Comment on the Feedback Paper following consultation on the Rules for Retail General Insurers

In March 2023, the Guernsey Financial Services Commission published its consultation on proposed updates to its Rules for Retail General Insurers. Following a review of those responses from industry, the GFSC have issued a summary of those responses and concluded the updates that are to be made to The Insurance Business Rules and Guidance, 2021 and The Insurance Managers Rules and Guidance, 2021(“Rules”). The highlights of the changes are summarised below: 
 
Scope 

Previously it may have been unclear if an insurer would be classified as a Retail General Insurer (“RGI”). The Rules provide a definition of retail customer and they have now been extended to explain that when it is not clear that an individual qualifies as retail then they must be treated as retail. As such the insurer must class itself as an RGI rather than a wholesale general insurer. 

Governance 

The changes relating to Governance focus on the operation and composition of the Board and internal/external audit. 

  • All board members must physically attend at least one board meeting in Guernsey per calendar year. Although it is noted that directors may not all attend in person at the same meeting. 
  • The Board must have 2 independent Non-Executive Directors (“iNED”). RGIs have 6 months to comply.
  • A former employee of the insurance manager cannot be considered an iNED for at least 2 years after leaving their employer. This only relates to new appointments and is not retrospective. 
  • The continued independence of an iNED should be reviewed annually after 9 years of being a director and the rationale on how the Board reached its conclusion should be documented. 
  • There should be an internal audit conducted at a frequency and scope determined by the Board by a party which has sufficient knowledge and experience to perform the function. The audit should be undertaken at least every 3 years. This is supported by the Finance Sector Code of Corporate Governance principle A:15 which requires insurers to have an appropriate and effective internal audit function which provide independent assurance on governance, risk management and internal controls. The function may be outsourced to an independent third party or to a group internal audit function. 
  • The Board must ensure that the external auditor has the requisite qualification, skills, knowledge and experience to conduct an external audit of an RGI. The Board must document the reasons why they believe that to be the case and ensure their decision is not driven by price alone.

The financial changes focus on the capital and solvency requirements of an RGI. 

  • The Capital floor (minimum paid up share capital) as part of the Regulatory Capital Resources which must be maintained has risen from £100,000 to £250,000. RGIs have 3 years to meet this requirement and applies to limited companies and protected cell companies. 
  • The Prescribed Capital Ratio requirement has increased from 105% to 135%. RGIs have 2 years to meet this requirement. 
  • The exemptions available for Own Risk Solvency Assessment have been removed. 
  • Regulatory Solvency Reporting have increased from annually to twice a year with the requirement to make submission within 2 months. 
  • Minimum requirements are to be applied for re-insurance purposes with the RGI having to meet certain criteria relating to the reinsurer’s regulatory authority’s jurisdiction and credit rating. 
  • With effect from 1 January 2025, there will be differentiated fees for RGI compared to the wholesale insurance market. 

Systems & Controls 

  • Controls over third party funds must be appropriate and robust with the arrangements being documented contractually with an annual review of their purpose by the Board. Payments and transfers to third parties should be approved by a Guernsey based director or manager.
  • The GFSC has identified shortcomings in the public disclosure of information by RGIs. Although there are exemptions, very few qualify for those exemptions and many RGIs were not complying with the existing Rules in place. The GFSC has removed the exemptions for all RGIs. A derogation from the GFSC can be obtained on a case-by-case basis, but the Rules now require every RGI to disclose all marketing materials and communications with customers and potential customers on a website, either their own or an appropriate group website. 
  • All complaints made by customers must be considered by the Board or a Committee of the Board reporting to the Board of the RGI at least once every 6 months and those discussions and outcomes documented.


Every RGI must now provide conduct data on the specified areas below to the GFSC on an annual basis: 

  1. Underwriting
  2. Persistency 
  3. Claims 
  4. Location of policyholders 
  5. Intermediaries 
  6. Outsourcing 
  7. Reinsurance
  8. Complaints 

Insurance Managers 

Insurance managers must ensure they have the adequate resources, knowledge and skills to service an RGI. The GFSC may ask to review the consideration made. The minimum capital requirement has increased from £25,000 to £100,000.

Next steps for Retail General Insurers 

The above is a summary of the main changes to the Rules, however all insurers should familiarise themselves with the detailed changes made by the GFSC to consider the impact on their compliance controls framework. Some examples are below: 

  • Review the classification of your insurance company to ensure its status is correct. 
  • Review the composition of the Board to ensure its governance framework meets the new requirements. 
  • Document your review in determining the frequency and scope of your internal audit function and its independence. 
  • Determine if your external auditor has the appropriate knowledge and skill set to perform its duties. 
  • Consider how you have documented your third party funds arrangements. 
  • Review and update your capital and solvency governance and calculations to ensure they meet the new requirements. 
  • Review controls over disclosure and completeness of public information. 

  • Put in place controls to review complaints at appropriate frequency intervals. 

  • Review controls and framework for regulatory reporting requirements to the GFSC. 

  • Consider the skills and knowledge of the insurance manager to service an RGI and how that analysis has been documented.


BDO provides internal audit services and can more specifically perform a health check for compliance with the new Rules by performing a thorough review and designing controls to meet the requirements. 

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