## _cr09277

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---

### Executive summary and high-level appraisal
- Insurance regulation in the Isle of Man (IOM) "broadly meets international standards, taking into account the scope of business carried out on the island."
- Regulation strengthened since the 2003 OFC assessment.
- Insurance and Pension Authority (IPA):
  - Putting in place Memorandums of Understanding (MOUs) with home regulators and exchanging information extensively.
  - Benefits from a sound legal and institutional framework and availability of actuarial expertise locally and through links to the United Kingdom (U.K.) profession.
  - Has clear regulatory objectives and a high degree of operational independence, though some scope remains for government and political intervention.
- Key enhancement priorities:
  - Address remaining areas where government and political intervention could occur.
  - Enhance the IPA’s approach to group supervision.
  - Introduce requirements on the disclosure of information to stakeholders.

### Institutional and market structure — key facts and figures
- Market segmentation and scale (2007 unless otherwise noted):
  - Life (long-term) insurance:
    - GBP 8.4 billion in gross written premiums (GWP).
    - GBP 38.6 billion in assets.
    - Seventeen companies (as at end-March 2008) write mainly unit-linked business.
    - Life insurers account for 80 percent of gross premium income.
  - Captive (restricted) insurance:
    - 128 companies.
    - GBP 833 million in GWP.
    - Twenty-three firms authorized as managers of captive companies.
  - Nonlife:
    - GBP 205 million of GWP in 2007.
  - Reinsurance:
    - GBP 319 million of GWP in 2007.
  - Pensions sector:
    - 1,187 schemes with GBP 1.2 billion in total assets at end-2007.
- Market performance and resilience:
  - Life sector returns on equity (statutory accounting basis) of up to 50 percent in recent years.
  - Net assets available to meet the Required Minimum Margin (RMM) exceed the RMM five times over.
  - IPA expects firms to meet a margin of at least twice the formal minimum; stress tests show this level is well-covered after shock scenarios.
- Regulatory and institutional arrangements:
  - The IPA is the regulator for insurance and pensions; governed by a five-member board; 12 staff in total.
  - Financial Supervision Commission (FSC) regulates life intermediaries; IPA regulates general insurance intermediaries and managers of captive insurance companies under IA2008.
  - Financial Services Ombudsman Scheme (FSOS) handles consumer complaints that cannot be resolved by regulated firms.
  - Legal system draws heavily on English common law; local professional bodies include the Manx Actuarial Society, local office of Institute of Chartered Accountants of England and Wales, and ACCA.

### Main findings — strengths, vulnerabilities, supervisory features
- Strengths:
  - Well-defined, transparent, and effective policy, legal and institutional frameworks for insurance business.
  - Good availability of professional services locally and via the U.K.
  - IPA conducts functions transparently and is committed to supervisory cooperation and information sharing; extending MOUs and committed to the IAIS Multilateral MOU.
  - Comprehensive licensing framework; IA2008 extends provisions for non-EU branches.
  - Comprehensive framework for suitability of key persons, changes in control, portfolio transfers, technical provisions, investments, and derivatives use (limited).
  - IPA has effective preventive, corrective and enforcement powers perceived as credible.
  - Framework for winding-up and market exit provides routes for orderly exit and policyholder protection mechanisms (though untested in practice).
- Operational constraints and vulnerabilities:
  - Governance and political exposure:
    - Board members appointed by IOM Treasury subject to Tynwald approval; members can be dismissed by the Council of Ministers with reasons not required to be made public.
    - IPA dependent on government budgetary allocations to fund spending; fees raised are formally part of government revenue.
    - These features could constrain the IPA’s ability to meet regulatory objectives in certain circumstances.
  - Resource and capacity:
    - IPA staff small in number (12) but skilled; on-site supervision focused on AML/CFT in recent years and now broadening.
    - IPA employs no qualified actuaries by choice and uses U.K.-based actuarial consultants for technical off-site actuarial analysis.
  - Gaps and areas for enhancement:
    - No industry-specific binding standards on corporate governance and related internal control matters—IPA close to adopting binding guidance (DCG) expected to take effect in Q1 2009.
    - Powers and procedures for group-wide supervision limited (PO grading for ICP17); IPA focused on solo entity supervision and cooperation with parent supervisors, but some cases require IPA to assess group solvency or ensure another regulator does so.
    - Disclosure requirements for stakeholders need strengthening; IPA is working on disclosure requirements taking account of IAIS standards.
    - On-site inspection program needs to broaden beyond AML/CFT to cover all aspects of insurers’ businesses—expansion will require careful resource management.

### Summary of ICP observance (selected grades and observations)
- ICP1 Conditions for effective insurance supervision — O
- ICP2 Supervisory objectives — O
- ICP3 Supervisory authority — LO
- ICP4 Supervisory process — O
- ICP5 Supervisory cooperation and information sharing — O
- ICP6 Licensing — O
- ICP7 Suitability of persons — O
- ICP8 Changes in control and portfolio transfers — O
- ICP9 Corporate governance — LO
- ICP10 Internal controls — LO
- ICP11 Market analysis — O
- ICP12 Reporting to supervisors and off-site monitoring — O
- ICP13 On-site inspection — LO
- ICP14 Preventive and corrective measures — O
- ICP15 Enforcement or sanctions — O
- ICP16 Winding-up or exit from the market — O
- ICP17 Group-wide supervision — PO
- ICP18 Risk assessment and management — LO
- ICP19 Insurance activity — O
- ICP20 Liabilities — O
- ICP21 Investments — O
- ICP22 Derivatives and similar commitments — O
- ICP23 Capital adequacy and solvency — O
- ICP24 Intermediaries — O
- ICP25 Consumer protection — LO
- ICP26 Information, disclosure and transparency towards markets — NO
- ICP27 Fraud — LO
- ICP28 Anti-money-laundering, combating the financing of terrorism — O
- Aggregate: Observed (O) – 19, largely observed (LO) – 7, partly observed (PO) – 1, not observed (No) – 1, not applicable (N/A) – 0.

### Key recommendations and action priorities
- Address governance and political exposure:
  - Reduce scope for government and political intervention (e.g., dismissal provisions, funding dependency, Tynwald annulment power over regulations).
- Strengthen group supervision:
  - Enhance powers and procedures for group-wide supervision to enable IPA to carry out, or ensure another regulator carries out, group solvency testing and a wider assessment of group risks where appropriate.
- Improve disclosure and transparency:
  - Introduce disclosure requirements for insurance companies (other than pure captives), having consulted with industry and stakeholders; alternatively consider positioning IPA to publish supervisory returns itself.
- Operational and supervisory enhancements:
  - Adopt and implement binding guidance on corporate governance and related areas (DCG expected Q1 2009; IPA expected to consult in April 2009 with a view to implementing by end of 2009).
  - Broaden on-site inspection program to cover all aspects of insurers’ business while managing resource implications.
  - Continue development of responses to emerging international standards, including the EU Solvency II initiative, and monitor resource needs for potential new lines of insurance business (e.g., reinsurance).

### Recommended Action Plan — selected ICP actions
- ICP3 Supervisory authority:
  - Address institutional arrangements that leave scope for government intervention: dismissal provisions for Board members, Tynwald annulment power, and funding arrangements.
- ICP9, ICP10, ICP18, ICP25, ICP27:
  - Complete comprehensive binding guidance on corporate governance and related issues (DCG) as soon as possible.
- ICP17 Group-wide supervision:
  - Establish powers and processes to carry out group supervision—a test of group solvency informed by a wider assessment of group risks.
- ICP26 Disclosure and Transparency:
  - Introduce disclosure requirements for insurance companies (other than pure captives) after consultation; or enable IPA to publish supervisory returns itself.

