Rule on Investment Activities of Insurers (February 2022)

Summary

This is a CIMA Rule, effective February 2022, that sets out binding requirements for how insurers licensed in the Cayman Islands must manage and conduct their investment activities. It applies to all Insurers (as defined in the Insurance Act) and registered Portfolio Insurance Companies (PICs) supervised by CIMA, and should be read alongside the related Statement of Guidance on Investment Activities of Insurers, the Insurance Act, the Capital and Solvency Regulations, and the Rule on Risk Management for Insurers.

Core Investment Requirements

• Asset selection: Insurers must invest only in assets whose risks they can properly identify, measure and manage.
• Security and diversification: Assets must be secure, available to meet policyholder obligations, appropriately diversified, and held in locations that do not breach sanctions.
• Strategy alignment: Investment strategy must match the nature and duration of liabilities.
• Risk management: Insurers must apply sound management of investment risk, including look-through analysis of underlying assets and group-related considerations.
• Investment Policy: Insurers must establish a formal Investment Policy submitted to CIMA for approval, covering risk appetite, asset allocation limits, and use of derivatives.
• Governance requirements: Except for Class B(i) and B(ii) insurers, insurers must establish an Investment Committee and conduct internal audits of investment activities.

Restrictions and Ongoing Obligations

• Collateral pledging: Pledging assets as collateral outside of insurance or regulatory obligations is restricted absent CIMA approval.
• Derivative use: Derivative use is limited to hedging or efficient portfolio management purposes unless otherwise approved.
• Loans and credit: CIMA approval is required for loans or credit extensions for investment purposes.
• Disclosure obligation: Insurers must proactively inform CIMA of material breaches of investment policy or strategy, or significant realised or unrealised losses.

CIMA retains discretion to waive application of the Rule to a given insurer under specified conditions, and breaches are subject to CIMA's Enforcement Manual and powers under the Insurance Act and Monetary Authority Act.

Key obligations

• Insurers must invest assets only in instruments whose risks (market, credit, liquidity, concentration, strategic, operational) they can properly identify, measure, monitor, manage, control and report.
• Insurers must ensure assets are sufficiently secure, available to meet policyholder obligations as they fall due, and not held in locations contravening Cayman Islands sanctions orders.
• Insurers must ensure assets are sufficiently diversified within and between risk categories, unless otherwise permitted by legislation or CIMA determination of low risk.
• Insurers must invest in a manner appropriate to the nature and duration of their liabilities, including matching cash flows, reviewing investment guarantees/embedded options, and closely matching assets and liabilities for unit-linked/universal life policies.
• Insurers must establish and maintain a risk management framework appropriate to the nature, scale and complexity of their business and investment activities.
• Insurers must establish an Investment Policy appropriate to their business and submit it to CIMA for approval, containing specified content (risk appetite, asset allocation limits, derivative strategy, monitoring/control procedures, etc.).
• Save for Class B(i) and B(ii) Insurers, insurers must establish an Investment Committee responsible for maintaining the investment policy, annually assessing its suitability, and overseeing investment activities.
• Insurers must obtain CIMA approval before providing loans or extending credit for investment purposes, and must submit material details of the loan (purpose, terms, risk assessment, collateral) to CIMA.
• Insurers must maintain adequate internal controls over investment activities and, save for Class B(i) and B(ii) Insurers, conduct internal audits of investment activities with frequency commensurate to size, nature and complexity.
• Insurers are prohibited from pledging assets as collateral for purposes other than securing insurance or regulatory obligations, unless approved by CIMA.
• Insurers may only invest in derivatives for hedging or efficient portfolio risk management (not speculation) unless otherwise approved by CIMA, and must demonstrate hedging effectiveness and risk management capacity for derivative use.
• Insurers must disclose to CIMA, promptly and openly, material breaches of the approved investment policy/strategy and significant realised or unrealised losses likely to materially impact financial condition.

Applies to

Insurers, registered Portfolio Insurance Companies (PICs), Class B(i) Insurers, Class B(ii) Insurers

Deadlines

• within twelve months from the date of publication in the Gazette: The Rule comes into effect twelve months after its Gazette publication date.
• annually (or other frequency as determined by the Authority): The Investment Committee must assess the suitability of the investment policy at least annually, or at another frequency set by CIMA.

Related documents

• This document is made under Monetary Authority Law (2020 Revision)