Statement of Guidance – Investment Activities of Insurers (February 2022)

Summary

This is a CIMA Statement of Guidance (February 2022) explaining how the Authority expects insurers to comply with its Rule on Investment Activities of Insurers. It applies to all insurers and registered Portfolio Insurance Companies licensed under the Insurance Act, and sets out expectations for prudent investment management.

• Covers security of assets, liquidity, diversification, risk management, and asset-liability management.
• Covers governance through an Investment Committee, investment policy content, and internal controls.
• Covers use of external credit ratings, loans, and derivatives.

The guidance elaborates on general principles insurers should apply when devising an investment strategy, ensuring assets are secure, liquid enough to meet policyholder claims, adequately diversified, and subject to sound risk management. It requires most insurers (other than Class B(i) and B(ii)) to maintain a Board-level Investment Committee with defined oversight duties, and requires insurers to document an investment policy and maintain internal controls consistent with that policy.

• Loans or equivalent credit extensions as an investment activity: Insurers proposing this must obtain CIMA's prior approval, following the procedure in CIMA's Regulatory Procedure on Approval and Notification of Changes.
• Derivatives for non-hedging/speculative purposes: Insurers proposing to invest in these must likewise obtain CIMA's prior approval under the same procedure.
• Loans to related parties/affiliates for non-investment purposes: For example, liquidity relief loans are similarly treated as a Business Plan change requiring prior approval.

The guidance states it will take effect twelve months after its publication in the Gazette.

Key obligations

• Insurers (other than Class B(i) and B(ii)) must establish an Investment Committee comprising at least one Board member with investment/financial expertise plus other competent representatives.
• The Investment Committee must implement and oversee adequate risk management systems and controls, including segregation of execution/monitoring/performance functions, clear delineation of dealing authority, performance monitoring, continuous risk monitoring, timely management reporting, qualified personnel, internal audit procedures, and review of complex investments' impact on solvency.
• Insurers must maintain a documented investment policy that is commensurate with the nature, size and complexity of their business, identifying due diligence processes, credit rating methodology, and the full investment process.
• Insurers must establish adequate internal controls (e.g., concentration limits, valuation/recording of investments, cash-flow tracking, and reporting) to ensure assets are managed per the investment policy.
• In the absence of ratings from recognised credit agencies, insurers must conduct independent credit analysis to assess investment security.
• Insurers proposing to provide a loan (or equivalent extension of credit) as an investment activity must seek prior approval from CIMA for each such loan, submitting details of purpose, terms, conditions, risk assessment and collateral.
• Loans to related parties/affiliates for non-investment purposes (e.g., liquidity relief) require prior CIMA approval as a Business Plan change.
• Insurers proposing to invest in derivatives for non-hedging or speculative purposes must seek prior CIMA approval and include details in their investment policy submitted to the Authority; new non-hedging/speculative derivative strategies added after policy submission require approval as a Business Plan change.
• Insurers must ensure their investment policy addresses procedures/rationale for derivatives use, and the Investment Committee must ensure derivatives use aligns with policy objectives, assign resources to monitor derivative risk, and maintain thorough, readily available records of derivative transactions.

Applies to

Insurers, registered Portfolio Insurance Companies, Class B insurers, Class C insurers, Class D insurers

Deadlines

• within twelve months from the date that it is published in the Gazette: This Statement of Guidance comes into effect twelve months after its Gazette publication date.