### Authorities’ and IPA responses
- Authorities: "The assessment is a fair and accurate summary of the position in relation to insurance regulation in the IOM as at the date of the assessment."
- IPA responses to recommendations:
  - ICP3: "The IPA will be discussing these matters further with the Treasury to examine how they might be addressed."
  - ICP9, 10, 18, 25, 27: "In order to address these points, the IPA is continuing to develop its draft binding guidance on corporate governance and expects to issue this for consultation in April 2009 with a view to implementing it by the end of 2009."
  - ICP17: "The IPA is currently considering this issue with a view to developing and implementing appropriate requirements using the enabling provisions available to it under the IA 2008 and taking into account the IAIS’s continuing work in this area."
  - ICP26: "The IPA’s current preference in this matter is for relevant companies to be required to publish certain information in due course, rather than the IPA publish it itself. To this end it will continue its discussions with the Manx Actuarial Society with a view to setting out some initial principles."

### Selected detailed supervisory findings and provisions
- Licensing and authorization (Part 4; Guidance Notes):
  - Part 4 of the IA2008 and the Guidance Notes provide a comprehensive licensing framework.
  - Section 22 permits authorization of branches/permit holders from outside the EU if home country regulation is broadly equivalent; Section 22 permit holders are exempt from all reporting requirements unless IPA requires reporting.
  - Composite business permitted only in limited circumstances.
  - Decisions on authorization typically assessed in four to six weeks.
- Suitability of persons (ICP7):
  - IA2008 Section 29 defines functionaries requiring approval; controllers defined as those who control 15 percent or more of voting power.
  - No provision preventing a person holding two positions that may create a conflict of interest; IPA could consider formal provision.
- Corporate governance and internal control (ICP9, ICP10):
  - No explicit corporate governance/internal control requirements in IA2008 itself; IPA developing DCG (binding guidance) to take effect early 2009.
  - IPA has used supervisory tools to require non-executive directors and overhaul governance where needed.
- On-site inspection (ICP13):
  - Legal powers under Section 36 and Schedule 5 IA2008 to inspect and investigate; recent program focused on AML.
  - IPA aims to visit life companies over the next two to three years as program broadens.
- Capital adequacy and solvency (ICP23):
  - Solvency regime in Section 12 IA2008 and Regulation 13/Schedule 7 of 1986 Regulations.
  - Capital defined in two tiers; IPA permits certain secondary capital on application (letters of credit and guarantees normally for captives).
  - IPA expects life companies to hold at least twice the minimum specified in regulations in practice.
  - Monitoring via regular returns; remediation powers include short-term financial schemes and attaching conditions to authorization.
- Investments and derivatives (ICP21–22):
  - Investments regulated via valuation and solvency requirements; approach based on Solvency I with firm-specific higher expectations.
  - Limited use of derivatives in the Island’s business; guidance notes for life insurers on derivatives exist; DCG will set clearer expectations on board-approved derivatives policy and risk controls.
- Information, disclosure & transparency (ICP26):
  - No disclosure requirements for IOM authorized insurance companies; audited accounts and quarterly information submitted to IPA need not be published.
  - IPA engaged with industry and Manx Actuarial Society on developing disclosure standards; proposals expected in first half of 2009, timing uncertain.
- Fraud and AML/CFT (ICP27–28):
  - Fraud: statutory objective to reduce financial crime; no explicit insurer-specific fraud control requirements yet; proposed DCG to deliver internal control standards.
  - AML/CFT: comprehensive legal framework (Criminal Justice (Money Laundering) Code 2007; Insurance (Anti-Money Laundering) Regulations, 2008; IPA Guidance Notes). AML prioritized in on-site supervision; IPA has taken enforcement action and engaged external experts where necessary.

*Source: Executive Summary, Key Findings, and Recommendations — IMF FSAP assessment document (assessment based on information available in September 2008).*

### Executive Summary, Key Findings, and Recommendations.....................................................5

### _cr09277 - Executive Summary, Key Findings, and Recommendations.....................................................5

### Executive summary and high-level appraisal
- Insurance regulation in the Isle of Man (IOM) "broadly meets international standards, taking into account the scope of business carried out on the island."
- Regulation has been strengthened since the 2003 Offshore Financial Center (OFC) assessment.
- The Insurance and Pension Authority (IPA):
  - Has been putting in place Memorandums of Understanding (MOUs) with home regulators and is exchanging information extensively.
  - Benefits from a sound legal and institutional framework and availability of actuarial expertise locally and through links to the United Kingdom (U.K.) profession.
  - Has clear regulatory objectives and a high degree of operational independence, though some scope remains for government and political intervention (see specific governance vulnerabilities below).
- Key enhancement priorities identified:
  - Address remaining areas where government and political intervention could occur.
  - Enhance the IPA’s approach to group supervision.
  - Introduce requirements on the disclosure of information to stakeholders.

### Introduction, methodology, and timing
- Assessment context:
  - Carried out as part of the 2008 Financial Sector Assessment Program (FSAP) and updates/replaces the 2002 assessment published in 2003.
  - Assessment made based on information available in September 2008 at the time of the FSAP Update mission.
  - Based on the 2003 version of the IAIS Insurance Core Principles and Methodology; took into account relevant IAIS standards and guidance.
  - Assessment of ICP 28 (AML/CFT) informed by the IMF’s September 2008 assessment of the IOM’s compliance with FATF AML/CFT standards, using the 2004 Methodology.
- Legislative timing:
  - It was assumed the Insurance Act 2008 (IA2008) was in force; Royal Assent was received and the Insurance Act 2008 took effect on December 1, 2008.
- Assessor:
  - The assessor was Ian Tower of the Monetary and Capital Markets Department of the IMF.

### Institutional and market structure — key facts and figures
- Market segmentation and scale (2007 unless otherwise noted):
  - Life (long-term) insurance:
    - GBP 8.4 billion in gross written premiums (GWP).
    - GBP 38.6 billion in assets.
    - Seventeen companies (as at end-March 2008) write mainly unit-linked business.
    - Life insurers account for 80 percent of gross premium income.
  - Captive (restricted) insurance:
    - 128 companies.
    - GBP 833 million in GWP.
    - Twenty-three firms authorized as managers of captive companies.
  - Nonlife:
    - GBP 205 million of GWP in 2007.
  - Reinsurance:
    - GBP 319 million of GWP in 2007.
  - Pensions sector:
    - 1,187 schemes with GBP 1.2 billion in total assets at end-2007.
- Market performance and resilience:
  - Life sector returns on equity (statutory accounting basis) of up to 50 percent in recent years.
  - Net assets available to meet the Required Minimum Margin (RMM) exceed the RMM five times over.
  - Stress tests show the sector is resilient to shocks; IPA expects firms to meet a margin of at least twice the formal minimum and this level is well-covered after shock scenarios.
- Regulatory and institutional arrangements:
  - The IPA is the regulator for insurance and pensions; governed by a five-member board; 12 staff in total.
  - Financial Supervision Commission (FSC) regulates life intermediaries; IPA regulates general insurance intermediaries and managers of captive insurance companies under IA2008.
  - Financial Services Ombudsman Scheme (FSOS) handles consumer complaints that cannot be resolved by regulated firms.
  - Legal system draws heavily on English common law; local professional bodies include the Manx Actuarial Society, local office of Institute of Chartered Accountants of England and Wales, and ACCA.

