Insurance Business (Solvency) Rules and Guidance, 2021 (Consolidated Version)

Summary

This is the consolidated version of the Insurance Business (Solvency) Rules and Guidance, 2021, made by the Guernsey Financial Services Commission under the Insurance Business (Bailiwick of Guernsey) Law, 2002. It sets out the capital adequacy, solvency calculation, valuation, investment, risk management and Own Risk Solvency Assessment (ORSA) framework that licensed insurers in Guernsey must follow, replacing the 2015 Solvency Rules. Amendments made in 2023 and 2024 (including new retail general insurance capital floor provisions and a Green Assets schedule) are incorporated into this text.

• Scope: Applies to all licensed insurers, classified by the Commission into six categories: Commercial Life Insurers, Commercial Life Reinsurers, Commercial General Insurers, Commercial General Reinsurers, Captive (Re)insurers, and Special Purpose Entities, including Protected Cell Companies (PCCs) at cell and core level.
• Capital adequacy: Insurers must hold regulatory capital resources at all times at or above both a Minimum Capital Requirement (MCR) and a Prescribed Capital Requirement (PCR), and maintain paid up share capital and shareholders funds relative to a prescribed Capital Floor.
• MCR and PCR calculation: Sets out formulae for MCR (general and life business) and PCR (standard formula covering market, default, underwriting and catastrophe risk with correlation matrices), plus criteria for using internal models instead of the standard formula.
• PCC capital allocation: Prescribes how notional regulatory capital resources, MCR and PCR are calculated and allocated between a PCC's cells and its core, including a specific £250,000 capital floor for cells carrying on retail general insurance business.
• Valuation and investment: Requires a regulatory balance sheet based on economic valuation with permitted basis adjustments, and sets investment rules including optional treatment of Green Assets meeting Commission-endorsed criteria.
• Risk management and ORSA: Requires licensed insurers to maintain a risk management framework and to carry out an Own Risk Solvency Assessment.

The Rules also include transitional arrangements giving licensees three years from the commencement of the 2024 amendments to implement new MCR and regulatory capital resources requirements introduced by those amendments.

Key obligations

• A licensed insurer must at all times hold regulatory capital resources greater than or equal to its Minimum Capital Requirement (MCR).
• A licensed insurer must at all times hold regulatory capital resources greater than or equal to its Prescribed Capital Requirement (PCR).
• A licensed insurer that is a company must maintain paid up share capital of not less than the Capital Floor and minimum shareholders' funds of at least 75% of the Capital Floor.
• A licensed insurer must calculate its PCR and report the result to the Commission at least once a year, submitted as part of its annual return using the Commission's standard format where the Guernsey standard formula is used.
• A licensed insurer must monitor its regulatory capital resources and MCR on an ongoing basis.
• If a licensed insurer's risk profile deviates significantly from that used in its last reported PCR, it must recalculate the PCR without delay and report it to the Commission.
• A licensed insurer must recalculate its PCR if requested to do so by the Commission.
• For PCCs providing retail general insurance, the notional regulatory capital resources for each such cell must be at least £250,000 or currency equivalent.
• Licensees must implement the additional MCR requirement under rule 2.1 and the additional regulatory capital resources requirement under rule 2.3(2A) within three years of the 2024 Amendment Rules coming into force.
• Licensed insurers must maintain a risk management framework and carry out an Own Risk Solvency Assessment as required under Part 8.
• An insurer applying the Green Assets provisions may only use one chosen set of green criteria for all its investments at any time and must apply it consistently.

Applies to

licensed insurers, long-term (life) insurers and reinsurers, general insurers and reinsurers, captive (re)insurers, special purpose insurers/entities, protected cell companies (PCCs)

Deadlines

• at least once a year: Licensed insurer must calculate its PCR and report the result to the Commission, submitted as part of its annual return.
• three years from the date the Insurance Business (Solvency) (Amendment) Rules, 2024 come into force: Deadline for licensees to implement the additional MCR requirement set out at rule 2.1.
• three years from the date the Insurance Business (Solvency) (Amendment) Rules, 2024 come into force: Deadline for licensees to implement the additional regulatory capital resources requirements set out at rule 2.3(2A).

Related documents

• This document is made under Insurance Business (Bailiwick of Guernsey) Law, 2002