ISLE OF MAN

AN EXCITING MILESTONE

The Isle of Man is recognised as a center for captive insurance business—partly because of its forward-thinking approach to regulation. Ross Dennett, of Thomas Miller (Isle of Man), offers an update on what to expect in 2022.

“The authority intends to engage further with insurers and insurance managers to progress the re-authorisation exercise.” ROSS DENNETT, THOMAS MILLER (ISLE OF MAN)

The Isle of Man is recognised as one of the leading centers for captive insurance business. It has a strong reputation for attracting high quality captive business, offering a broad range of captive management services, ranging from small local operations to representatives of the world’s leading captive management groups.

Captives are now, more than ever before, an integral part of the risk management strategy of companies, and continue to offer one of the most effective and widely used mechanisms for risk treatment.

2022 represents an exciting milestone for the Isle of Man captive insurance sector.

Not only are there numerous opportunities arising from the long overdue hardened insurance market, which are leading to new captive formations, but the timing could not be better as the Roadmap for updating the Isle of Man’s regulatory framework for insurance business culminates in the effective implementation of the final aspects on June 30, 2022.

Key areas of the new framework in this regard are:

  1. A more fully-articulated, fit for purpose, risk-based capital and solvency regime;
  2. Enhanced and more automated regulatory reporting; and
  3. Updated corporate governance requirements.

The island’s reputation as a well-regulated and internationally responsible jurisdiction is of vital importance to maintain consumer confidence and therefore market share and the background to the Roadmap originates from the International Insurance Core Principles (ICPs). These are standards applicable to effective insurance supervision and are issued by the International Association of Insurance Supervisors (IAIS).

The IAIS substantially updated its ICPs in October 2011 in response to developments in insurance markets and supervision since they were last reviewed in 2003. One of the most significant developments over this period was, of course, the global economic crisis which started to manifest itself in 2007.

As such, the ICPs emphasise the need for insurers and regulators to understand the nature and degree of risks assumed and provide for them appropriately, thus addressing financial stability concerns with the ultimate aim of protecting the interests of policyholders, beneficiaries and claimants.

The October 2011 update prompted a comprehensive review of the Isle of Man’s existing regulatory framework for insurance, whereby the Isle of Man Financial Services Authority carried out a gap analysis to compare the updated ICP provisions with the Island’s current framework for the regulation and supervision of insurance business, including general insurance intermediation.

Given the degree to which standards have developed since 2003, it is unsurprising that the Isle of Man (like many jurisdictions) identified a number of areas where its framework would need to be amended to maintain its policy of a high level of observance with the ICPs.

Throughout the process the authority has worked extensively with industry to ensure that the finalised framework is relevant, appropriate, practical and fit for purpose.

An important USP within the new framework is the inclusion of a new class 12 criterion designed specifically for “pure” captives. In broad terms this class enables an insurer to qualify for a reduced or simplified level of regulation under such class 12 authorisation. In simple terms a “pure” captive is a subsidiary company formed to insure or reinsure the risks of its parent and/or associated group companies.

New legislative framework

The key elements of updated insurance regulatory framework, will include:

1. Insurance Regulations 2021;

2. Corporate Governance Code of Practice for Insurers 2021; and

3. Insurance (Non Long-Term Business Valuation and Solvency) Regulations 2021. The legislation will come into operation on June 30, 2022, which represents a postponement of six months. This deferral was deemed by the authority to be appropriate, based on responses to the recent preparedness exercises carried out by the authority, and the fact that the class 12 criterion had been updated further.

The deferral will enable insurers and insurance managers to spend time with the framework in its final state prior to implementation, during which they can finalise their compliance preparations.

During the time to implementation, the authority intends to engage further with insurers and insurance managers to progress the re-authorisation exercise (where class 12 is a factor) and to assist with any technical queries. Further updates on preparedness early this year are expected.

Under the new Corporate Governance Code there will be a requirement to produce an Own Risk Solvency Assessment annually. The nature and format should be relevant and proportionate to the complexity of the company.

For further information visit: www.captive.im

Ross Dennett is a chairman of Thomas Miller (Isle of Man).

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