GUERNSEY INSURANCE FORUM 12 November 2008 Diane Colton - Director of Insurance Guernsey Financial Services Commission

GUERNSEY INSURANCE FORUMGUERNSEY INSURANCE FORUM12 November 200812 November 2008

Diane Colton - Director of Insurance

Guernsey Financial Services Commission

Captives – The Supervisory LandscapeCaptives – The Supervisory Landscape

Outline of Presentation

Guernsey’s insurance supervisory framework

Developments for captive supervisors

International influences

Guernsey’s Insurance Supervisory Guernsey’s Insurance Supervisory FrameworkFramework

Protection of public interest & reputation of Guernsey

Risk based regulation

Size, nature & complexity

Enshrinement of IAIS Core Principles

Relationship driven

The Role of the Regulator The Role of the Regulator Supervisory TechniquesSupervisory Techniques

Prospective:

- Licence application

- Changes in

- Ownership

- Directors

- Business plan

Retrospective:

- Annual returns.

- On-site visits

• Prospective and retrospective.

Prospective ApproachProspective ApproachLicence ApplicationLicence Application

Background & history

Rationale for captive set up

Ownership

Programme structure – detailed

Financials

Assessment Committee

Prospective Approach Prospective Approach Approvals or Notification?Approvals or Notification?

Ownership

Directors

Business plan– Material changes

Retrospective ApproachRetrospective ApproachAnnual Return - ContentsAnnual Return - Contents

Audited accounts/auditor’s management letter

Management accounts for PCC cells

Declaration of General Representative

Summary of claims paid & outstanding

Retrospective ApproachRetrospective ApproachAnnual Return - ContentsAnnual Return - Contents

Business Plan – spreadsheet and narrative

Schedule of bank deposits & investments

Corporate Governance Code compliance

Actuarial report where applicable

Retrospective ApproachRetrospective ApproachAnnual Return - ReviewAnnual Return - Review

Risk matrix

Directors and auditors statements

Margin of solvency

Approved assets

Spreadsheet business plan

Reliance on reinsurance

Retrospective ApproachRetrospective ApproachOn-site VisitsOn-site Visits

3-year rolling programme

Management procedures

Corporate Governance

Systems and controls

Sample-basis review of licensees

Anti-money laundering

Recent ChangesRecent ChangesLegislationLegislation

Revised anti-money laundering regulations – December 2007

Amendments to Insurance Law – March 2008

New Company Law – July 2008

Revised Corporate Governance Code – September 2008

ORSA – September 2008

Current IssuesCurrent IssuesOwn Risk and Solvency AssessmentOwn Risk and Solvency Assessment

Minimum Solvency Capital Requirement - MSCR

Own Solvency Capital Assessment - OSCA

MSCR is the statutory minimum

OSCA is based on assessment of various risk factors

Required for new business and year ends from September 2008


Developments for Captive Supervisors

Guidance Paper on the regulation and supervision of captives

International Association of Insurance International Association of Insurance Supervisors (IAIS)Supervisors (IAIS)


Founded in 1994.

180 member jurisdictions.

The global standards setting body for insurance supervision.

Guernsey represents the Offshore Group of Insurance Supervisors (OGIS) on Executive Committee.


Guernsey is also a member of a number of the IAIS subcommittees – including:

– Technical– Solvency– Accounting – Reinsurance– Corporate Governance– Insurance Groups and Cross Sectoral Issues– Chair of Market Conduct and Insurance Fraud

Recognition of the need to increase knowledge of captive insurers within the IAIS and particularly amongst supervisors in non-captive jurisdictions.

IAIS Captive Issues Paper developed by Guernsey was adopted by the IAIS AGM in October 2006.

Captive Guidance Paper drafting group formed January 2007, reporting to the IAIS Reinsurance Subcommittee.

Development of Captive Guidance PaperDevelopment of Captive Guidance Paper

Membership of the Drafting GroupMembership of the Drafting Group

Chaired by Diane Colton, Guernsey

Onshore: France, Germany, Ireland, Luxembourg, United Kingdom, United States – South Carolina, Utah, Delaware

Offshore: Bermuda, BVI, Cayman, Gibraltar, Guernsey, Isle of Man, Jersey, Singapore, United Arab Emirates

Structure of the PaperStructure of the Paper

Paper structured to follow the 28 IAIS Insurance Core Principles.

Treatment of captives where different approach to commercial insurers is required.

Highlights of the PaperHighlights of the Paper

Definition of captive insurance companies.

Licensing / Board of Directors / owners etc

On-site visits

Confidentiality and disclosure

Unrelated party business

Highlights of the PaperHighlights of the Paper

Direct writing compulsory classes of liability business with potential 3rd party claimants

Fronting arrangements

Role played by insurance managers

Protected Cell Companies

Captive Guidance Paper Captive Guidance Paper

Approved at IAIS AGM – October 2008


International Influences


International Influences

IMF

Solvency II

IAIS

Global financial crisis

Solvency IISolvency II

European Commission meetings

Mutual recognition status

2009 visit

Structure of IAIS CommitteesStructure of IAIS Committees

Executive Committee

Technical Committee

Solvency Subcommitte

e

Accounting Subcommitte

e

Insurance Contracts

Subcommittee

Reinsurance Subcommitte

e

Governance & Compliance

Subcommitte

e

Market Conduct

Subcommittee

Insurance Groups &

Cross-Sectoral Issues

Reinsurance Transparency

Sub Group

MutualRecognition Sub Group

Microinsurance Working

Group

Insurance Fraud

Working Group

Global Financial CrisisGlobal Financial Crisis

Financial Stability Forum

AIG

Guernsey insurers

IAIS

John McFall:John McFall:

“It is clear that many investors threw caution to the wind when making investment decisions and were seduced into investing in products they did not understand by the alluring prospect of high returns. Many investors were blind to the risks involved, equated complexity with security and were engaged in a bout of collective madness. Unfortunately you cannot regulate against stupidity”.


Questions?

Documents

GUERNSEY INSURANCE FORUM 12 November 2008 Diane Colton - Director of Insurance Guernsey Financial Services Commission