### Main findings — detailed assessments and supervisory features
- Overall strengths:
  - Well-defined, transparent, and effective policy, legal and institutional frameworks for insurance business.
  - Good availability of professional services locally and via the U.K.
  - IPA conducts functions transparently and is committed to supervisory cooperation and information sharing; extending MOUs and committed to the IAIS Multilateral MOU.
  - Comprehensive licensing framework; IA2008 extends provisions for non-EU branches (expected limited practical use).
  - Comprehensive framework for suitability of key persons, changes in control, portfolio transfers, technical provisions, investments, and derivatives use (limited).
  - IPA has effective preventive and corrective powers and enforcement/sanction powers which are available and perceived as credible.
  - Framework for winding-up and market exit provides routes for orderly exit and policyholder protection mechanisms (though untested in practice).
- Operational constraints and vulnerabilities:
  - Governance and political exposure:
    - Members of the IPA Board are appointed by the IOM Treasury subject to Tynwald approval; members can be dismissed by the Council of Ministers with reasons not required to be made public.
    - IPA is dependent on government budgetary allocations to fund spending.
    - These features could in certain circumstances constrain the IPA’s ability to meet regulatory objectives.
  - Resource and capacity considerations:
    - IPA staff are small in number (12) but skilled; on-site supervision has been focused on AML/CFT in recent years and is now broadening.
    - IPA uses U.K.-based actuarial consultants for technical off-site actuarial analysis as it employs no qualified actuaries by choice.
  - Gaps and areas for enhancement:
    - No industry-specific binding standards on corporate governance and related internal control matters—IPA close to adopting binding guidance (DCG) expected to take effect in Q1 2009.
    - Powers and procedures for group-wide supervision limited (PO grading for ICP17); IPA focused on solo entity supervision and cooperation with parent supervisors, but some cases require IPA to assess group solvency or ensure another regulator does so.
    - Disclosure requirements for stakeholders need strengthening; IPA is working on disclosure requirements taking account of IAIS standards.
    - On-site inspection program needs to broaden beyond AML/CFT to cover all aspects of insurers’ businesses—a necessary expansion that will require careful resource management.

### Summary of ICP observance (selected grades and observations)
- ICP1 Conditions for effective insurance supervision — O
- ICP2 Supervisory objectives — O
- ICP3 Supervisory authority — LO (operational independence generally high but legal/financial appointment and dismissal powers and funding arrangements create potential constraints)
- ICP4 Supervisory process — O
- ICP5 Supervisory cooperation and information sharing — O
- ICP6 Licensing — O
- ICP7 Suitability of persons — O
- ICP8 Changes in control and portfolio transfers — O
- ICP9 Corporate governance — LO (planned DCG expected to take effect in Q1 2009)
- ICP10 Internal controls — LO
- ICP11 Market analysis — O (could consider publishing more quantitative indicators and periodic vulnerability testing)
- ICP12 Reporting to supervisors and off-site monitoring — O (relies on U.K. actuarial consultants)
- ICP13 On-site inspection — LO (program expanding beyond AML/CFT)
- ICP14 Preventive and corrective measures — O
- ICP15 Enforcement or sanctions — O
- ICP16 Winding-up or exit from the market — O
- ICP17 Group-wide supervision — PO (policy and powers limited for group solvency testing in some cases)
- ICP18 Risk assessment and management — LO
- ICP19 Insurance activity — O
- ICP20 Liabilities — O
- ICP21 Investments — O
- ICP22 Derivatives and similar commitments — O

### Key recommendations and action priorities
- Address governance and political exposure:
  - Reduce remaining areas where there is scope for government and political intervention (e.g., dismissal provisions, funding dependency).
- Strengthen group supervision:
  - Enhance powers and procedures for group-wide supervision to enable IPA to carry out, or ensure another regulator carries out, group solvency testing and a wider assessment of group risks where appropriate.
- Improve disclosure and transparency:
  - Introduce and implement disclosure requirements for information to stakeholders, taking account of relevant IAIS standards.
- Operational and supervisory enhancements:
  - Adopt and implement binding guidance on corporate governance and related areas (DCG expected Q1 2009).
  - Broaden on-site inspection program to cover all aspects of insurers’ business while managing resource implications.
  - Continue development of responses to emerging international standards, including the EU Solvency II initiative, and monitor resource needs for potential new lines of insurance business (e.g., reinsurance).

*Source: Executive Summary, Key Findings, and Recommendations — IMF FSAP assessment document (assessment based on information available in September 2008).*

### introduction of the planned DCG and related issues will

### _cr09277 - introduction of the planned DCG and related issues will

### Insurance Core Principle Grading Comments
- ICP23 - Capital adequacy and solvency — O
  - The IPA has a well-founded framework of solvency regulations that combine a hard minimum requirement with a flexible approach to setting higher minimum standards for individual firms to reflect their risk profiles.
  - It has well-defined processes to monitor actual capital levels and to respond to breaches of minimum requirements.
  - The IPA will need to consider in due course its response to Solvency II and wider international developments, taking into account resource implications.
- ICP24 - Intermediaries — O
  - There are extensive requirements applying to intermediaries under the IPA (general insurance) and FSC (life insurance) regimes.
  - The IPA’s powers over general insurance intermediaries have been extended under the IA2008.
  - The IPA should keep under review whether reliance on Professional Indemnity Insurance is sufficient to protect consumers from the potential impact of an intermediary failing.
- ICP25 - Consumer protection — LO
  - The introduction of the planned DCG and related issues will helpfully set out the IPA’s expectations in these areas.
  - There are no explicit requirements in the IA2008 itself, even at a high level.
  - The IPA attaches importance to high standards and covers market conduct in its supervision and enforcement work.
- ICP26 – Information, disclosure and transparency towards markets — NO
  - There are no disclosure requirements.
  - The IPA is engaged with the industry on the development of standards.
  - It is not clear when this may result in requirements taking effect.
- ICP27 - Fraud — LO
  - The IPA has a range of powers to ensure that insurance companies address fraud risks (and it covers the issues in supervisory work), but it lacks standards on internal controls in this area.
  - The proposed DCG and related issues will deliver these.
- ICP28 - Anti-money-laundering, combating the financing of terrorism — O
  - The IPA has a well-developed set of requirements, especially (and appropriately) for life insurance business.
  - It has been making AML issues a priority for on-site supervision work.
  - See also the IMF’s assessment, carried out in September 2008, of the IOM’s compliance with the FATF AML/CFT standards, using the 2004 Methodology.

- Aggregate: Observed (O) – 19, largely observed (LO) – 7, partly observed (PO) – 1, not observed (No) – 1, not applicable (N/A) – 0.

### Recommended Action Plan
- ICP3 - Supervisory authority
  - The authorities should address those parts of the institutional arrangements for the IPA that leave scope for government intervention: the provisions for dismissal of Board members of the IPA, the provision for Tynwald to annul regulations, and the funding arrangements.
- ICP9 - Corporate governance; ICP10 - Internal controls; ICP18 - Risk assessment and management; ICP25 - Consumer protection; ICP27 - Fraud
  - The IPA needs to complete as soon as possible its work on a comprehensive new binding guidance on corporate governance and related issues to ensure that all firms are aware of the detailed standards which are expected of them in these areas.
- ICP17 - Group-wide supervision
  - IPA needs to have powers and processes to carry out group supervision—a test of group solvency, informed if possible by a wider assessment of the risks to the group.
  - Its approach will need to be kept under review as IAIS policy in the area of group supervision continues to develop.
- ICP26 - Disclosure and Transparency
  - The IPA should introduce disclosure requirements for insurance companies (other than pure captives), having consulted with the industry and other stakeholders on what information will be most useful.
  - Alternatively, the IPA could consider putting itself in a position where it can publish supervisory returns itself.

### Authorities’ Response to the Assessment
- "The assessment is a fair and accurate summary of the position in relation to insurance regulation in the IOM as at the date of the assessment."

*Source: _cr09277 - introduction of the planned DCG and related issues will*

### 14.      In response to the specific recommended action points set out in the table above

### 14. In response to the specific recommended action points set out in the table above

### IPA response to recommended action points
- ICP3: "The IPA will be discussing these matters further with the Treasury to examine how they might be addressed."
- ICP9, 10, 18, 25, 27: "In order to address these points, the IPA is continuing to develop its draft binding guidance on corporate governance and expects to issue this for consultation in April 2009 with a view to implementing it by the end of 2009."
- ICP17: "The IPA is currently considering this issue with a view to developing and implementing appropriate requirements using the enabling provisions available to it under the IA 2008 and taking into account the IAIS’s continuing work in this area."
- ICP26: "The IPA’s current preference in this matter is for relevant companies to be required to publish certain information in due course, rather than the IPA publish it itself. To this end it will continue its discussions with the Manx Actuarial Society with a view to setting out some initial principles, taking into account the detailed provisions of this ICP and the IAIS’s various published Standards."

