Practice Direction Number 2 of 2006

Summary

This Practice Direction from the BVI Financial Services Commission sets out minimum expectations for how Captive Insurance Companies licensed under the Insurance Act, 1994 should manage their investment portfolios. It is guidance issued under section 40 of the Financial Services Commission Act, 2001, intended to help insurers demonstrate sound and prudent investment management commensurate with the size and complexity of their operations.

• Board of Directors: Must formulate the investment policy, analyse asset/liability relationships, risk tolerance and solvency position, ensure adequate reporting and internal controls are in place, and review the overall investment policy at least annually.
• Management/Insurance Manager: Responsible for implementing and operationalising the investment policy, ensuring staff involved in investment activity are suitably qualified, and reviewing written operational procedures and resources at least annually.
• Written Investment Policy: Every insurer must have a board-approved written investment policy covering risk profile, asset allocation, selection criteria, concentration limits, portfolio performance criteria, selection of investment personnel, asset/liability management strategy, liquidity, related party transactions, accountability, valuation policies and solvency requirements.
• Internal Controls and Audit: Investment activities must be governed by internal control and audit procedures covering documentation and authorisation of transactions, monitoring of security positions, adherence to policy limits, timely reporting of breaches, and reconciliation of security positions.
• Records: Insurance Managers are expected to maintain information on investment plans, investment managers/advisers used, and details of all investment transactions, in line with Regulation 11 of the Insurance Regulations, 1995.

The Commission will assess these policies and procedures as part of its ongoing supervision, taking into account the size and complexity of each captive's operations, though it notes captives insuring related-party risks generally pose lower public risk.

Key obligations

• Every Captive Insurer must have a written investment policy in place, approved by the Board of Directors, addressing risk profile, asset allocation, selection criteria, concentration limits, performance criteria, personnel selection, asset/liability management, liquidity, related party transactions, accountability, valuation and solvency requirements.
• The Board of Directors must review the adequacy of the overall investment policy at least annually.
• Management or the Insurance Manager must review the adequacy of written operational procedures and allocated resources at least annually.
• Insurers must maintain books and records of financial affairs, including investment plans, investment managers/advisers used, and details of investment transactions, sufficient for the Commission to ascertain the insurer's financial position at any time (per Regulation 11 of the Insurance Regulations, 1995).
• Insurers must implement internal control and internal audit procedures governing investment activities, including documentation, authorisation, monitoring, breach reporting, and reconciliation of security positions.
• The original business plan submitted at licensing must include appropriate reference to the company's proposed investment policy, compliant with regulatory requirements.

Applies to

Captive Insurance Companies licensed under the Insurance Act, 1994, Insurance Managers

Deadlines

• at least annually: Board of Directors must review the adequacy of the overall investment policy.
• at least annually: Management/Insurance Manager must review the adequacy of written operational procedures and allocated resources.