## _cr09283

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---

### Introduction and methodology
- Assessment context:
  - Carried out as part of the 2008 FSAP Update; updates and replaces the assessment conducted in 2002 (published in 2003).
  - Assessor: Ian Tower of the IMF’s Monetary and Capital Markets Department.
  - Based on information available at the time of the November 2008 mission, updated to reflect documented regulatory and economic developments since then.
- Information and methods:
  - Authorities provided a full self assessment and further information in response to a pre-mission questionnaire; full documentation, including all relevant laws and regulations, was supplied.
  - Assessment took account of discussions with the Jersey Financial Services Commission (JFSC) and meetings with government, insurance companies and managers, local accountancy profession representatives, and a representative of a major audit practice.
  - Assessment was based on the 2003 version of the IAIS ICPs and Methodology and took into account relevant IAIS standards and guidance.
  - Assessment of ICP 28 (AML/CFT) informed by the IMF’s November 2008 assessment of Jersey’s compliance with the FATF AML/CFT standards using the 2004 Methodology.

### Institutional and market structure — overview
- Characterisation and market composition:
  - Insurance sector in Jersey is underdeveloped relative to banking and investment business on the island and to the insurance sectors in Guernsey and the Isle of Man.
  - A large number of insurers are licensed by the JFSC, but the majority undertake business on a cross-border basis using brokers and have no physical presence in Jersey.
  - Some companies established in the island are closed to new business or are in the course of relocation.
  - Sources of business: (i) local businesses and individuals (property, motor, household risks, life assurance and pensions); (ii) trust and company service providers on the island covering mostly international risks; (iii) limited international business focused on catastrophe and weather risks.
- Market size and composition:
  - No comprehensive data for overall market size.
  - Mission estimate: total annual general insurance premium flows may be around GBP 150 million.
  - Net retained insurance risk (after reinsurance) is low for Category B firms.

### Licensing, permit categories, and industry structure (end-September 2008)
- Category A (firms incorporated overseas and licensed to sell business in Jersey):
  - Total: 172 firms.
  - 102 offered general insurance and 70 life.
  - Only 3 firms have a physical presence on the island.
  - Most originate from the UK and other EU jurisdictions; some from South Africa and the USA.
  - Category A firms must submit annual accounts and copies of home regulatory returns, but these documents do not include data on business originating in Jersey.
- Category B (firms incorporated on the island):
  - Total: 14 firms.
  - 3 (2 life and 1 general) are closed to new business (1 is in liquidation).
  - A further 3 have yet to write new business.
  - Remainder writes mostly specialist risks.
  - Net premium income in 2007 of the Category B firms was less than GBP 4 million.
  - Total assets of Category B firms are around GBP 800 million.
- Exemptions under the IB(J)L:
  - Jersey Mutual Insurance Society is exempt; gross premium income was GBP 3.6 million in 2007; net premium income was around GBP 1 million.
  - Lloyd’s insurance business is also exempt.
- Intermediaries:
  - JFSC licenses intermediaries under the Financial Services (Jersey) Law 1998 (FS(J)L), not under IB(J)L.
  - Around 120 intermediaries for general insurance (about half are primary brokers); 98 for life insurance.
  - General insurance broking has been licensed in Jersey since 2005.

### Regulator, governance, and operational capacity
- JFSC structure and resources:
  - Sole regulator of insurance in Jersey; established under Article 2 of the Financial Services Commission (Jersey) Law 1998 (FSC(J)L).
  - Composition: a chairman and at least six other commissioners (currently nine), appointed by Jersey Parliament (the States) on nomination of the minister for economic development.
  - JFSC total staff: 108.
  - Insurance division staff: has a staff of four—an increase from two in mid-2007 and only one some years ago.
  - JFSC has full operational autonomy over expenditure and staff remuneration and has been self-funding.
- Motor insurance authorization:
  - Additional authorization required from the minister under the Motor Traffic (Third Party Insurance) (Jersey) Law 1948.
  - No company may be authorized unless it is a member of the Motor Insurers’ Bureau (MIB) in the UK.
- Consumer protection and dispute resolution:
  - No ombudsman to adjudicate customer complaints and no policyholder compensation arrangements for insurance business on the island.
  - The IB(J)L provides for schemes for compensating policyholders to be established if needed.
  - Government review of consumer protection regulation and ombudsman services is under way.

### Legal, accounting, and actuarial framework
- Legislative and professional frameworks:
  - Companies (Jersey) Law 1991 requires auditors of companies in Jersey to be members of a professional body in the UK or Ireland.
  - Financial statements must be prepared in accordance with IFRS or the GAAP of the UK, the USA, or with prior approval of the JFSC, “the country or territory in which the beneficial owner of the permit holder resides or is incorporated.”
  - Life insurers must appoint as actuary either a Fellow of the Institute of Actuaries in England and Wales or a Fellow of the Faculty of Actuaries in Scotland or someone who can satisfy the JFSC of appropriate actuarial qualifications and experience.
- Audit oversight:
  - No official oversight of the quality of audit work of Jersey companies currently exists.
  - Auditors are subject to reviews by their relevant professional body (e.g., practice assurance review scheme operated by the Institute of Chartered Accountants in England and Wales).
  - Legislation to amend the Companies Law is being drafted that will: (i) result in one or more professional bodies monitoring the quality of audit work; and (ii) enable action to be taken against auditors that breach rules designed to facilitate high quality audits.