### II. DETAILED ASSESSMENT — Conditions for Effective Insurance Supervision (Principle 1)
- Description (summary of jurisdictional framework and infrastructure):
  - Long-established government policy: develop a broadly-based financial sector within a diversified economy.
  - Treasury responsibility: public finances and economic stability.
  - No body formally responsible (e.g., in legislation) for financial stability; no central bank in the IOM.
  - No explicit government statement on financial stability; financial stability not included in the IPA’s statutory objectives.
  - IPA objectives cover: maintaining confidence in the industry, policyholder protection, and reducing the use of insurance in connection with crime.
  - Government commitment: effective regulation of financial services and development of insurance business in the IOM "provided it is properly managed and adequately financed" (Guidance Notes for Insurance Business).
  - IPA must have regard, inter alia, to maintaining the competitive position of the IOM; mission statement emphasizes the IOM’s international reputation and securing a good environment for business.
  - Promotion of the sector: responsibility of the treasury under its IOM Finance initiative; IPA’s role confined to regulation.
  - Legal and institutional infrastructure: well-developed and resourced, reflecting close links with the United Kingdom; IOM not an EU member but takes close regard of EU standards and practices.
  - Transparency: information posted on IOM government and IPA websites.
  - Courts and dispute resolution: well-established court system; alternative dispute resolution mechanism FSOS for complaints handling.
  - Institutional framework for accounting, actuarial and auditing standards aligned with international best practices.
  - Main accounting standards for insurance set out in law (principally the Insurance Regulations 1986).
  - Companies (Amendment) Bill 2008: statutory provision requiring firms to follow U.K. GAAP, U.S. GAAP, or IFRS in preparing accounting statements.
  - Insurance companies audit requirement: accounts must be audited by a firm with at least GBP 10 million in professional indemnity (PI) cover and experience of insurance (Guidance Notes for Insurance Business, paragraph 9).
  - In practice: major insurance companies audited by global accounting practices via local offices and/or group audits managed from the United Kingdom or other parent company jurisdictions.
  - Recent reforms to U.K. GAAP and the introduction of IFRS have accentuated differences in valuation of insurance liabilities; "The IPA is reviewing the implications."
  - Accounts do not have to be published (see ICP26).
  - Oversight of accounting and auditing: not currently at the same level as other major jurisdictions; no local equivalent of the U.K. Financial Reporting Council or Professional Oversight Board (POB).
  - Companies (Amendment) Bill 2008 enables the FSC to make regulations for oversight of auditors—oversight for listed companies to be conducted in practice by the U.K. POB.
  - Actuarial resources: number of qualified actuaries and students practice on the IOM, mostly members of U.K. professional bodies; more complex valuation work handled by experts from outside the IOM.
  - Actuaries subject to standards and oversight (in most cases, the Institute and Faculty of Actuaries); appointed actuaries are not subject to certification with its higher CPD requirements.
  - Manx Actuarial Society: regional society within the U.K. Actuarial Profession, promotes high standards but cannot enforce them.
  - IPA actions: issued its own detailed valuation requirements for long term business; regularly reviews requirements to account for domestic needs and developing EU and international regulation.
  - Market structure: no developed financial markets (money or securities) in the IOM; insurers access markets in the United Kingdom and elsewhere for investment and hedging; currency union between the Manx pound and the U.K. pound sterling allows overseas investments to back domestic liabilities.

- Assessment: Observed

- Comments — key issues for the IPA to consider:
  - "the need to keep under review the adequacy of local statutory oversight of auditing and actuarial work, taking into account the extent to which oversight is effected in practice by overseas regulators"; and
  - "the need for development of the accounting and financial reporting framework for IOM insurance business, e.g. to take account of IFRS, and to provide for mandatory publication of accounts."

### The Supervisory System — selected principles and findings
- Principle 2. Supervisory objectives
  - Description:
    - IPA objectives reflect IAIS tasks and are clearly set out in the IA2008, together with matters to which the supervisor must have regard.
    - Treasury and IPA committed to periodic reviews of objectives.
    - IPA mission statement gives greater emphasis to "maintaining the reputation" and "safeguarding the image" of the IOM (and of the IPA) but otherwise reflects statutory objectives.
  - Assessment: Observed
  - Comments:
    - IPA has clear and appropriate objectives; clear understanding among staff of objectives and distinction between regulation and promotion.
    - Recommendation: "the IPA might consider the amendment or withdrawal of its mission statement, which predates the legislation setting out the statutory objectives."

- Principle 3. Supervisory authority
  - Description:
    - IA2008 identifies the IPA as regulator, defines responsibilities and powers to make and enforce regulatory requirements.
    - Sections 50 and 51: authority to issue regulations and "Guidance Notes for the purposes of providing binding guidance" (GN). Regulations and GN must be submitted to Tynwald after they take effect. Regulations, but not GNs, can be annulled by Tynwald. Treasury must be consulted on regulations.
    - Regulations and GNs together are equivalent to a rulebook for insurers.
    - IPA has powers to enforce all regulations. It has no formal power to waive requirements imposed by Regulations or GNs on an ad hoc basis.
    - Governance: defined in IA2008 and internal corporate governance procedures compliant with Corporate Governance Principles and Code of Conduct for IOM government offices.
    - Board appointments: IA sets out procedures for appointments of appropriately qualified individuals to the Authority and CEO. Board members can be removed by the Council of Ministers under the Statutory Boards Act, Section 3. No explicit requirement to publish reasons.
    - Operational autonomy: IPA has full operational autonomy over expenditure and staff remuneration (staff are IPA employees not civil servants); income is provided by government—IPA must bid for funding and headcount in the annual budget process. Fees raised are formally part of government revenue.
    - In practice: government has not refused IPA bids; IPA able to recruit required staff and engage experts. IPA chooses not to employ actuaries but relies on a leading global practice for actuarial input.
    - Staffing: IPA has suffered past staff losses and recruitment challenges; currently enjoys a full complement of staff "12 in total, covering its insurance and pensions responsibilities."
    - Regulatory processes: set out in legislation, including a requirement to consult ("those likely to be effected by the proposed regulations"—IA2008 Section 50). Regulatory impact assessments are conducted though not required. Annual report includes audited financial information.
    - Publication practices: publishes an annual report; seeks to account for activities at public events. Has not published details of failed insurers—no cases of failure in the life insurance sector since the present supervisory regime was introduced in 1986.
    - Enforcement: IPA has powers to take immediate action to protect policyholders and can require costs to be met by the insurer where the insurer is deemed at fault.
    - Confidentiality: Restrictions on disclosure of confidential information set out in IA2008 Schedule 6; restrictions apply to experts and consultants as officers and servants of the authority.
  - Assessment: Largely Observed
  - Comments — institutional risks that could constrain objectives:
    - "the ability of the Council of Ministers to dismiss the IPA Board and lack of an explicit provision for publication of the reasons for so doing;"
    - "the Tynwald power to annul regulations, which reflects the commitment of the IOM authorities to the accountability of regulators to the elected representatives;" and
    - "the funding arrangements: these are driven in part by concerns to maintain the competitive position of the Island in the fees charged to captive insurance companies."
  - Additional context:
    - "In practice, however, the IPA enjoys a high degree of de facto independence from government and political intervention."
    - Close working relationship with the treasury to be set out in a formal MOU similar to that agreed between FSC and Treasury in July 2008.
    - IPA has experience introducing necessary but contentious legislation (e.g., anti-money laundering) with government and Tynwald support.
    - "See Recommendations in Table 2."

