Gibraltar
Detailed Assessment Report of Observance of the Insurance Core Principles

This paper examines Gibraltar’s Detailed Assessment Report of the Observance of the Insurance Core Principles. Foreign establishments operating in Gibraltar are all European Union (EU)-based and therefore covered by EU directives, including the directive on freedom of establishment. A key reason for the growth in this sector is the ability of firms licensed in Gibraltar to passport their services to EU member states. The domestic insurance market is, however, quite small with a population in the region of 30,000.

Abstract

This paper examines Gibraltar’s Detailed Assessment Report of the Observance of the Insurance Core Principles. Foreign establishments operating in Gibraltar are all European Union (EU)-based and therefore covered by EU directives, including the directive on freedom of establishment. A key reason for the growth in this sector is the ability of firms licensed in Gibraltar to passport their services to EU member states. The domestic insurance market is, however, quite small with a population in the region of 30,000.

I. IAIS Insurance Core Principles

General

1. This is an assessment of the observance of the core principles of the International Association of Insurance Supervisors (IAIS) in Gibraltar. The assessment was done as part of a Module 2 assessment in the context of the International Monetary Fund’s (IMF) offshore financial center assessment program. The assessment was conducted during a mission to Gibraltar during March 6–17, 2006, and thus reflects the practices and circumstances at that time. The assessment was conducted by William McCullough (consultant to the IMF).

2. Considerable assistance was provided by the Financial Services Commission (FSC) which is the insurance supervisory authority, and all persons in the industry with whom contact was made.

Information and methodology used for assessment

3. The assessment has been based on the IAIS insurance core principles and methodology as adopted by the IAIS in 2003. A principle is considered “observed” when all essential criteria are met without any significant deficiencies. A principle is considered “largely observed” whenever only minor shortcomings are found which do not raise any concerns about the authority’s ability or intent to achieve full observance with the principle within a prescribed period of time. A principle is considered “partly observed” whenever, despite progress, the shortcomings are sufficient to raise doubts about the authority’s ability to achieve observance. At the same time, reference was made to the IMF assessment 2002 and a recent review of Gibraltar that was based on a comparison with the standards applied by the FSA in the United Kingdom.

4. The principle relevant to insurance legislation for insurance companies is the Insurance Companies Ordinance and Regulations 1987; for insurance intermediaries and insurance managers it is the Financial Services Ordinance and Regulations 1989; European Union Directives are enacted through legislation. In addition, Insurance Guidance notes and newsletters are issued, all of which are available on the FSC web site.

5. During the assessment, discussions were held with an insurance manager, the manager of a domestic insurance company, an international insurance company, a domestic insurance agent, and an insurance company auditor. It was apparent that all service providers welcomed all initiatives taken by the FSC, which is held in high regard The current assessment was considered to be beneficial because positive findings would further enhance the reputation of Gibraltar as a financial center.

Institutional and macro prudential setting overview

6. The insurance industry has been growing in recent years. There were 50 licensed companies as of end-March 2006, up from 39 in 2004. Captive insurance companies are licensed but these represent a diminishing proportion of the market and represent 11 single-parent and include two protected cell companies (PCC), the latter a potential growth area of the market. The majority of the companies are managed by resident and licensed insurance managers and provide services in the United Kingdom. Foreign establishments operating in Gibraltar are all European Union (EU)-based and therefore covered by EU directives including the directive on freedom of establishment. A key reason for the growth in this sector is the ability of firms licensed in Gibraltar to passport their services to EU member states. Other reasons for the attractiveness of locating businesses in Gibraltar is less expensive head office costs, acceptable levels of required capital, speed of licensing, and the accessibility of the supervisory authority. The domestic insurance market is however quite small with a population in the region of 30,000. The legal and institutional framework follows the United Kingdom. The assessment has considered all areas of regulation and supervision in relation to integrity of operations, accountability, policyholder protection, the independency of the supervisory function and compliance with the principles set out by the IAIS.

7. Statistics are published on the FSC web site although those for the domestic market are not inclusive of domestic business carried out by all agents and brokers who place business outside of Gibraltar.

Principle-by-principle assessment

Table 1.

Detailed Assessment of Observance of the IAIS Insurance Core Principles

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Table 2.

Summary Observance of IAIS Insurance Core Principles

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Recommended action plan and authorities’ response to the assessment

Recommended action plan

Table 3.

Recommended Action Plan to Improve Observance of IAIS Insurance Core Principles

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Authorities’ response to the assessment

8. The FSC welcomes the findings of the IMF assessment of our compliance with IAIS standards. We appreciate the skill and attention given in conducting the review and have already actioned the recommendations made, which we fully accept. Whilst we are naturally delighted that our high level of compliance with the standards has been recognized, we consider that such standards are always subject to further development and we therefore remain committed to applying new standards as and when they evolve.

Gibraltar: Detailed Assessment Report of Observance of the Insurance Core Principles
Author: International Monetary Fund