgage loans or real estate
The range of interest rates and the range of maturity dates for mortgage loans on real estate must be disclosed.

7. Real estate
As regards real estate
(a)

shall be disclosed;

(b) where an independent appraisal has been made, real estate may be valued at the appraisal value net of the amount of encumbrances. In such a case, full details of the appraisal (including the date of the appraisal, the name of the appraiser, the basis of valuation and the disposition of any amounts added to or deducted from the book value) shall be disclosed.

(c) where other properties (i.e. properties not occupied by the insurer) are included in the statutory balance sheet, the nature of the investments represented by those properties (for example whether held for investment return, or as a result of default of mortgage, or for speculative gain) shall be disclosed.

14. Letters of credit, guarantees and other instruments
The following must be disclosed in a note

(a) the name of the person granting the letter of credit, guarantee or other instrument, and the name of the person in whose favour the letter of credit, guarantee or instrument was granted;

(b) the amount of the letter of credit, guarantee or other instrument;

(c) the purpose for which the letter of credit, guarantee or other instrument was granted.

16. Unearned premiums
The method of calculating unearned premiums.

17. Loss and loss expense provisions
The following must be disclosed in a note

(a) the method of calculating loss and loss expense provisions and provisions for losses incurred but not reported;

(b) the amount by which loss and loss expense provisions have been reduced or discounted for the time value of money, and the rates, or range of rates, of interest used in any such discounting.

20. Reserves for reported claims
The method of determining the reserves for reported claims.

21. Reserves for unreported claims
The method of determining the reserves for unreported claims.

22. Policy reserves - life
The method of calculation, and the range of significant or material interest rates and mortality factors used in the calculations.

23. Policy reserves - accident and health
The method of calculation of the reserves.

25. Liability for future policyholders' dividends
The method of determining the policyholders' dividends.

26. Other insurance reserves - long-term
The method of calculation of these reserves.

30. Loans and notes payable
The repayment terms, rates of interest and the nature of collateral given, if any.

31.
(a) Income taxes payable
(b) Deferred income taxes
Details of the deferred income tax provision.

32. Amounts due to affiliates
The repayment terms, rates of interest and the nature of collateral given, if any.

36. Sundry liabilities
The nature of these liabilities and the repayment terms.

37. Letters of credit, guarantees and other instruments
(a) the name of the person granting the letter of credit, guarantee or other instrument, and the name of the person in whose favour the letter of credit, guarantee or instrument was granted;

(b) the amount of the letter of credit, guarantee or other instrument;

(c) the purpose for which the letter of credit, guarantee or other instrument was granted.

(Return to Arrangement of Regulations)

Part 3 - Matters to be set forth in Notes to the Statutory Statement of Income

Information required to be given

[Note: The numerals refer to the numbers of the line of the statutory statement of income]

37. Other income (deductions)
The nature of material items that have been included.

41. Realized gains (losses)
The nature of material items that have been included.

(Return to Arrangement of Regulations)

Part 4 - Matters to be set forth in Notes to the Statutory Statement of Capital and Surplus

A. Information required to be given

[Note: The numerals refer to the numbers of the line of the statutory statement of capital and surplus]

1(a). Capital stock
As respects authorized capital stock there shall be disclosed severally
(a) the number of shares of each class, the par value, if any, of each class and a brief description of each class;
(b) the dividend rates applicable to any preference shares, and whether the dividends are cumulative;
(c) the redemption price of any redeemable shares;
(d) any conversion provisions.

As respects issued capital stock there shall be disclosed severally
(a) the number of shares in, and the capital stock amounts for, each class of shares;
(b) the amounts called and unpaid or otherwise due in respect of these shares;
(c) the amounts not called on those shares that will become receivable in due course when called.

1(b). Contributed surplus
The nature of any change in contributed surplus during the relevant year.

2(c) Dividends paid and payable
The amount and nature of any dividend paid during the relevant year that was other than a cash dividend.