- Principle 4. Supervisory process
  - Description:
    - IPA requirements and process information available on its website and in the Annual Report; regulations and processes kept under review.
    - Approach to regulation grounded in IA2008 objectives and matters to which it must have regard.
    - IA2008 Section 45: provision for appeals to an independent tribunal; appeal against the tribunal's decision on a point of law available by application to the high court under Section 45(7) of the IA 2008.
    - IA2008 Section 23 (3) and Tribunals Act: IPA can take appropriate emergency action without waiting for appeals where needed to protect policyholders.
    - Annual Report contains aggregate financial information on the insurance sector: balance sheet and income data but not solvency ratios and measures of financial strength.
  - Assessment: Observed
  - Comments — areas for additional publication:
    - industry performance and financial strength, e.g., developments in solvency ratios (in line with advanced criterion (h) of this ICP); and
    - detail on supervisory processes, e.g., how it assesses risk, conducts visits and feeds back to firms—along the lines of the FSC’s January 2007 document on its supervisory approach.

- Principle 5. Supervisory cooperation and information sharing
  - Description:
    - Schedule 6 of IA2008 gives IPA authority to disclose information to relevant domestic and overseas regulators.
    - IPA has MOUs with a number of regulators and intends to become a signatory to the IAIS Multilateral MOU.
    - Information disclosure subject to limitations and proportionality requirement; no requirement for reciprocal exchange and IPA can initiate exchanges without an MOU.
    - IPA has exchanged information in practice with home authorities in response to formal requests and in meetings, individually and in college meetings (attends where IOM business is a significant part of total group business).
    - IPA seeks assurances that disclosed information will be treated as confidential; where no MOU exists, it will satisfy itself on confidentiality before disclosure.
    - IPA has home and host responsibilities: normally informs relevant host/home supervisors before taking action; "It usually but not always informs host supervisors of changes in its supervision that are relevant to their work."
  - Assessment: Observed
  - Comments:
    - IPA is aware of importance of exchanging information, particularly given international groups in the IOM; extending MOUs and committed to the IAIS Multilateral MOU; exchanges information both under MOUs and when requested, subject to confidentiality assurances.

### Principle 6. Licensing (summary)
- Description:
  - Sections 3 and 54 of the IA 2008 and Regulation 20 of the Insurance Regulations 1986 set out requirements for authorization and define "insurer" and "insurance business."
  - Exemptions: certain U.K.-authorized friendly societies, Trade Union and Employers associations, Banking Act licensees for certain business, U.K.- and EU-authorized institutions with no local place of business, and Society of Lloyd’s members.
  - Foreign insurers: can obtain authorization as a "permit holder" under Section 22 of the IA2008 if the IPA is satisfied they conduct insurance business in the home country in compliance with local regulations; enables authorization of branches of foreign insurers and application of appropriate requirements (excluding, for example, solvency requirements).
  - IPA must be satisfied that the insurer could be authorized under the IA2008 but for incorporation outside the IOM, which requires the IPA to take a view on the equivalence of home country regulation (see Guidance Notes for Insurance Business, paragraph 39).

*Source: _cr09277 - 14.      In response to the specific recommended action points set out in the table above*

### Part 4 of the IA2008 sets out clearly and comprehensively the requirements that insurers must meet

### Part 4 of the IA2008 sets out clearly and comprehensively the requirements that insurers must meet

### Licensing and authorization (Part 4; Guidance Notes)
- Part 4 of the IA2008 and the Guidance Notes for Insurance Business provide a comprehensive framework for licensing insurance business.
- Limited requirements in IA2008 or Guidance Notes on the adequacy of risk management, internal controls and corporate governance of applicant insurers; a guidance note on these issues is currently being developed—see ICP 9.
- Where a foreign insurer applies to do business through a branch or for a Section 22 permit:
  - The IPA communicates with the home country and ensures that the home regulator confirms that parent/group has adequate resources.
  - Section 22 enables the IPA to authorize companies from outside the EU establishing as branches in the Island and to exempt them, where the IPA decides it is appropriate, from prudential and other normally home state requirements.
  - This requires the IPA to do diligence on a wide range of the home state authorities to ensure their home state requirements are broadly equivalent.
  - In practice, the number of companies applying for such treatment is expected to be limited. There are only two branches of non-EU companies authorized in the IOM currently.
- Composite business is permitted only in limited circumstances (for example, where the long term business is restricted to reinsurance).
- The IPA can and does impose conditions on licenses.
  - Decisions on authorization are assessed usually in four to six weeks.
  - Authorization can be refused where any licensing condition is not met.
  - Continued compliance with authorization conditions is monitored via the regular returns that authorized companies must make.
- Comment: It will be important to extend authorization requirements to include the adequacy of risk management, internal controls and corporate governance of the applicant insurer. See ICP9 on the plans for doing so.

### Principle 7 — Suitability of persons
- Principle: Significant owners, board members, senior management, auditors, and actuaries of an insurer are fit and proper to fulfill their roles (appropriate integrity, competency, experience, and qualifications).
- Legal framework and powers:
  - IA2008 Section 29 identifies and defines functionaries requiring approval by the IPA.
  - Controllers are defined as those who alone or with associates control 15 percent or more of the voting power.
  - Section 29(3) gives IPA the power to disqualify a controller and a functionary it regards as no longer fit and proper.
  - Insurers must provide documents to support their view of the fitness of functionaries. All these provisions apply also to auditors (and managers and intermediaries).
  - IA2008 Section 18 requires that insurers doing long-term business appoint an actuary and specifies required professional qualifications.
  - The IPA may talk to the professional body when it has issues with professional competence.
- Gaps and practice:
  - No provision preventing a person holding two positions in a company with potential for conflict of interest; IPA would use general powers if conflicts are not being or are not likely to be managed.
  - Insurers are not currently required to notify the IPA of developments which might call into question the IPA’s view of their fitness and propriety. Such a requirement is being introduced as part of new corporate governance requirements—see ICG9.
- Assessment: Observed. Comments: IA 2008 gives the IPA a comprehensive framework for considering suitability. The IPA could consider a formal provision preventing a person holding two positions with potential conflict of interest.

### Principle 8 — Changes in control and portfolio transfers
- Principle: Supervisory authority approves or rejects proposals to acquire significant ownership or any other interest resulting in control; approves portfolio transfer or merger of insurance business.
- Description and powers:
  - IA2008 defines controllers of insurers (Section 54) and places obligations on insurers and controllers in respect of changes in control and significant increases in shareholdings (Section 29).
  - The IPA communicates with regulators overseas where an application is received from a potential controller based overseas.
  - Ultimate beneficial owners must be disclosed in applications.
  - Information on financial and other resources of applicant controllers is obtained and assessed.
  - On an ongoing basis the IPA does not routinely ask insurers to reconfirm details of shareholders but does ask where necessary and has powers to require such disclosure.
- Portfolio transfers:
  - Under Section 21 and Schedule 2 of the IA2008, insurers undertaking portfolio transfers in respect of life insurance business are required to obtain a court order (approval by the IPA is not required, although IPA has a right to be heard in court).
  - There are as yet no such requirements for nonlife business, but the requirements for life will be extended in due course to nonlife using enabling provisions in the IA2008.
- Assessment: Observed. Comments:
  - IA2008 provides a comprehensive framework for changes in control and portfolio transfers.
  - Less to regulate transfers of non-life portfolios (mostly captives); they will be brought within the framework under planned regulations (a target timetable could usefully be established).
  - In the interim, the proposed binding guidance on corporate governance (the Draft Code of Practice in respect of Corporate Governance—DCG) (see ICP9) will require insurers to notify the IPA in advance of all proposed transfers.

