Guidance Note on Supervisory Ladder of Intervention

Summary

This guidance note sets out the Guernsey Financial Services Commission's supervisory ladder of intervention for licensed insurers, describing how the GFSC calibrates its regulatory response according to an insurer's capital resources relative to its Prescribed Capital Requirement (PCR) and Minimum Capital Requirement (MCR). It moves through five stages, from normal risk-based supervision to insolvency-related intervention, with escalating obligations and regulatory actions at each stage.

• Normal Operations: Capital resources above 105% of PCR (135% for retail general insurers) trigger standard risk-based supervision, licensing scrutiny, and routine on-site examinations.
• Stage 1 - Early Warning: Capital between 100% and 105% of PCR (100%-135% for retail general insurers) prompts GFSC discussion of concerns and a collaborative request for remedial measures, monitored by the GFSC.
• Stage 2 - Risk to financial viability or solvency: Capital between 50% and 100% of PCR requires the licensee to submit and implement a recovery plan, may trigger expanded or more frequent examinations, external inspector or independent actuary reviews at the licensee's expense, business restrictions, and inclusion on a regulatory watchlist.
• Stage 3 - Future financial viability in serious doubt: Capital between MCR and 50% of PCR may lead to modified capital requirements, thematic on-site examinations (at the licensee's cost), and removal or replacement of directors, officers or controllers.
• Stage 4 - Licensee not viable or insolvency imminent: Capital below MCR triggers notification of intended intervention measures, required immediate solvency-restoring actions (capital increase or portfolio transfer), new business restrictions, activation of the GFSC's contingency plan, notification of other regulators, and potential court application to wind up or place the licensee into administration.

The note is descriptive of the GFSC's supervisory approach rather than a standalone set of new rules, but it identifies specific actions licensees must take once capital thresholds are breached, particularly around recovery plans, cost-bearing for external reviews, and immediate solvency-restoring measures.

Key obligations

• At Stage 1 (capital resources between 100% and 105% of PCR, or 100%-135% for retail general insurers), the licensee must collaborate with the GFSC and implement measures requested to rectify identified deficiencies.
• At Stage 2 (capital resources between 50% and 100% of PCR), the licensee must submit and implement a recovery plan designed to return it to Normal Operations within a defined period of the underfunding being detected.
• At Stage 2, the licensee must bear the cost of any external inspector examination or independent actuary review required by the GFCS.
• At Stage 2, the licensee may be subject to business restrictions (e.g. on dividends, capital repayments, new business, investments) imposed as licence conditions.
• At Stage 3 (capital resources between MCR and 50% of PCR), the licensee must meet the costs of thematic on-site examinations and may face modified capital requirements or removal/replacement of directors, officers or controllers.
• At Stage 4 (capital resources below MCR), the licensee must undertake immediate actions to restore solvency, such as increasing capital resources, reducing required capital, or transferring all or part of its insurance portfolio.

Applies to

licensed insurers, retail general insurers