B. There shall also be disclosed in notes the following information

(a) details of any change in the authorized capital stock of the insurer during the relevant year

(b) where an insurer has contracted to issue or re-issue shares or has given options to purchase shares, the class and number of shares affected, the price and date of the issue or re-issue of the shares or the exercise of the options and (shown separately) the total number of shares in respect of which options are held by directors and officers of the insurer;

(c) details of any share transactions during the relevant year including

(Return to Arrangement of Regulations)

SCHEDULE 3

INSTRUCTIONS AFFECTING THE STATUTORY BALANCE SHEET

Part 1 - Instructions for all insurers

Instructions

[Note: The numerals refer to the numbers of the line in the statutory balance sheet]

1. Cash and time deposits
Certificates of deposit shall be included.

2. Quoted investments
(a) there shall be disclosed severally

(b) bonds and debentures shall be carried either at quoted value or at cost or amortized cost, and the basis of valuation shall be shown;

(c) where bonds and debentures are carried at cost or amortized costs

(d) equities (preferred and ordinary) shall be carried at their quoted value;

(e) other quoted investments shall be carried at their quoted value.

3. Unquoted investments
(a) there shall be disclosed severally

(b) bonds and debentures shall be carried either at cost or amortized cost or at fair value determined in good faith and adequate provision shall be made for any permanent diminution in value;

(c) equities (preferred and ordinary) shall be carried at an amount not exceeding fair value determined in good faith.

4. Investments in and advances to affiliates
(a) amounts receivable or payable on account of policies of insurance or reinsurance with affiliates shall not be included. Such amounts shall be included in accounts and premiums receivable (line 10) and reinsurance balances payable (line 28) respectively;

(b) funds held by ceding reinsurers which are affiliates (line 12) and funds held under reinsurance contracts with affiliates (line 34) shall not be included;

(c) investments in affiliates shall be valued either by the cost method of valuation or the equity method of valuation;

Provided that

(d) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

5. Investment in mortgage loans on real estate
Mortgages shall be carried at the value of the principal amount outstanding less any provision considered by the directors to be needed for doubtful collection, and there shall be disclosed severally

(a) first liens;
(b) liens other than first liens; and
(c) the total of (a) and (b).

7. Real estate
(a) both land and buildings shall be included;
(b) the insurer's title must be clear and incontestable;
(c) there shall be disclosed severally

(d) except where carried at a value determined by an independent appraisal net of encumbrances, real estate shall be carried at the lower of

less the amount of any encumbrances;

(e) where an independent appraisal has been made, real estate may be valued at the appraisal value net of the amount of any encumbrances.

8. Collateral loans
If any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

9. Investment income due and accrued
If any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

10. Accounts and premiums receivable
(a) amounts receivable on account of policies of insurance from any person, whether an affiliate or not, shall be included;

(b) amounts due from reinsurers and funds held by ceding reinsurers (being amounts or funds which have been included in lines 11 and 12) shall not be included;

(c) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

11. Reinsurance balances receivable
(a) amounts receivable on account of policies of reinsurance from any person, whether an affiliate or not, shall be included;

(b) any amount shown in line 10 or 12 shall not be included;

(c) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

12. Funds held by ceding reinsurers
(a) funds held by ceding reinsurers (whether affiliates or not) shall be included;

(b) any amount shown in line 10 or 11 shall not be included;

(c) if any amount is in the opinion of the directors uncollectible, that amount shall be deducted.

13. Sundry assets
Any asset not accounted for in lines 1 to 12 and 14 may be included here if it has a readily realizable value. Any other assets, including prepaid and deferred expenses, goodwill and similar intangible assets, deferred acquisition costs and excess of book value over admitted asset value of stocks and other investments shall be non-admitted assets.

14. Letters of credit, guarantees and other instruments
(a) where additional fixed capital has been secured to the insurer by means of an irrevocable letter of credit, a guarantee or any other instrument, an asset may, with the approval of the Minister obtained on an application made for that purpose, be recorded and the capital increased by the corresponding amount. Where such an asset is recorded, it must be shown net of any allowance for its collectibility;

(b) letters of credit, guarantees and other instruments in favour of the insurer which relate to insurance operations shall not be recorded.

28. Insurance and reinsurance balances payable
(a) amounts, including premiums and other balances payable to insured persons and reinsurers (whether affiliates or not) under insurance and reinsurance contracts shall be included;

(b) funds held by the insurer under reinsurance contracts (shown in line 34) shall not be included.

29. Commissions, expenses, fees and taxes payable
All liabilities in respect of commissions (including profit commissions), underwriting expenses, fees and taxes (other than income taxes) shall be included. Where the insurer is primarily a reinsurer, the said liabilities may be included in line 28.