### Principle 9 — Corporate governance
- Principle: Corporate governance framework recognizes and protects rights of all interested parties; supervisory authority requires compliance with applicable corporate governance standards.
- Current status and initiatives:
  - The IPA is developing a comprehensive guidance note (a binding instrument) covering corporate governance and related issues (the Draft Code of Practice in respect of Corporate Governance), based closely on ICP 9. It is expected to take effect in early 2009.
  - There are no explicit corporate governance requirements in IA2008 itself (e.g., in Part 4), even at a high level. Insurers remain subject to Companies Acts requirements.
- How IPA addresses governance:
  - Incorporated into supervisory work (on-site work on captive insurers; on-site life company work focused on AML but corporate governance issues from AML controls considered).
  - Corporate governance issues are included in questionnaires used ahead of on-site work.
  - IPA has required firms to appoint non-executive directors.
  - Monitoring and enforcement work: IPA has taken action where annual returns revealed problems with financial controls and governance, resulting in major overhaul of the firm’s governance.
- Assessment: Largely observed. Comments:
  - IPA is committed to setting and enforcing high governance standards and can require specific action using Section 33 of IA 2008.
  - Combination of Companies Act requirements and IPA supervision/enforcement has created a broadly effective framework, but the new code is needed to ensure all firms are aware of detailed standards.
  - Planned enhancement and refocusing of on-site supervision of life insurers will ensure systematic attention to governance issues in on-site work.
  - See recommendation in Table 2.

### Principle 10 — Internal control
- Principle: Supervisory authority requires insurers to have internal controls adequate for the nature and scale of the business; oversight and reporting systems allow board and management to monitor and control operations.
- Status and practice:
  - IPA developing a comprehensive guidance note covering internal controls and corporate governance (DCG), expected to take effect in early 2009.
  - No explicit internal control requirements in IA2008 itself, even at a high level.
  - Guidance Notes for Insurance Business (Paragraph 9) require companies to have proper records and books of account.
  - Insurers subject to Companies Acts requirements.
  - IPA covers internal controls in supervision work (review of internal reports and external auditor’s management letter) and enforcement work.
- Additional protections and suggestions:
  - Audit process provides additional protections via auditors’ attention to controls and management letters, copies of which are frequently seen and may always be requested by the IPA.
  - Many IOM insurance companies are subsidiaries of international groups and subject to group-level internal and external audit work.
  - The IPA could consider making it a requirement for insurance companies to send it the external auditor’s management letter.
  - See recommendation in Table 2.
- Assessment: Largely observed.

### Ongoing supervision — Market analysis and reporting (Principles 11–12)
- Principle 11 (Market analysis): Supervisory authority monitors and analyses all factors impacting insurers and insurance markets and takes action as appropriate.
  - Description: IPA monitors market developments through relationships with insurers, trade associations, and membership of international supervisory groups. Aggregate information about the sector is published on its website and in the Annual Report.
  - Assessment: Observed.
  - Comments / possible enhancements:
    - Consider publication of more information on industry performance and financial strength, for example, developments in solvency ratios.
    - Introduce a more quantitative element into analysis by carrying out periodic exercises to test sector vulnerability to particular adverse scenarios.
- Principle 12 (Reporting to supervisors and off-site monitoring): Supervisory authority receives necessary information for effective off-site monitoring and to evaluate each insurer and the insurance market.
  - Reporting framework:
    - Insurers are required under IA2008 to make regular reports to the IPA; insurance regulations set out required form and content.
    - Annual reports and accounts must be sent to IPA.
    - Financial returns, with statements by directors, auditors and actuaries, are required annually.
    - Companies report a more limited range of information quarterly on an unaudited/uncertified basis, although these requirements are waived where considered appropriate (waivers are generally given only to captives).
  - Off-site monitoring process:
    - IPA staff review returns initially and, for long-term insurers, communicate with the major firm of actuarial consultants retained by the IPA.
    - IPA staff write formally to companies with findings and issues from their and the actuarial work; meetings and conference calls also take place.
    - Processes ensure issues are communicated formally in writing and follow-up is monitored to ensure issues are addressed and further action taken as required.
    - Results from returns analysis are integrated with findings from on-site work and other sources (e.g., home supervisors) to develop an overall view of firms and their risk profile.
    - This process is relatively informal: there is no model or formal recording of scores.
    - Returns are not required on a group basis (see ICP17). The IPA uses group accounts to monitor the financial strength of the group, where relevant.

*Source: _cr09277 - Part 4 of the IA2008 sets out clearly and comprehensively the requirements that insurers must meet*

### Section 22 permit holders (branches of insurers incorporated in countries which the IPA is satisfied

### Section 22 permit holders (branches of insurers incorporated in countries which the IPA is satisfied have equivalent requirements)

### Reporting exemptions and oversight of reporting requirements
- Section 22 permit holders are exempt from all reporting requirements—although the IPA can require reporting from individual or all permit holders if it thinks it appropriate.
- The IPA can impose other prudential requirements from which these firms are normally exempt.
- The IPA keeps reporting requirements under review and makes periodic changes.
- Assessment: Observed.
- Comments: The IPA has a well-developed process for analyzing annual returns and taking follow-up action.

### Supervisory resourcing and actuarial support
- IPA supervisors have relevant qualifications and experience; the IPA by choice employs no qualified actuaries.
- Offsite work relies on consultants based in the United Kingdom for analysis of the most technical issues; this relationship has functioned effectively for a number of years.
- Supervisory staff take responsibility for communication and follow-up at all stages; arrangements are well-understood and supported by insurance companies.
- The IPA could consider greater structure and formality in developing an overall view of firms and recording assessments and supervisory plans, but the current informal approach is not inappropriate given the small number of firms active in the life insurance market. (A more formal approach is not required for captives.)

### Principle 13 — On-site inspection (Description & findings)
- Legal powers: Under Section 36 and Schedule 5 of the IA 2008, the IPA can inspect and investigate books, records, documents, and transactions of an authorized insurer and others it considers may be conducting insurance business without authorization; it can request specific information, require attendance, and obtain a search warrant.
- Purpose of on-site work: verify returns, investigate concerns, and assess risks.
- Recent focus: program for life insurance companies has been focused on AML issues in recent years.
- Staffing: program has been affected by staff shortages; IPA is now staffed to begin a program of wider on-site work with life companies with the objective of visiting each over the next two to three years.
- Approach: same approach to each (small number of companies); more tailored approach planned for larger number of lower priority captive insurance companies.
- External experts: IPA has power to engage external experts at insurer’s expense; in practice achieves results through discussion and suasion and has not had to exercise formal powers.
- Communication: findings communicated on-site and by written report to senior management; responses and action points are required and followed up.
- Assessment: Largely Observed.
- Comments: Well-structured approach with extensive internal guidance (procedures and template letters). Broadening on-site program to cover all aspects of all life companies’ business is necessary and significant and will require careful management to avoid resourcing strains. Over time, IPA may benefit from a more formal scoring approach for on-site work and in developing an overall view of the firm (see ICP12).

### Principle 14 — Preventive and Corrective Measures
- Description: IPA has a range of preventive and corrective powers and procedures; normally starts with supervisory dialogue to agree concerns and remedial action.
- Formal powers: can impose conditions on authorization; used in a number of cases.
- Solvency breaches: can require a remedial scheme (see ICP 16).
- Assessment: Observed.
- Comments: Small number of authorized insurance companies and captive managers based on or close to Douglas facilitates regular supervisory dialogue; IPA has used powers in practice to make formal requirements where needed.

### Principle 15 — Enforcement or sanctions
- Powers: impose conditions on authorization (including preventing new business), require assets to be maintained in the IOM or transferred to bank custody, withdraw authorization, impose civil penalties (including on exempt persons, directors and controllers), attach conditions to approval of functionaries, and direct removal of individuals.
- Severe cases: acting with the FSC, can take Companies Act proceedings to bar individuals from acting as directors.
- Residual power: Section 33 of IA2008 to impose any requirements on an insurer believed justified to meet Insurance Act objectives (e.g., ensure minimum solvency); may petition for winding-up.
- Public statements: under Section 35 of IA2008, may make a public statement if insurer contravened requirements or “it is desirable to make such a statement for the protection of any person or class of persons.”
- Assessment: Observed.
- Comments: IPA rarely uses extensive formal powers in practice; has not imposed civil penalties and has not used Section 33 or Section 35. Availability of powers reinforces supervisory actions. Market perceptions: IPA is ready and willing to use formal enforcement where supervisory options exhausted or serious breaches occur. IPA could consider publishing a policy on its approach to using enforcement powers; extension of many powers to intermediaries under IA2008 makes such work timely.

