This pattern may continue despite the challenges that projected market volatility and uncertainty may have on deal activity in the third quarter of 2020 and into the New Year.
It remains to be seen how the industry will reinvent itself and influence the “new normal”, but there is speculation that after a short pause, a return to M&A deal activity may be just around the corner.
There are four ways to acquire any Bermudian-based company: merger, amalgamation, scheme of arrangement or share purchase.
Regardless of the avenue chosen to effect the deal, substantial transactions involving Bermuda insurance companies are often tagged as “subject to regulatory approvals”.
This article considers three types of regulatory approvals that dealmakers must take into account when involving a Bermuda-based insurer.
The Exchange Control Act 1972 and Exchange Control Regulations 1973 set out various provisions in relation to the issue, transfer, redemption and repurchase of shares in a Bermuda company.
Unless a general permission applies, the issue or transfer of shares requires specific permission from the Bermuda Monetary Authority. General permission is available in a variety of circumstances, however in a deal where a purchaser is buying a stake in a Bermuda-based company, specific permission will be necessary.
Exchange control consent is handled via the BMA’s online INTEGRA portal. As only licensed corporate service providers and self-filers can use the INTEGRA system, the Bermuda-based company will handle the filing itself or engage its CSP to make the appropriate INTEGRA submission for consent.
The BMA reviews the submission, gathers information and performs relevant background checks on the proposed new shareholders to determine whether it will grant consent. Transaction documents will often specifically reference exchange control consent as a condition precedent to closing the deal.
Where shares of a Bermuda insurance company are being transferred as part of an M&A deal, certain notifications must be made, and/or additional BMA approval must be sought, under the Insurance Act 1978.
A purchaser will want to ensure that the Insurance Act requirements are met, and therefore the necessary notifications and approvals will often be reflected in the transaction documents as conditions precedent. A purchaser may also seek to include a warranty that the requirements of the Insurance Act have been complied with.
The obligation to file such notifications and approvals will vary depending on the particular provision of the Insurance Act in question, and will fall to the incoming or outgoing shareholder, or the insurer itself.
In an insurance M&A deal, responsibility for handling these notifications and approvals will often be delegated to the relevant party’s advisers, who will draft a letter form submission to the BMA setting out the details of the Bermuda insurance company’s current ownership structure, the proposed transaction, and the ownership structure resulting from the transaction.
The submission will be supported by pre- and post- closing structure charts, as well as declaration forms signed by the proposed incoming shareholders to allow the BMA to carry out its vetting process.
Where a seller is listed on the Bermuda Stock Exchange, the exchange’s listing regulations require issuers to publicly disclose matters pertinent to the issuer.
Such public disclosure may be required upon the signing of the relevant transaction documents, whether the deal involves the acquisition of a whole or a minority stake.
More specifically, the BSX regulations impose a general obligation on an issuer to keep the BSX and its shareholders informed without delay, by way of public announcement or circular, of any information related to the issuer (or its group) that:
- Is necessary to enable them and the public to appraise the financial position of the issuer and the group
- Is necessary to avoid the establishment of a false market in its securities and
- Might reasonably be expected materially to affect market activity in, and the price of, its securities.
Additionally, where a purchaser becomes a holder of five per cent or more of a company listed on the BSX, the company must notify the BSX.
Customarily, public disclosure happens immediately after the execution of the relevant transaction documents. Where the seller is listed on an exchange other than the BSX, appropriate additional legal counsel should be sought.
On the flipside, Bermuda-based companies themselves may pursue strategic acquisitions of attractive entities based in foreign jurisdictions. Regardless of where the parties are situated and how the acquisition is structured, the transaction will likely result in changes to the controllers (shareholders, directors, etc) of the target company. When such changes occur, regulatory approvals often follow.
Both purchasers and sellers involved in a Bermuda M&A deal must be mindful of their obligations; companies that do so will be poised to optimise M&A opportunities in the insurance market in 2021 and beyond.