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© 2011 International Monetary Fund

January 2011

IMF Country Report No. 11/2

This Detailed Assessment of Observation on Insurance Core Principles on Guernsey was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed in December, 2010. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Guernsey or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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International Monetary Fund

Washington, D.C.

Front Matter Page

Financial Sector Assessment Program Update

Guernsey

INSURANCE CORE PRINCIPLES

DETAILED ASSESSMENT OF OBSERVANCE

December 2010

INTERNATIONAL MONETARY FUND

MONETARY AND CAPITAL MARKETS DEPARTMENT

Contents

• Acronyms

• Executive Summary

• I. Assessment of Insurance Core Principles

  • A. Introduction and scope

  • B. Information and Methodology Used for Assessment

  • C. Overview—Institutional and Macro Prudential Setting

• II. Detailed Principle-by-Principle Assessment

• Tables

• 1. Breakdown of Licensed Insurers

• 2. Summary of Compliance with the Insurance Core Principles

• 3. Recommended Action Plan to Improve Observance of Insurance Core Principles

• Appendix

• 1.Status of Implementation of 2003 Recommendations

Acronyms

Executive Summary

Guernsey’s status as the largest international insurance center in Europe hinges on its progressive infrastructure and operational flexibility. The insurance industry in Guernsey consists of two distinct sectors: domestic and international. The small domestic sector caters the insurance needs of Guernsey residents and has been consolidating. The international sector represents more than 90 percent of the market and is dominated by captive insurers, who represent 60 percent of the sector. Guernsey continues to attract U.K. reinsurers, with about 50 percent of international business originating from the United Kingdom (UK). The captive market is sensitive to tax changes. Given the maturity of the captive market, continued growth is expected to come from reinsurance and other specialized insurance lines.

The insurance industry is more exposed to external risks than local conditions. The domestic and international sectors have different risk profiles. Domestic insurers are exposed to weather risks in Guernsey. The captive and international life insurers are susceptible to external market developments, e.g., global economic downturn, industry-specific events affecting the parents of captives, or changes in legislative and political climates in the insurers’ home markets. Although insurers generally adopt prudent investment strategies, their performances were affected by the global financial crisis.

Guernsey updates its regulatory regime continually and has implemented all the recommendations arising from the 2003 Offshore Financial Center (OFC) assessment. The Guernsey Financial Services Association (GFSC) adopts a risk-based and proportionate approach in supervising its large population of insurers, which promotes efficient allocation of regulatory resources. The GFSC gives licenses to captive insurers individually and adopts consistent prudential regulation for both captive and commercial insurers. On-going supervision of captives is exercised through insurance managers. The GFSC has adequate powers and well-documented policies, procedures, and customized checklists to ensure consistency in supervisory decisions. The introduction of the Own Solvency Capital Assessment (OSCA) by insurers has been well received by the industry. The regulatory frameworks for corporate governance, risk management, and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) are comprehensive and robust.

While the updated regulatory framework has a high level of observance with the Insurance Core Principles (ICPs), there is scope for enhancements. Given the dominance of the international sector, the GFSC has a keen interest in establishing effective cooperation arrangements with relevant home/host supervisors in respect of recognized insurers without a physical presence, and to protect foreign policyholders of international life insurers. The GFSC should also consider expanding its range of enforcement powers and how best to implement the public disclosure standards established by the International Association of Insurance Supervisors (IAIS). The mission advised the GFSC to continually assess the practical implementation of OSCA, including establishing criteria on the use of internal models.