### Principle 16 — Winding-up and exit from the market
- Withdrawal of authorization: IPA has powers under Section 9, IA2008; Section 9 provides for insurers to continue to effect existing contracts.
- Solvency-triggered measures: breach of solvency requirements can lead to requirement for a financial scheme; failure or inadequate scheme treats insurer as unable to pay debts under the Companies Act, enabling IPA to petition for winding up.
- Additional triggers: Section 27 triggers winding-up powers for various grounds, including failure to meet obligations or where “it is expedient in the public interest that the company should be wound up.”
- Schedule 3 IA20089 (insolvency and winding up) — for long-term business:
  - (i) no company may be wound up voluntarily;
  - (ii) in a winding up, assets of the long term fund are available, bar any excess assets, only to long term policyholders;
  - (iii) the liquidator will carry on the long term business with a view to transferring it to another insurer.
- Liquidator powers: vary terms of long term contracts and apply to court for appointment of a special manager.
- Policyholder protection: Life Assurance (Compensation of Policyholders) Regulations 1991 provide for 90 percent of the liability of an insolvent insurer to be met; the Policyholders Compensation Scheme is managed by the IPA and funds itself by levies—there is no standing fund.
- Nonlife: no compensation arrangements for nonlife policyholders.
- Assessment: Observed.
- Comments: Framework provides appropriate routes for orderly exit and protection mechanisms for long-term business; framework not tested in practice (no long-term insurer has failed nor has IPA sought winding up of any such insurer).

### Principle 17 — Group-wide supervision
- Legal application: requirements apply and supervision is carried out on a solo basis only; no provisions in law to apply IPA’s requirements on a group basis.
- Typical role: IPA generally a host supervisor because most non-captive business in IOM is conducted by companies from major overseas groups.
- Structure: IOM-based insurers have only branches and no subsidiaries abroad, although there are affiliates abroad.
- Cooperation: IPA cooperates actively with home supervisors, exchanges information (usually under bilateral MOUs), and participates in joint visits by home supervisors to IOM operations.
- Assessment: Partially Observed.
- Comments: Focus on solo supervision and cooperation with parent supervisors is generally sufficient but there are cases where a test of group solvency would be appropriate. In the longer term, IPA may consider formal powers over holding companies of authorized insurance companies as IAIS group supervision policy develops. See recommendation in Table 2.

### Principle 18 — Risk assessment and management
- Status: IPA developing a comprehensive Guidance Note (DCG) covering risk assessment and risk management as well as corporate governance and related issues; expected to take effect in early 2009.
- Legal requirements: no explicit requirements in IA2008 itself, even at a high level.
- Assessment: Largely Observed.
- Comments: Corporate governance comments recorded under ICP 9 apply to ICP 18.

### Principle 19 — Insurance activity (underwriting, reinsurance, pricing)
- No requirement that insurers have strategic underwriting and pricing policies in place.
- IPA relies on reviews of insurer reports (annual return) and requirement to pre-notify significant business plan changes to assess insurance risks.
- Annual return: certified by directors and comes with actuary report (Insurance Regulations 1986, Regulation 11 and Schedule 6); includes analysis of revenue by marine/aviation/transport, motor and liability classes, schedule of retentions by class, summary of reinsurance ceded or retroceded, and claims settlement analysis for motor and sub-risks within liability class.
- Quarterly reports required on premium income, commission and expenses, claims paid and outstanding, and amounts due from reinsurers; can be waived occasionally for captives.
- Supervisory process: IPA staff discuss reported data to assess adequacy of pricing and reserving policies, expense trends; for life insurers, expenses assessed in context of liability valuation (expense reserve).
- Reinsurance: reviewed through annual return; no quarterly reporting on reinsurance; no specific requirements for security of reinsurance (e.g., collateral); IPA challenges firms on quality of reinsurance based on exposure scale and reinsurer nature.
- Assessment: Observed.
- Comments: IPA has adequate powers and procedures to ensure insurers can price business and manage insurance risks appropriately.

### Principle 20 — Liabilities (technical provisions)
- Accounting: All insurers required under Section 14 of IA2008 to draw up accounts in accordance with Companies Act and generally-accepted accounting principles (Companies (Amendment) Bill states should be U.K. GAAP or IFRS); in practice most use U.K. GAAP.
- Supplementary submissions: insurers must submit supplementary information to the IPA per Insurance Act Regulations.
- Life-specific: Insurance (Valuation of Long Term Liabilities) Regulations 2007 require prudent provision for adverse variation, actuary to have due regard to fair treatment of policyholders, valuation sufficient to avoid future valuation strain, actuary to take credit for future premium due, provision where data uncertainty exists; future bonuses and discretionary benefits treated as liabilities.
- Supervision: IPA with actuarial consultants reviews compliance in annual return assessments; supervisors raise adequacy concerns with firms and can require increased provisions if agreement not reached.
- Reinsurance valuation: life reinsurance requirements in 2007 regulations; non-life valuation must comply with accounting standards and publish claims gross and net of reinsurance.
- Stress testing: no explicit legal requirement presently; will be introduced with DCG. Firms do conduct stress tests in practice; IPA reviews results.
- Assessment: Observed.
- Comments: IPA has developed requirements and engages supervisory staff and actuarial consultants to assess firm provisions.

### Principle 21 — Investments
- Regulation basis: investments regulated via valuation and solvency requirements (Insurance (Valuation of Long Term Liabilities) Regulations 2007 for life; Regulation 13 and Schedule 7 of IA86 Regulations for nonlife).
- Life companies: required to have regard to investments and investment policy when determining liabilities.
- Non-life: subject to admissibility limits prescribing asset types and classes for solvency margin calculations.
- Valuation: assets valued as per accounting purposes (U.K. GAAP or IFRS).
- Solvency approach: based on Solvency I; IPA requires firms to meet solvency requirements significantly above EU minimum in practice; has not enhanced Solvency I ahead of Solvency II (e.g., by removing prudent margins in reserving).
- Future: IPA will consider response to Solvency II when directive closer to finalization, balancing non-EU status flexibility with benefits of advanced solvency standards.
- Obligations: Companies Act imposes directors’ obligation to ensure safekeeping of investments.
- Gaps: no requirements for an “overall strategic investment policy” or that risk management systems cover solvency-relevant risks (essential criteria (c) and (d)); DCG will include standards.
- Supervision: IPA checks insurers have adequate controls over assets and responds to auditor control issues; focus on management of outsourcing of investment and custodial functions.
- No specific requirements for: (i) audit work to address investment activities; (ii) asset-liability matching, other than life valuation requirements; (iii) contingency plans for deteriorating conditions—but valuation and solvency requirements plus Financial Condition Reports encourage responsiveness.
- Assessment: Observed.
- Comments: IPA has an adequate framework on investments. Could develop approach to use of Financial Condition Reports (FCRs) for assessing risks in life companies, clarifying criteria for calling an FCR and what firms should expect.