30. Loans and notes payable
Loans and notes payable to any person other than an affiliate shall be included here.

31. Income taxes
There shall be disclosed severally

(a) income taxes currently payable;
(b) provision for deferred income taxes.

32. Amounts due to affiliates
All balances due to affiliates, not being amounts payable under reinsurance contracts (shown on line 28 or line 34), shall be included here.

33. Accounts payable and accrued liabilities
Any other (non-insurance) accounts payable and accrued liabilities shall be included here.

34. Funds held under reinsurance contracts
Funds held under reinsurance contracts shall be included here.

35. Dividends payable
The amount of dividends payable to shareholders in the insurer declared prior to the last day of the relevant year and remaining unpaid on that date shall be included here.

36. Sundry liabilities
Any liabilities (including prospective and contingent liabilities) not assigned to another line of the statutory balance sheet shall be included here.

37. Letters of credit, guarantees and other instruments
(a) where letters of credit and guarantees are given by the insurer in favour of another person, being letters of credit, a guarantee or any other instrument not relating to the insurer's insurance operations and in effect encumbering the insurer's assets, a liability shall be recorded and the statutory capital and surplus decreased by the corresponding amount, whether the insurer has pledged specific assets or not under the letters of credit, a guarantee or any other instrument;

(b) letters of credit, guarantees and other instruments relating to insurance operations shall not be included.

38. Total other liabilities
This shall be the total of lines 28 to 37 inclusive.

39. Total general business insurance reserves and other liabilities
This shall be the total of lines 19 and 38, or of lines 27 and 38, or of lines 19, 27 and 38, as the case may require

40. Total statutory capital and surplus
This shall be the capital and surplus total as at the end of the relevant year, as shown in the statutory statement of capital and surplus.

41. Total
This shall be the total of lines 39 and 40.

(Return to Arrangement of Regulations)

Part 2 - Additional instructions for insurers carrying on general business only

Instructions

[Note: The numerals refer to the numbers of the line of the statutory balance sheet]

16. Unearned premiums
(a) this line shall disclose a proper amount set aside for unearned premiums, which shall be shown net of the unearned premium portion of the reinsurance premiums ceded which are used for calculating net premiums written;

(b) where refunds are expected to be made under retrospective or experience rating plans, proper provision must be made by an appropriate addition to the unearned premium reserve;

(c) acquisition costs shall not be deducted in calculating the amount of unearned premiums.

17. Loss and Loss expense provisions
(a) this line shall disclose a proper amount set aside by an insurer to meet losses reported before, but not paid by, the last day of the relevant year, in respect of incidents occurring before that day, and to meet expenses likely to be incurred in connection with the investigation, adjustment and settlement of such losses. The said provisions shall include amounts in respect of losses reported. There shall be disclosed the proper amount in respect of losses incurred but not reported to the insurer before the last day of the relevant year.

(b) the said amount shall not include any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as in their opinion doubtful, and the amount shall be shown net of any such provisions;

(c) loss provisions may be discounted in any of the following cases, that is to say

(d) where loss provisions are discounted as allowed by paragraph (c) above, the directors of the insurer shall determine that a proper amount has been set aside by the insurer for possible variations in the ultimate amount of the losses, the payment dates of the losses and the applicable interest rates;

(e) where an insurer's loss provisions have been discounted as allowed by paragraphs (c) and (d) above but the insurer has not met its general business solvency margin on an undiscounted basis, the opinion of a loss reserve specialist shall be given on the loss and loss expense provisions;

(f) where the gross premiums from professional liability insurance constitute more than 30% of the gross premiums written by the insurer during the relevant year, then the opinion of a loss reserve specialist must be given on the loss and loss expense provisions relating to all professional liability insurance business; but if the loss provisions cannot be so separated then the opinion of the loss reserve specialist must be given on the whole amount of the loss provisions;

(g) where, in relation to an insurer no longer effecting contracts of professional liability insurance, the opinion of a loss reserve specialist as to the matters described in paragraph (f) was required in either of the last two years during which it did effect contracts of professional liability insurance, then such an opinion must be given in each subsequent year.

18. Other insurance reserves - general business
The balance from the open year business revenue statement shall be included.

