Regulatory Policy - Exemption from the Audit Requirement for a Class C Insurance Company (May 2017)

Summary

This is a CIMA regulatory policy (May 2017) that sets out the criteria and process by which a Class C insurance company (typically an insurance-linked securities/collateralized reinsurance vehicle) may be exempted from the statutory requirement under section 9(1) of the Insurance Law 2010 to submit audited financial statements as part of its annual return. It applies only to Class C insurers and to applicants seeking a Class C licence.

An insurer or potential licensee can apply for an audit waiver either at licensing or afterward. If granted, an exemption ('waiver letter') lasts for the life of the licence, but is conditional on the insurer satisfying ongoing year-end criteria and submitting specified confirmations and documents within 30 calendar days of each financial year end.

• Year-end submissions required: Unaudited management accounts, and confirmations regarding claims, litigation, director changes, collateral account holdings, and payments to investors.
• Grounds for refusal or withdrawal of year-end approval: CIMA can refuse or withdraw approval where a loss trigger event has occurred, the insurer is not in good standing, or other conditions are unmet.
• Sophisticated Investors: All investors must qualify as 'Sophisticated Investors' as defined in the policy.
• Full collateralization: The insurer's full exposure to loss must be fully collateralized.
• Disclosure in offering document: The offering document must disclose the intention to seek a waiver and director information.
• Director resolution: Directors must formally resolve to seek the waiver.
• Ceding insurer confirmation: The ceding insurer must confirm no objection.

The policy also addresses waiver treatment when a licence is surrendered, suspended or revoked, and reserves CIMA's right to withdraw any waiver and require audited statements at its discretion.

Key obligations

• An insurer or potential licensee seeking an audit waiver must submit an application to CIMA demonstrating satisfaction of the conditions in section 5 (e.g., full collateralization of exposure, all investors qualifying as Sophisticated Investors, offering document disclosures, director resolution, ceding insurer no-objection).
• A separate audit waiver must be requested for each individual insurer, and for each segregated portfolio if structured as a segregated portfolio company.
• An insurer that did not obtain a waiver at licensing or in the prior financial year but wishes to obtain one at year end must apply to CIMA within 30 calendar days of that financial year end.
• Within 30 calendar days of its financial year end, an insurer that has a waiver must pay the prescribed fee for audit waiver requests and submit year-end documentation to obtain year-end approval, including: confirmation that all claims have been settled with no outstanding losses/loss reserves; confirmation of no pending litigation; a directors' resolution if there has been a change in directors; unaudited management accounts; written confirmation from the custodian/trustee of the collateral account of asset values and a breakdown; a summary statement of collateral account activity; and confirmation from the indenture trustee (or equivalent) that all payments due to investors have been made.
• The insurer must remain in good standing with CIMA (up to date on fees and regulatory filings, no outstanding queries) to receive year-end approval.
• CIMA will not grant year-end approval, and may withdraw a prior approval, if a loss trigger event has occurred and there are outstanding losses/loss reserves at financial year end.
• Upon surrender, suspension, or revocation of a Class C licence, the insurer may be required by CIMA to provide audited financial statements for the relevant financial year, and any waiver application for that period must follow this policy.
• The insurer must accept that CIMA may withdraw any granted audit waiver approval at any time and require audited financial statements if CIMA deems it necessary.

Applies to

Class C insurance companies, applicants for a Class C insurance licence

Deadlines

• within 30 calendar days of that financial year end: Deadline for an insurer that did not previously have a waiver to apply for an audit waiver at year end.
• within 30 calendar days following its financial year end: Deadline for an insurer with a waiver letter to pay the prescribed fee and submit required year-end documentation to obtain year-end approval.
• within 14 working days: CIMA's target timeframe to review and process completed waiver applications (not applicable to waiver requests made at the licensing stage).
• within six months of the end of its financial year: General statutory deadline under section 9(1) of the Insurance Law 2010 for submission of audited financial statements as part of the annual return, absent a waiver.