Rules for Special Purpose Insurers (October 2016)

Summary

This document combines the October 2016 consultation paper and the subsequent December 2016 feedback paper on the Insurance Business (Special Purpose Insurer) Rules 2016, together with the final text of those Rules and a related amendment to the Insurance Business (Solvency) Rules 2015. It creates a distinct Special Purpose Insurer (SPI) class of insurer intended to facilitate insurance linked securities business such as collateralised catastrophe reinsurance, cat bonds, side cars and life based securitisations in Guernsey.

• Full collateralisation: An SPI must be a Fully Funded Special Purpose Insurer, holding assets at all times equal to or exceeding its aggregate maximum risk exposure, funded via subordinated debt/equity issuance or another Commission approved financing mechanism.
• Contingent assets: Where capital is contingent (letters of credit, reinsurance, partly paid shares), the finance provider must generally hold a rating of at least A- from an Acceptable Rating Agency, subject to Commission discretion.
• Capital sources restricted: SPIs may only raise underwriting capital from Qualified Investors, via listing on a licensed or recognised investment exchange, or via other means approved in writing by the Commission.
• Notification of SPI status: An applicant for a new insurer licence or a new cell meeting the SPI definition must notify the Commission of its SPI status in the application and provide information demonstrating compliance with the Rules and the Law.
• Single consent for further cells: A protected cell company may apply for a single Commission consent covering formation of further SPI cells without separate applications, subject to conditions including notifying the Commission and submitting an application form, business plan, fee and confirmation of the effective date of insurance within seven calendar days of the cell's effective date of insurance.
• Bank payment authorisation: All bank payments made by an SPI require authorisation by at least one Guernsey resident signatory.
• Solvency Rules amendment: The Insurance Business (Solvency) Rules 2015 are amended so that SPIs fall within Category 6, meaning they are not required to maintain the Minimum Capital Requirement, Prescribed Capital Requirement, or to conduct an Own Risk and Solvency Assessment.

The consultation closed on 11 November 2016; the feedback paper confirms the final Rules were adopted with minor drafting clarifications and states they came into force on 1 January 2017, alongside the corresponding amendment to the Solvency Rules. Note that the overall status of this combined document in the source system is recorded as unknown, so readers should verify current applicability against the Commission's current rulebook.

Key obligations

• An SPI must at all times hold assets equal to or exceeding its aggregate maximum risk exposure and be able to pay amounts due (fully funded requirement).
• Contingent capital providers (other than fully paid-in capital) must generally hold a minimum A- rating from an Acceptable Rating Agency as of the date of application.
• SPIs may only raise underwriting capital from Qualified Investors, via listing on a licensed/recognised investment exchange, or via Commission-approved alternative means.
• An applicant for a new insurer licence or new cell meeting the SPI definition must notify the Commission of SPI status and provide compliance information within the application.
• For further cells formed under a single consent, the General Representative must notify the Commission and submit a completed application form, narrative business plan, relevant fee, and confirmation of effective date of insurance within seven calendar days of the cell's effective date of insurance.
• All bank payments made by an SPI must be authorised by at least one Guernsey resident signatory.

Applies to

Special Purpose Insurers, Insurers, Protected cell companies, Insurance Managers

Deadlines

• 11 November 2016: Deadline for submitting comments on the consultation paper (now closed).
• 1 January 2017: Date the Insurance Business (Special Purpose Insurer) Rules 2016 and the related amendment to the Insurance Business (Solvency) Rules 2015 were stated to come into force.
• seven calendar days after the effective date of insurance: Deadline for the General Representative of an SPI to notify the Commission and provide the application form, business plan, fee and confirmation of effective date of insurance when forming a further cell under a single consent.