19. Total general business insurance reserves
This shall be the total of lines 16, 17 and 18.

(Return to Arrangement of Regulations)

Part 3 - Additional instructions for insurers carrying on long-term business only

Instructions

[Note: The numerals refer to the numbers of the line of the statutory balance sheet]

6. Policy loans
These shall be carried at an amount that is the aggregate of the unpaid balances on policy loans and any unpaid interest, so, however, that, for each loan, that amount shall not exceed the cash surrender value of the policy or the applicable policy reserve.

20. Reserves for reported claims
This line shall disclose a proper amount set aside by the insurer to meet claims unpaid at the end of the relevant year and made under contracts of insurance and reinsurance in respect of incidents occurring and reported to the insurer before the end of the year.

The said amount shall be reduced by any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as is last-mentioned the collection of which is in their opinion doubtful and adjust the reserve by said amount.

21. This line shall disclose a proper amount set aside by the insurer to meet claims under contracts of insurance and reinsurance in respect of incidents occurring but not reported to the insurer, before the end of the relevant year. The said amount shall be reduced by any amount recoverable under a contract of reinsurance in respect of the gross amount provided for. The directors shall make allowance for any such amount as is last-mentioned the collection of which is in their opinion doubtful and adjust the reserve by said amount.

22. Policy reserves - life
These shall be an amount, actuarially computed, which is considered adequate to provide future guaranteed benefits as they become payable under the provisions of life insurance policies in force. Amounts applicable to other life contract benefits (such as disability waiver of premium, disability income benefits and additional accidental death benefits) and to annuities and to supplemental contracts with life contingencies may also be included.

The said amount

(a) shall not include reserves in respect of accident and health policies; and
(b) shall be reduced by the amount of reserves ceded under reinsurance contracts.

The directors shall make allowance for any amount the collection of which is in their opinion doubtful and adjust the reserve by said amount.

23. Policy reserves - accident and health
These reserves shall be actuarially computed and shall consist of

(a) an active life reserve, that is to say, that portion of due and collected premiums which has been set aside to be recognized as earned in the future consisting of

(b) a claims reserve, that is to say, the present value of amounts not yet due on claims,

provision for future contingent benefits being included in both cases.

The said reserves shall not include the amount of any reserves ceded under reinsurance. The directors shall make allowance for any such amount the collection of which is in their opinion doubtful and adjust the reserve by said amount.

24. Policyholders' funds on deposit
These funds shall consist of premiums paid in advance of the due date, whether or not interest is paid for early payment. These liabilities shall be valued at the amounts received by the insurer, plus any interest credited.

25. Liability for future policy-holders' dividends
This shall be an amount of dividends payable, as declared by the directors, on participating life policies which qualify for such dividends, and shall be recorded at the amount declared

26. Other insurance reserves - long-term business
These shall consist of any other reserves required by the terms of life or accident and health contracts or as a result of special riders or options attaching to any such contracts, not being reserves provided for in lines 22 to 25 inclusive of the statutory balance sheet.

These must be actuarially determined.

27. Total long-term business insurance reserves
These shall be the total of lines 20 to 26 inclusive.

(Return to Arrangement of Regulations)

SCHEDULE 4

INSTRUCTIONS AFFECTING THE STATUTORY STATEMENT OF INCOME

Part 1- Instructions for all insurers

Instructions

[Note: The numerals refer to the numbers of the line of the statutory statement of income]

37. Other income (deductions)
These shall comprise all income (deduction) items not assigned to any of the lines above. Income taxes (line 39) and realized gains (losses) (line 41) shall not be included.

38. Income before taxes
This shall be the total of lines 37 and

(a) in the case of an insurer engaged in general business, line 18;
(b) in the case of an insurer engaged in long-term business, line 35
(c) in the case of a section 24(6) composite, line 36.

39. Income taxes
The following shall, if applicable, be disclosed severally

(a) the amount provided in respect of income taxes currently payable;
(b) the amount provided in respect of deferred income taxes;
(c) the total of (a) and (b).

40. Income before realized gains (losses)
This shall be the total of lines 38 and 39.

41. Realized gains (losses)
This shall include gains or losses on the sale of

(a) investments, whether quoted or unquoted;
(b) investments in affiliates;
(c) investments in mortgage loans on real estate; and
(d) real estate,

and may be net of the taxes and other expenses affecting any such sales.

42. Net income
This shall be the total of lines 40 and 41.

(Return to Arrangement of Regulations)

Part 2- Additional instructions for insurers carrying on general business only

Instructions

[Note: The numerals refer to the numbers of the line in the statutory statement of income]

1. Gross premiums written
These shall be the sum of direct premiums written and reinsurance premiums assumed (net of return premiums in each case).

