Investors Guaranty Fund, Ltd. (Policyholder Reserves) Act, 1991
“Quod dare non possis verbis promittere noli – Cato” “What you cannot perform, do never promise.”
A Latin tenet given over by the late Alasdair G. “Sandy” Barclay, President Emeritus of Investors Guaranty Fund, Ltd., (“IGF”) is central to the development of IGF’s leading edge financial technology, focused on a fundamental ability to quantify risks accepted and to assure payment of one’s obligations.
In a credit environment reeling from the “Twist Cap” case in the mid 1980s, the founders of IGF sought to develop a credit structure, which was bankruptcy-proof, not simply bankruptcy remote, as was then the standard in the United States. Concurrently in Bermuda, unfortunately, policyholders were not afforded a priority status over general creditors, as was common in the U.S. Preferences in bankruptcy, systemic risk in the banking sector, and the transition from physical to book-entry securities created challenges in collateralisation and credit analysis of the then evolving world of asset securitisation.
It was against this backdrop, at a time when financial guaranty and asset securitisation were in their infancy, that the fundamental principles of collateralisation, securitisation, and bankruptcy-proof credit structures converged to form the core technology of IGF and were the inspiration for the groundbreaking segregated reserve legislation, the Investors Guaranty Fund, Ltd. (Policyholder Reserves) Act, 1991 (the “IGF Act”). In addition to IGF, Investors Guaranty Assurance, Ltd., Investors Financial Guaranty, Ltd., and Investors Guaranty Insurance, Ltd. (each an “IGX Insurer”) are subject to the IGF Act.
The IGF Act does not seek to create a TRUST, but rather sought to change the manner in which insurance companies in Bermuda, subject thereto, are regulated and must operate, to assure the highest degree of safety, security and assurance of timely payment. IGF is believed to be the first insurance company in Bermuda to have its policies rated “AAA” by Standard & Poor’s, and the IGF Act was a codification of the underlying technologies developed to obtain this highest of credit ratings.
- First, each IGX Insurer must not be subjected to liquidation or bankruptcy in a manner that allows a bankruptcy trustee to abrogate or modify contracts issued by the Insurer. This is precluded by the IGF Act.
- Before an IGX Insurer issues a policy (including an Adjustable Rate GIA™) it must have sufficient assets reserved, charged and invested in a manner to assure its ability to pay 100% of its obligations.
- Each IGX Insurer’s statutory reserve assets must be held by Government approved custodians, subject to applicable rating and custody arrangements, approved by the Minister of Finance of Bermuda. Each IGX Insurer is subject to the oversight of two Bermuda regulators, the Minister of Finance of Bermuda under the IGF Act and the Bermuda Monetary Authority.
- Each IGX Insurer is regulated under Bermuda insurance law, further subject to the IGF Act, requiring annual audits, actuarial reserving, and regulatory filings. Consistent with standard procedures for life insurers under Canadian GAAP, IGX Insurers establish reserves for repayment of principal, interest and future interest, as applicable.
- Standard Bermuda law, unlike the US, does not create a policyholder preference over general creditors. The IGF Act creates a preference for policyholders (Adjustable Rate GIA™ holders) over creditors and specifically does not give any party a beneficial interest in the assets of an IGX Insurer, i.e. the Insurer IS NOT A TRUST.
- A purpose of the IGF Act is to substantially reduce the possibility of default, and in the event it occurs, to prescribe the statutory procedure for satisfying the claims of policy and debt holders, and other creditors.
- This structure has been reviewed by international rating agencies who have indicated their willingness to provide their highest rating classifications.
- While the IGF Act severely limits disclosure of specific details of its business operations, Each IGX Insurer is under a strict affirmative duty with regard to “know your client” and anti-money laundering, answerable to Bermuda’s banking regulator.