Consultation Paper on Rules for Special Purpose Insurers (2016-10-14)

Summary

This is a GFSC consultation paper proposing new rules to create a distinct Special Purpose Insurer (SPI) class under the Insurance Business (Bailiwick of Guernsey) Law 2002, aimed at attracting insurance linked securities business such as collateralised catastrophe reinsurance. It also proposes a related amendment to the Insurance Business (Solvency) Rules 2015. The Commission is inviting comments and the rules are not yet in force.

• New SPI class: Defines a Special Purpose Insurer as a fully funded insurer or cell financed via subordinated debt/equity issuance or another approved mechanism, covering business such as collateralised reinsurance, catastrophe bonds, side-cars and life based securitisations.
• Full collateralisation: SPIs must hold assets equal to or exceeding their aggregate maximum risk exposure at all times, with proceeds fully paid-in or backed by contingent assets from a counterparty rated at least A- by an Acceptable Rating Agency.
• Capital raising restrictions: SPIs may only raise underwriting capital from Qualified Investors, via listing on a licensed or recognised investment exchange, or by other Commission approved means; permitted contingent assets are limited to Type 1 letters of credit, reinsurance and partly paid shares.
• Cell consent process: Protected cell companies may apply for a single consent covering the formation of further SPI cells without separate applications, subject to conditions including business plan compliance, restricted ownership, and notification within seven days of the effective date of insurance.
• Application notification: Applicants for a new insurer licence or new cell meeting the SPI definition must notify the Commission of SPI status within the application and provide supporting information.
• Signatory requirement: At least one Guernsey resident signatory must authorise all bank payments made by an SPI.
• Solvency Rules amendment: Proposes amending Category 6 of the Insurance Business (Solvency) Rules 2015 to expressly include SPIs, exempting them from Minimum Capital Requirement, Prescribed Capital Requirement and Own Risk and Solvency Assessment obligations.

If adopted following consultation, the Rules are proposed to take effect on 1 January 2017. Interested parties were invited to submit comments to the Commission by 11 November 2016.

Key obligations

• If adopted, applicants for a new insurer licence or new cell meeting the SPI definition must notify the Commission of SPI status within the application and provide information demonstrating compliance with the Rules.
• If adopted, SPIs must at all times hold assets equal to or exceeding their aggregate maximum risk exposure and be able to pay liabilities as they fall due.
• If adopted, SPIs may only raise underwriting capital from Qualified Investors, via a licensed or recognised investment exchange listing, or via other Commission approved means.
• If adopted, where a single consent for further SPI cells has been granted, the General Representative must notify the Commission within seven calendar days of the effective date of insurance and provide a completed application form, narrative business plan, relevant fee and confirmation of the effective date of insurance.
• If adopted, all bank payments made by an SPI must be authorised by at least one Guernsey resident signatory.
• Interested parties wishing to comment on the proposals must submit responses to the Commission by 11 November 2016.

Applies to

insurers, Special Purpose Insurers, protected cell companies, applicants for insurance business licences

Deadlines

• 11 November 2016: Deadline for submitting comments on the consultation paper to the Commission.
• 1 January 2017: Proposed date on which the Insurance Business (Special Purpose Insurer) Rules 2016 would come into force, if approved.
• 7 calendar days: Proposed requirement for the General Representative of a Special Purpose Insurer to notify the Commission after the effective date of insurance for a further cell formed under a single consent.