Where reinsurance premiums are reported as a net amount (on either a written or an earned basis), that amount may, where further details are not available, be included as gross premiums written.

2. Reinsurance premiums ceded
These shall be premiums (less return premiums) arising from any reinsurance contract under which part of the liability of the insurer under direct policies or assumed reinsurance is transferred to reinsurers.

3. Net premiums written
This shall be arrived at by subtracting line 2 from line 1.

4. Increase (decrease) in unearned premiums
This shall be the net increase (decrease) in the unearned premiums from the end of the immediately preceding financial year.

5. Net premiums earned.
This shall be the aggregate of lines 3 nd 4.

6. Other insurance income
This shall be the aggregate of all other income (such as commission and brokerage income) directly related to underwriting general business.

7.
This shall be the total of line 5 and 6.

8. Net losses incurred and net loss expenses incurred
These shall consist of net losses and net loss expenses actually paid during the relevant year plus (minus) the increase (decrease) in the reserve shown on line 17 of the statutory balance sheet over that of the immediately preceding financial year.

9. Commissions and brokerage
This shall be the aggregate of compensation paid or payable to agents or brokers in return for business procured by them for the insurer in the relevant year in respect of general business.

10. General and administrative
These shall be general and administrative expenses other than those described in line 11.

11. Personnel costs
These shall be the aggregate amount of salaries, wages and benefits, including taxes applicable to salaries and wages.

12. Other
These shall be underwriting expenses not included in lines 10 and 11.

13.
This shall be the total of lines 8 to 12 inclusive.

14. Underwriting profit (loss)
This shall be arrived at by subtracting line 13 from line 7 (or vice versa).

17. General business investment income - net
Investment income may be shown net of with-holding tax and of any other directly related expenses, but shall not include realized gains or losses shown in line 41 of the statutory statement of income.

18. Income before the undernoted items
This shall be the total of lines 16 and 17.

(Return to Arrangement of Regulations)

Part 3 - Additional instructions for insurers carrying on long-term business only

Instructions

[Note: The numerals refer to the numbers of the line of the statutory statement of income]

19. Premiums and other considerations
These shall be gross premiums and other considerations, less amounts ceded under contracts of reinsurance during the relevant year, net of related taxes.

This income shall be disclosed severally in the following categories
(a) life;
(b) annuities;
(c) accident and health;
(d) the total of (a) to (c) inclusive.

20. Long-term business investment income - net
This income may be shown net of with-holding tax and of any other directly related expenses, but shall not include realized gains or losses shown in line 41 of the statutory statement of income.

21. Other insurance income
This shall be the aggregate of all other income, such as commission and brokerage income, directly related to underwriting long-term business.

22.
This shall be the total of lines 19 to 21 inclusive.

23. Claims - life
This shall be the amount of claims incurred under life insurance policies (in respect, for example, of death or disability) during the relevant year, but shall not include claims ceded under reinsurance contracts.

Surrenders, maturities, annuities and accident and health benefits which are disclosed in lines 25, 26, 27 or 28 shall not be included.

24. Policyholders' dividends
These shall be amounts distributed or credited during the relevant year to policyholders with participating life policies.

25. Surrenders
This shall be amounts incurred during the relevant year as a result of the surrender by policyholders, either for cash or in exchange for some other consideration, of policies with cash surrender values.

26. Maturities
These shall be amounts incurred as a result of the maturing during the relevant year, after a specified period of time, of any endowment policy before the death of the insured.

Amounts paid as a result of the death of an insured that is covered by an endowment policy shall be included in line 23.

27. Annuities
These shall be amounts incurred during the relevant year under the terms of any annuity contract.

28. Accident and health benefits
These shall be amounts incurred in respect of claims under accident and health contracts, being claims arising out of incidents occurring during the relevant year.

29. Commissions
These shall be the aggregate amounts of compensation paid or payable to agents or brokers in return for business procured by them for the insurer in the relevant year in respect of long-term business.

30. Other
These shall include any expenses related to long-term business during the relevant year that are not included in any of lines 23 to 29 inclusive or in line 32.

31.
This shall be the total of lines 23 to 30 inclusive.

32. Operating expenses
These shall include the administrative and other general expenses of operating the insurer's long-term business during the relevant year.

