Rules and Statement of Guidance on Reinsurance Arrangements

Summary

This CIMA measure sets out binding Rules together with an accompanying Statement of Guidance governing how licensed insurers (including registered Portfolio Insurance Companies, or PICs) that use outward reinsurance must design, implement, document and monitor their reinsurance arrangements. It applies only to insurers and PICs that actually use some form of outward reinsurance (including retrocession); entities that do not use reinsurance are outside its scope. CIMA will take the Rules into account during supervisory processes, including onsite inspections.

The document requires insurers to maintain a reinsurance programme and an underlying reinsurance strategy that is proportionate to the size, nature, scale and complexity of the business, approved by the Board of Directors, and integrated into the insurer's overall business, capital and risk management strategy.

• Selection and vetting: Detailed requirements around selection and vetting of reinsurers and brokers, limiting use to 'Regulated' counterparties absent CIMA approval.
• Risk monitoring: Monitoring of counterparty/credit and aggregate exposure risk.
• Risk transfer documentation: Documentation demonstrating genuine economic risk transfer.
• Pass-through arrangements: Treatment of pass-through arrangements.
• Contract documentation: Contract documentation, including insolvency provisions.
• Group-wide programmes: Group-wide reinsurance programmes.
• Internal controls: Internal controls.
• Catastrophe planning: Catastrophe reinsurance planning.

Insurers must also proactively notify CIMA of material changes to their reinsurance strategy and of material problems that could jeopardise recoveries from reinsurers or threaten the insurer's ability to meet obligations, along with remedial steps taken. Breach of the Rules exposes the insurer to CIMA's enforcement powers under its Enforcement Manual and other regulatory and Monetary Authority Act powers.

The measure's Rules are legally binding (marked 'R'), while surrounding guidance explains CIMA's expectations for compliance. The title indicates the measure took effect 27 May 2024, though the text itself states an effective date of twelve months after Gazette publication.

Key obligations

• Insurers must maintain a reinsurance programme appropriate to the size, nature, scale and complexity of their business, covering coverage, limits, retentions, layers, signed lines and markets used.
• Insurers must regularly review their reinsurance programme to ensure it meets strategic objectives.
• Insurers must ensure records related to reinsurance arrangements are available to the Authority upon request.
• The Board of Directors must approve the insurer's reinsurance strategy, having regard to the insurer's nature, scale, complexity and risk appetite.
• Insurers must be able to provide their board-approved reinsurance strategy to the Authority upon request.
• Insurers must inform the Authority of any material changes to their reinsurance strategy (as defined, e.g., changes in coverage decisions, structuring, or retention levels).
• Insurers must advise the Authority of any material problems that could lead to failure of reinsurance arrangements and of steps taken to address them.
• Insurers must document minimum criteria for selecting reinsurers, and unless otherwise approved by the Authority, use only Regulated Reinsurers.
• Insurers must document minimum criteria for selecting reinsurance brokers, and unless otherwise approved by the Authority, use only Regulated Brokers.
• Insurers must have procedures to monitor aggregate exposure to any one reinsurer or group of related reinsurers where such exposure is higher.
• Insurers must consider the liquidity impact of their reinsurance programme and take appropriate measures to manage related liquidity risk.
• Reinsurance contracts with a duration greater than 12 months or with automatic renewal must be reviewed annually and upon material changes to circumstances, underwriting strategy, or reinsurer financial health.
• Insurers must maintain sufficient documentation of reinsurance contracts to demonstrate genuine economic risk transfer.
• Where an insurer acts as a pass-through with no risk retention, it must document the business purpose and rationale in its business plan or other agreed record, and specify responsibilities/controls for managing risk.
• When setting reinsurer eligibility criteria, insurers must consider financial strength rating, jurisdiction, and expertise of the reinsurer.
• Where a broker is used to place reinsurance, insurers must perform due diligence on the broker's expertise, financial soundness, and potential conflicts of interest.
• Insurers must have processes and controls to clearly document the principal economic and coverage terms of reinsurance contracts.
• Insurers must document how reinsurance contracts will operate in the event of insolvency of itself or its reinsurer, if no insolvency clause is included in the contract.
• Where part of a wider group with a consolidated group-wide reinsurance programme, the insurer must be able to identify and demonstrate its own covered exposures.
• The Board of Directors must review the insurer's risk management and internal control systems implementing the reinsurance strategy at least annually.
• Insurers must have controls to identify material risks arising from mismatches between reinsurance contract terms and underlying policy terms.
• For catastrophe-exposed risks, insurers must document catastrophe exposure management policies/procedures, responsible parties for catastrophe modelling, and Board-approved risk appetite regarding retained versus reinsured catastrophe risk.

Applies to

insurers, registered Portfolio Insurance Companies (PICs)

Deadlines

• twelve (12) months following the date the measure is published in the Gazette: Effective date on which the Rules and Statement of Guidance on Reinsurance Arrangements come into force
• 27 May 2024: Effective date stated in the document title/metadata for this measure