GUERNSEY INSURANCE FORUM 12 November 2008 Diane Colton - Director of Insurance Guernsey Financial Services Commission

Captives – The Supervisory Landscape Outline of Presentation Guernsey’s insurance supervisory framework Developments for captive supervisors International influences

Guernsey’s Insurance Supervisory Framework Protection of public interest & reputation of Guernsey Risk based regulation Size, nature & complexity Enshrinement of IAIS Core Principles Relationship driven

The Role of the Regulator Supervisory Techniques Prospective: - Licence application - Changes in - Ownership - Directors - Business plan Retrospective: - Annual returns. - On-site visits Prospective and retrospective.

Prospective Approach Licence Application Background & history Rationale for captive set up Ownership Programme structure – detailed Financials Assessment Committee

Prospective Approach Approvals or Notification? Ownership Directors Business plan – Material changes

Retrospective Approach Annual Return - Contents Audited accounts/auditor’s management letter Management accounts for PCC cells Declaration of General Representative Summary of claims paid & outstanding

Retrospective Approach Annual Return - Contents Business Plan – spreadsheet and narrative Schedule of bank deposits & investments Corporate Governance Code compliance Actuarial report where applicable

Retrospective Approach Annual Return - Review Risk matrix Directors and auditors statements Margin of solvency Approved assets Spreadsheet business plan Reliance on reinsurance

Retrospective Approach On-site Visits 3-year rolling programme Management procedures Corporate Governance Systems and controls Sample-basis review of licensees Anti-money laundering

Recent Changes Legislation Revised anti-money laundering regulations – December 2007 Amendments to Insurance Law – March 2008 New Company Law – July 2008 Revised Corporate Governance Code – September 2008 ORSA – September 2008

Current Issues Own Risk and Solvency Assessment Minimum Solvency Capital Requirement - MSCR Own Solvency Capital Assessment - OSCA MSCR is the statutory minimum OSCA is based on assessment of various risk factors Required for new business and year ends from September 2008

Captives – The Supervisory Landscape Developments for Captive Supervisors

Guidance Paper on the regulation and supervision of captives International Association of Insurance Supervisors (IAIS)

Founded in member jurisdictions. The global standards setting body for insurance supervision. Guernsey represents the Offshore Group of Insurance Supervisors (OGIS) on Executive Committee.

International Association of Insurance Supervisors (IAIS) Guernsey is also a member of a number of the IAIS subcommittees – including: – Technical – Solvency – Accounting – Reinsurance – Corporate Governance – Insurance Groups and Cross Sectoral Issues – Chair of Market Conduct and Insurance Fraud

Recognition of the need to increase knowledge of captive insurers within the IAIS and particularly amongst supervisors in non-captive jurisdictions. IAIS Captive Issues Paper developed by Guernsey was adopted by the IAIS AGM in October Captive Guidance Paper drafting group formed January 2007, reporting to the IAIS Reinsurance Subcommittee. Development of Captive Guidance Paper

Membership of the Drafting Group Chaired by Diane Colton, Guernsey Onshore: France, Germany, Ireland, Luxembourg, United Kingdom, United States – South Carolina, Utah, Delaware Offshore: Bermuda, BVI, Cayman, Gibraltar, Guernsey, Isle of Man, Jersey, Singapore, United Arab Emirates

Structure of the Paper Paper structured to follow the 28 IAIS Insurance Core Principles. Treatment of captives where different approach to commercial insurers is required.

Highlights of the Paper Definition of captive insurance companies. Licensing / Board of Directors / owners etc On-site visits Confidentiality and disclosure Unrelated party business

Highlights of the Paper Direct writing compulsory classes of liability business with potential 3 rd party claimants Fronting arrangements Role played by insurance managers Protected Cell Companies

Captive Guidance Paper Approved at IAIS AGM – October 2008

Captives – The Supervisory Landscape International Influences

Captives – The Supervisory Landscape International Influences IMF Solvency II IAIS Global financial crisis

Solvency II European Commission meetings Mutual recognition status 2009 visit

Structure of IAIS Committees Executive Committee Technical Committee Solvency Subcommittee Accounting Subcommittee Insurance Contracts Subcommittee Reinsurance Subcommittee Governance & Compliance Subcommittee Market Conduct Subcommittee Insurance Groups & Cross-Sectoral Issues Reinsurance Transparency Sub Group Mutual Recognition Sub Group Microinsurance Working Group Insurance Fraud Working Group

Global Financial Crisis Financial Stability Forum AIG Guernsey insurers IAIS

John McFall: “It is clear that many investors threw caution to the wind when making investment decisions and were seduced into investing in products they did not understand by the alluring prospect of high returns. Many investors were blind to the risks involved, equated complexity with security and were engaged in a bout of collective madness. Unfortunately you cannot regulate against stupidity”.

Captives – The Supervisory Landscape Questions?