33.
This shall be the gain (or loss) arrived at by deducting the aggregate of lines 31 and 32 from the amount shown at line 22 (or vice versa).

34. Increase (decrease) in policy reserves
This shall be the increase or decrease from the end of the immediately preceding financial year in policy reserves - life (line 22 of the statutory balance sheet), policy reserves - accident and health (line 23 of the statutory balance sheet), and, if applicable, that portion of other insurance reserves - long-term business (line 26 of the statutory balance sheet) which is actuarially determined. The increases (decreases) in the said policy reserves shall be disclosed severally in the following categories

(a) Life;
(b) annuities;
(c) accident and health;
(d) the total of (a), (b) and (c) inclusive.

35. Income before the undernoted items
This shall be the total of lines 33 and 34.

(Return to Arrangement of Regulations)

SCHEDULE 5

INSTRUCTIONS AFFECTING THE STATUTORY STATEMENT OF CAPITAL AND SURPLUS

Instructions

[Note: The numerals and letters refer to the numbers of the line of the statutory statement of capital and surplus]

1(a). Capital stock
This shall comprise

(a) where shares have a par value, the par value;
(b) where shares have no par value, the stated value,

of shares issued and called.

Where shares have only been partially called, only the called portion shall be included.

Where any capital stock has been called but not received, a corresponding receivable shall be reflected in the statutory balance sheet.

In this Schedule "stated value", in relation to shares in an insurer, means the value attributed to the shares in the books of the insurer.

(b). Contributed surplus
This shall comprise

(a) any share premium, that is to say

of the shares issued and called.

Where shares have only been partially called, only the said excess on the called portion shall be included.

(b) any credit resulting from the redemption or conversion on any shares at less than the amounts set up in respect of those shares as capital stock;

(c) any other capital contributions made to the insurer by any shareholder, not being a contribution required to be set up as capital stock.

Where any contributed surplus amount has been called but not received, a corresponding receivable shall be reflected in the statutory balance sheet.

(c). Any other fixed capital
This shall comprise any other fixed capital approved by the Minister which has not been allocated to line 1(a) or 1(b), and must take into account any amount required by the instruction in Part 1 of Schedule 3 relating to line 14 or line 37 of the statutory balance sheet to be credited to, or, as the case may be, charged against, capital.

(d). Total statutory capital
This shall be the total of lines 1(a), 1(b) and 1(c).

2(a). Statutory surplus - beginning of year
Statutory surplus - beginning of the year means the statutory surplus as at the end of the immediately preceding financial year as computed in accordance with these Regulations.

(b). Income for the year
This shall be the amount described in line 42 of the statutory statement of income.

(c). Dividends paid and payable
This shall comprise

(a) all dividends declared during the relevant year, being dividends payable to shareholders in the insurer during that year, whether those dividends were or were not in fact so paid before the end of the relevant year.

(b) any provision made for the payment during the relevant year of cumulative dividends in respect of shares of any class, being dividends due to have been paid before the commencement of the relevant year.

(d). Change in unrealized appreciation (depreciation) of investments
This shall comprise any increase (decrease) occurring since the end of the immediately preceding financial year in the value of quoted investments (line 2 of the statutory balance sheet), to the extent that that increase (decrease) is not reflected in the statutory statement of income.

(e). Change in non-admitted assets
This shall comprise any increase or (decrease) occurring since the end of the immediately preceding financial year in the value of non-admitted assets.

(f). Change in appraisal of real estate
This shall comprise any increase or (decrease) occurring since the end of the immediately preceding financial year in the value of real estate carried at appraisal value (see paragraph (B) of the requirement in Part 2 of Schedule 2 relating to line 7 of the statutory balance sheet).

(g). Change in any other statutory surplus
This shall comprise any increase or (decrease) occurring since the end of the immediately preceding financial year in the value of unquoted investments, investments in and advances to affiliates and investments in mortgage loans on real estate (lines 3, 4 and 5 respectively of the statutory balance sheet), to the extent that that increase (decrease) is not reflected in the statutory statement of income.

(h). Statutory surplus - end of year
This shall be the aggregate of lines 2(a), 2(b), 2(c), 2(d), 2(e), 2(f) and 2(g).

3. Total statutory capital and surplus
This shall be the total of lines 1(d) and 2(h).

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