Insurance Business

Insurance Legislation

Insurance business in Guernsey is regulated pursuant to the provisions of the Insurance Business (Guernsey) Law 1986. The law governs the conduct of insurance business. The role of the regulator is given to the Guernsey Financial Services Commission which monitors insurance business and insurers through its insurance division. Different categories of insurance are subject to different degrees of control or supervision.

The control of borrowing ordinances govern the raising of monies by a company by means of a share issue. In addition therefore to Guernsey Financial Services approval of an entity as an insurer in Guernsey it is necessary for a company to have consent issued under the control of borrowing ordinances.

In addition to specific legislation, insurers are expected to comply with general principles of good conduct. A statement of the general principles is produced by the Commission and can be found in the information packs issued by the Commission.

Legal Requirements for Establishment

As is stated above authorisation is issued by Guernsey Financial Services Commission to a new company wishing to undertake insurance business in or from the Island. Furthermore consent is required under Control of Borrowing Legislation and this consent is given by the States Advisory and Finance Committee, although with the benefit of advice from the Commission.

In order to obtain authorisation a company must meet the requirements of the law regarding the minimum level of capitalisation and solvency. The levels stated in the law differ depending upon the type of insurance business to be undertaken. The requirements in the law also represent the minimum levels. The Commission may seek higher levels if appropriate. A summary of the levels is as follows:

Minimum Share Capital (paid up): £100,000 or irrevocable letter of credit.

Margin of Solvency:

18% first £5million net premium income general business

16% above £5million

£50,000 or 2.5% value long-term fund for long-term business

general business 75% assets approved

long-term business 25% assets approved.

Business Plan

In addition to meeting the requirements of the laws in connection with capitalisation, an insurer wishing to conduct business in Guernsey must produce to the Financial Services Commission a business plan. The commission endeavours to analyse the risk taken on board by a particular company so as to satisfy itself that the company has a viable business plan. No matter what the minimum requirements might be stated to be, the commission can impose further conditions having reviewed the business plan.

An insurer operating in or from Guernsey must also have a General Representative who is either a resident executive director and a fit and proper person or an authorised insurance manager.

Other Considerations

In order to protect against the ever present threat of attempts to launder money, it is usual to incorporate in the fund documentation provisions requiring disclosure of the manner in which participating shares are to be held. Application forms are designed to make this clear.

The Channel Island Stock Exchange was launched last year. In addition to the provisions of the relevant class rules and the requirements of the Guernsey Financial Services Commission, the Exchange (CISX) has its own Listing Rules. If it is intended that an insurance vehicle should be listed on the Exchange then the relevant provisions of the rules must be incorporated in the principal documents of the vehicle.

Application Procedure

Although not necessary it is usual to make an advance application to the Guernsey Financial Services Commission for approval/registration. The most important part of this process concerns the Business Plan. The Commission examines the plan to assess whether it is prima facie viable.

An application must identify the parties who are to be involved in the business operation. The Commission is concerned to ensure that the persons involved are fit persons.

It should be remembered that it is not possible for an authorisation to be granted for the company that will not exist. The consent issued by the Financial Services Commission in connection with the conduct of insurance business and the consent to the raising of share capital to not amount to the automatic incorporation of the company. Steps must still be taken to see the company formed.

Authorisation is issued by the Commission and the insurer is registered. The registration is a matter of public record.