### Principle 22 — Derivatives and similar commitments
- Few specific requirements on derivatives; no requirements on risk management issues (see ICP 18).
- IPA approach: reflects limited use of derivatives in Island insurance business and relies on supervisory approach supported by accounting standards and supplementary reporting.
- Guidance: a number of guidance notes issued for life insurers on use of derivatives.
- Disclosure: relies on accounting and valuation standards; Insurance (Valuation of Long Term Liabilities) Regulations 2007 prescribe disclosure of options and guarantees.
- Absent explicit requirements that:
  - (i) boards satisfy themselves on adequacy of expertise;
  - (ii) insurers have board-approved derivatives policy;
  - (iii) insurers have risk management systems and internal controls for derivatives;
  - (iv) insurers have adequately skilled staff to vet models and verify pricing independently;
  - (v) insurers have audit procedures for derivatives.
- IPA relies on general prudence and accounting/auditing standards; DCG will set expectations in these areas.
- Assessment: Largely Observed.
- Comments: Use of derivatives limited to life insurers; focus on major risk area is appropriate; DCG will clarify expectations.

### Principle 23 — Capital adequacy and solvency
- Legal basis: solvency regime set out in Section 12 of IA2008 and in Regulation 13 and Schedule 7 of the 1986 Regulations.
- Capital definition: two tiers — Tier 1: shareholders’ equity as defined in accounting standards; Tier 2: items agreed by IPA as similar to Tier 1.
- Secondary capital: IPA permits letters of credit and guarantees from a bank as eligible capital on application, normally consenting only to captive insurers.
- Minimum solvency calculations: set out in regulations and differentiated by type of business (captives lower than life; linked business lower than other life business).
- Practical expectations: IPA expects (and can formally require) insurers to hold a margin higher than regulatory minimum. For life companies, the minimum is (at least) twice the amount specified in the regulations. For nonlife insurers, minimum equals the maximum loss in any one event on largest individual risk plus allowances for other lines and expenses.
- Monitoring and response: IPA monitors capital via regular returns; when capital falls below minimum, IPA may:
  - (i) require more frequent reporting;
  - (ii) use Section 13 of IA2008 to request a short-term financial scheme (inadequate or absent scheme deems insurer unable to pay debts, triggering winding-up powers);
  - (iii) under Section 8 attach a condition to authorization requiring certain capital level.
- Forward-looking monitoring: life insurers must submit a three-year plan with each annual return; nonlife insurers required on authorization application only. Insurers regularly develop Financial Condition Reports as part of internal solvency monitoring (may be reviewed by IPA but not required to be submitted).
- Benchmarking: IPA does not benchmark against other regulators other than the United Kingdom; monitors EU developments closely.
- Assessment: Observed.
- Comments: Well-founded solvency framework combining hard minimum with flexible higher firm-specific requirements; IPA needs to consider response to Solvency II and wider international developments, accounting for resource implications.

### Principle 24 — Intermediaries
- Regulation: intermediaries regulated under IA2008; required to be authorized; IPA has same powers over intermediation as for insurance business, including action against unauthorized intermediation and information exchange with other regulators.
- Exemptions: intermediaries conducting only life insurance business are exempt from IA2008 authorization—they are likely to require authorization under Financial Services Act 2008 and subject to FSC requirements. Intermediaries authorized in the United Kingdom and nonresident in the IOM are also exempt.
- Detailed requirements: IIR 1999 (Schedule 3) sets “common trading practices” including high professional conduct standards and adequate skills.
- Client money: Paragraph 4 of Schedule 3 requires client money held in a designated client’s account.
- Disclosure: Paragraph 1 (a) (iii) requires intermediary to disclose its status to customer.
- Professional Indemnity Insurance: required for all authorized intermediaries; no required level of financial resources.
- Review: approach kept under review in light of UK Retail Distribution Review.
- Assessment: Observed.
- Comments: Extensive requirements under IPA (general insurance) and FSC (life insurance). IPA should keep under review whether reliance on Professional Indemnity Insurance sufficiently protects consumers from intermediary failure.

### Principle 25 — Consumer protection
- Current state: limited specific business conduct requirements for insurance companies.
- Actuarial fairness: actuaries required to take fair treatment of policyholders into account in valuation of liabilities.
- Complaints handling: extensive requirements related to Financial Services Ombudsman Scheme, administered by Office of Fair Trading.
- DCG: full requirements on insurers to be set out in DCG (due early 2009) including due skill, care and diligence, policies on treating customers fairly, requirements to seek information from customers, procedures and staff training.
- Intermediaries: subject to IIR 1999 requirements (see ICP24).
- Compensation: life insurance policyholders compensation scheme exists (see ICP16).
- Assessment: Largely Observed.
- Comments: No explicit requirements in IA2008; IPA covers market conduct through supervision and enforcement and will set out full standards in DCG.

### Principle 26 — Information, disclosure & transparency
- Current disclosure: IPA has no requirements on disclosure by IOM authorized insurance companies of ICP 26 specified information.
- Firms required to produce annual audited accounts and submit these and quarterly information to IPA, but these do not have to be lodged with Companies Registry or made public.
- Confidentiality: IPA cannot publish returns itself as this would conflict with confidentiality obligations for supervisory information.
- Group information: where part of an overseas group, group accounts may contain information on IOM operations.
- Captives: IAIS guidance suggests ICP 26 disclosure requirements should not apply to captives.
- Assessment: Not Observed.
- Comments: IPA engaged with industry and local actuarial society on developing disclosure standards; timing uncertain though proposals expected in first half of 2009. IPA could consider being able to publish supervisory returns itself. Authorities note many firms already provide information to policyholders, advisers and stakeholders on demand and that commercial reporting databases include IOM company information (participation voluntary). See recommendation in Table 2.

### Principle 27 — Fraud
- Legal basis: reduction of financial crime is an IPA objective in law; IPA’s full range of powers can be used to make and enforce requirements related to fraud; criminal law penalties available for claims fraud.
- Statutory regard: IPA required under Section 2 (f) of IA2008 to have regard to insurers taking appropriate measures and allocating resources to prevent crime.
- Current requirements: no explicit insurer-specific requirements on resources, procedures and controls to deal with fraud; IPA does not require insurers to report fraud to authorities.
- Supervisory practice: IPA relies on general requirements on prudent conduct and fit and proper tests; includes financial crime issues in supervision; has not had occasion to take enforcement action for weak fraud controls.
- Cooperation: IPA has policies, powers and procedures for full cooperation with other supervisory authorities on countering fraud.
- Assessment: Largely Observed.
- Comments: IPA needs to introduce standards on internal controls; proposed new guidance on corporate governance will deliver these.

### Principle 28 — Anti-money laundering, combating the financing of terrorism (AML/CFT)
- Legal framework: insurers, managers and intermediaries subject to Criminal Justice (Money Laundering) Code 2007; separate Insurance (Anti-Money Laundering) Regulations, 2008; IPA Guidance Notes on Anti-Money Laundering and Preventing the Financing of Terrorism for Insurance Businesses (Long Term Business).
- Supervisory and enforcement powers: IPA powers to supervise and enforce AML/CFT requirements available for insurers, managers and intermediaries; general powers to cooperate with domestic and overseas agencies.
- Supervisory action: IPA has taken supervisory action to enforce compliance, including appointment of external experts to review a firm’s AML compliance leading to extensive remedial measures.
- On-site program: AML/CTF issues covered in rolling on-site visits with sample testing; for long-term insurers AML issues have been main focus in recent years.
- FATF-relevant provisions included:
  - customer due diligence—Regulation 9(1);
  - enhanced measures for higher risk customers—18(1);
  - records retention for five years—Code Section 4(1)(a)(ii);
  - monitoring for complex transactions—Code Section 6(2)(c);
  - reporting suspicious transactions to the FIU—Criminal Justice Act 1990, Section 17K;
  - internal programs—Regulation 36;
  - ensuring branches and subsidiaries meet home state requirements—Regulation 3(1).
- Assessment: Observed.
- Comments: IPA has well-developed requirements, especially for life insurance business, and has prioritized AML in on-site supervision. See also IMF’s September 2008 assessment of IOM’s compliance with FATF AML/CFT standards (2004 Methodology).

*Source: _cr09277 - Section 22 permit holders (branches of insurers incorporated in countries which the IPA is satisfied have equivalent requirements)*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09277.pdf_