Guidance Note for Licensed Insurers on Category 6 – Non-Special Purpose Insurers

Summary

This guidance note from the Guernsey Financial Services Commission (GFSC) explains how it will assess licensed insurers or cells seeking classification as Category 6 Non-Special Purpose Insurers (NSPIs) under the Insurance Business (Solvency) Rules 2021. Category 6 insurers, which include both Special Purpose Insurers (SPIs) and NSPIs, fall outside the Commission's risk-based solvency requirement, so the Commission sets out criteria to ensure such insurers' risk profiles genuinely justify that exemption.

• Ownership scrutiny: The Commission will carefully scrutinise applications proposing individual direct owners of a Category 6 cell; the application must explain the rationale for the ownership structure.
• Capital requirement: The Commission may require up to £100,000 of paid up share capital where a fully funded structure involves high basis risk; the application should address basis risk, mitigation measures, and include a contingency funding plan for orderly wind down.
• Fully Funded requirement: The insurer or cell must be Fully Funded at all times: assets must always meet or exceed aggregate maximum risk exposure and be able to pay liabilities as they fall due; it may only assume obligations necessary to its agreed business plan; and where multiple insurance contracts exist, each must independently satisfy the Fully Funded requirement.

The guidance is applied retroactively from 31 July 2018, but does not affect Category 6 categorisations that the Commission had already agreed in writing before that date. Insurers or cells that do not meet the criteria in this guidance will not be agreed by the Commission as falling under Category 6.

Key obligations

• Applications proposing individual direct owners of a Category 6 cell must include an explanation of the rationale for the ownership structure
• Where required by the Commission due to high basis risk, applicants must provide up to £100,000 of paid up share capital and address basis risk, mitigation measures, and a contingency funding plan for orderly wind down
• A Category 6 insurer or cell must at all times hold assets whose value equals or exceeds its aggregate maximum risk exposure and be able to pay liabilities as they fall due
• A Category 6 insurer or cell must only enter into contracts or assume obligations or contingent liabilities solely necessary to give effect to its agreed business plan
• Where more than one insurance contract is in place, each contract must independently satisfy the Fully Funded requirement

Applies to

licensed insurers, Category 6 insurers, Special Purpose Insurers (SPIs), Non-Special Purpose Insurers (NSPIs), cells of a Protected Cell Company

Deadlines

• 31 July 2018: This guidance is applied from this date, except it does not apply to Category 6 insurers or cells whose categorisation was agreed in writing by the Commission prior to that date