Feedback Paper following consultation on the Rules for Retail General Insurers (February 2024)

Summary

This is the Guernsey Financial Services Commission's Feedback Paper responding to its March 2023 consultation on new Rules for Retail General Insurers (RGIs). It summarises the 19 responses received, confirms which proposals have been adopted, amended or dropped, and sets out the final changes to the Insurance Business Rules that accompany this paper.

• Scope: Where there is doubt whether an insurer is retail or wholesale, it must be treated as a retail general insurer; the presumption-of-retail approach proposed in the consultation is adopted.
• Governance: All board members must attend at least one board meeting in the Bailiwick in person each calendar year (not necessarily the same meeting); RGIs must have two Independent Non-Executive Directors (INEDs) instead of one, with the transition period extended from six to twelve months; a cooling-off period (reduced from three to two years) applies before a former insurance manager employee can become an INED; INED independence must be documented after nine years of service and reviewed annually thereafter.
• Audit: RGIs must maintain an internal audit function (which may be outsourced) independent of the general representative or insurance manager; the annual reporting requirement was softened so the board itself determines reporting frequency rather than a mandated annual report.
• Capital and solvency: Capital floor rises from £100,000 to £250,000 and now applies to PCC cells; the Prescribed Capital Ratio minimum rises from 105% to 135%; Own Risk Solvency Assessment exemptions are removed; regulatory solvency reporting moves from annual to half-yearly; minimum re-insurance requirements and differentiated fees for RGIs are introduced.
• Systems and controls: Stronger controls over third-party funds, more specific public disclosure requirements, semi-annual board consideration of complaints, and bespoke regulatory reporting requirements are confirmed (the proposed requirement for boards to obtain specific legal advice before selling into the UK was dropped).
• Insurance managers: Insurance managers must ensure they have adequate skills to service RGIs; the minimum capital requirement for insurance managers servicing RGIs rises from £25,000 to £100,000; managers must assess new and existing clients to determine whether they service retail customers, record findings, and carry out a gap analysis; where a client is found to be an unrecognised RGI, the manager must act to protect policyholders and notify the Commission.

The final Insurance Business Rules incorporating these changes are published alongside this feedback paper. Existing INEDs already approved by the Commission remain approved once the new rules take effect, though they are encouraged to consider adopting a more critical stance in line with the strengthened independence expectations.

Key obligations

• All directors of a retail general insurer must attend at least one board meeting in the Bailiwick in person each calendar year.
• Retail general insurers must have at least two Independent Non-Executive Directors (INEDs), within an extended twelve month transition period.
• A person who worked for an insurance manager within the previous two years cannot be classed as an INED for an insurer managed by that insurance manager.
• Boards of retail general insurers must document whether an INED remains independent after nine years of service, and review this annually thereafter.
• Retail general insurers must maintain an internal audit function, independent of the general representative or insurance manager, and the board must determine reporting frequency to it.
• Retail general insurers' capital floor is set at £250,000, including for PCC cells, and the Prescribed Capital Ratio minimum is 135%.
• Retail general insurers must submit regulatory solvency reporting half-yearly instead of annually and cannot rely on Own Risk Solvency Assessment exemptions.
• Retail general insurers must meet minimum re-insurance requirements and pay differentiated fees applicable to RGIs.
• Boards of retail general insurers must consider complaints at least semi-annually.
• Insurance managers servicing retail general insurers must maintain a minimum capital requirement of £100,000.
• Licensed insurance managers must assess each new and existing client to determine whether it services retail customers, record the reasoning, and carry out a gap analysis in accordance with Schedule 2, updating policies and procedures for identified retail insurers within six months of the rule coming into force.
• Where an insurance manager identifies a client offering general retail insurance that is not recognised as such by that insurer, the manager must take steps to protect policyholders and notify the Commission.

Applies to

retail general insurers, wholesale general insurers, insurance managers, licensed insurers, authorised insurance representatives

Deadlines

• twelve months: Transition period for retail general insurers to appoint a second Independent Non-Executive Director (extended from six months).
• within six months of this rule coming into force: Insurance managers must complete client assessments for all existing clients and update policies and procedures where clients are identified as general retail insurers.