### Recent performance and impact of global credit/liquidity problems
- Impact summary (Category B insurers):
  - Impact of global credit and liquidity problems has been limited given the nature and scale of Category B activities.
  - There have been no significant losses.
  - Impacts expected to be indirect (e.g., reduced interest by fund managers in Jersey-registered insurers used as special purpose vehicles).
- Market conditions and solvency:
  - General insurance business in Jersey is highly competitive.
  - Limited indications as yet of a return to harder market conditions.
  - All Category B firms maintain solvency cover well in excess of their minimum required margins.
- Data limitations:
  - Absence of data on Jersey business of Category A permit holders and limited business of Category B firms make it not possible to assess performance and profitability of Jersey insurance business.
  - The mission did not undertake stress tests for the insurance sector.

### Observance of IAIS Insurance Core Principles — aggregate grading
- Aggregate: Observed (O) – 20, largely observed (LO) – 4, partly observed (PO) – 2, not observed (NO) – 1, not applicable (N/A) – 1.

### Key supervisory strengths (selected ICPs graded O or LO)
- ICP1 (Conditions for effective insurance supervision): O — well-defined, transparent and effective policy, legal and institutional frameworks; access to professional services locally and via the UK and elsewhere.
- ICP2 (Supervisory objectives): O — clear objectives and distinction between regulation and promotion.
- ICP4 (Supervisory process): O — transparent and accountable operations; scope to provide more insurance-specific regulatory information.
- ICP5 (Supervisory cooperation and information sharing): O — committed to exchanging information; developing overseas contacts, particularly UK.
- ICP7 (Suitability of persons): O — comprehensive framework for suitability of key functionaries.
- ICP20 (Liabilities): O — firms required to use international standards (normally UK), with GAD support for reviews.
- ICP28 (AML/CFT): O — well-developed set of requirements; FATF-related measures preserved in ML(J)O and AML/CFT Handbook.

### Areas requiring attention (grades and principal issues)
- ICP3 (Supervisory authority): LO — Schedule 1 (FSC(J)L) should provide an explicit requirement that the reasons for the dismissal from office of any commissioner be made public.
- ICP6 (Licensing): PO — comprehensive licensing framework exists, but one general insurance business with significant domestic business is exempted; no internal policy for assessing adequacy/equivalence of home state regulation for Category A firms; Category A insurers include a small number of branches that should be regulated to reflect branch status.
- ICP8 (Changes in control and portfolio transfers): PO — IB(J)L provides framework but lacks direct obligations on controllers to seek approval and shareholder controllers are not required to notify or seek approval for increases above predetermined control levels.
- ICP13 (On-site inspection): LO — increased on-site work; should develop thematic visit program and apply model to branches (Category A firms with physical presence).
- ICP17 (Group-wide supervision): NA — JFSC currently has no group/home supervisory responsibilities; framework lacks group-wide elements such as a group solvency test.
- ICP18 (Risk assessment and management): LO — requirements developed but relatively limited; could be expanded (e.g., require a statement of risk appetite and assessment/management of operational risks).
- ICP23 (Capital adequacy and solvency): LO — appropriate solvency regulations and monitoring processes, but should consider whether reliance on EU Solvency I framework is appropriate given international developments.
- ICP26 (Information, disclosure and transparency towards markets): NO — JFSC has no requirements on disclosure by insurance companies of the information specified in this ICP; JFSC does not publish insurers' annual audited financial statements or six-monthly returns.

### Recommended action plan (selected by Principle)
- ICP3:
  - Amend Schedule 1 of the FSC(J)L to provide an explicit requirement that the reasons for the dismissal from office of any commissioner be made public.
- ICP6:
  - Narrow scope of exemptions from the IB(J)L so all insurers are licensed and subject to JFSC supervision.
  - Develop an internal policy on assessing whether home state regulation of Category A firms is equivalent to JFSC regulation.
  - Review approach to Category A firms with a presence on the island so they are regulated as branches.
- ICP8:
  - Amend IB(J)L to require potential shareholder controllers to seek the JFSC’s consent at appropriate control levels.
- ICP13:
  - Apply the JFSC’s risk model to branches (Category A firms with physical presence) and undertake on-site work as justified by risk assessment.
  - Introduce a thematic (cross-firm) approach to supervisory work.
- ICP17:
  - Review adequacy of powers and policies if JFSC were to take on group/home supervisory responsibilities; consider legislative amendments to obtain information from unregulated group entities.
- ICP18:
  - Develop further requirements on risk management, e.g., require insurers to have a statement of risk appetite and to assess, monitor and manage operational risk.
- ICP23:
  - Continue monitoring development of international standards for risk based solvency.
  - Pending new standards, review existing solvency requirements and consider revised standards or individual minimum requirements based on firm risk assessments.
- ICP26:
  - Work with insurers to develop disclosure requirements tailored to the nature of business conducted on the island and decide which insurers should be subject to them (e.g., Category A firms with physical presence).
  - Consider publishing all or part of supervisory returns.

### Supervisory system, ongoing monitoring and supervisory tools (selected operational details)
- Reporting and off-site monitoring:
  - Financial statements must be sent to the JFSC every six months within three months of the reporting date.
  - Insurers must submit audited accounts annually, to include (for life insurers) the actuary’s valuation.
  - Auditors are required to confirm to the JFSC every six months that the company has complied with JFSC requirements regarding new risks/products and restrictions on investment of liquid assets.
  - Returns are not required on a group basis. Category A firms are exempt from all reporting requirements, although the JFSC can require reporting; Category A firms must submit annual audited financial statements.
- On-site inspection:
  - Legal powers under Article 8 of the FSC(J)L and under the IB(J)L to inspect books, records and transactions.
  - Recruitment since mid-2007 enabled JFSC to assess all Category B insurers and general insurance intermediaries under the risk model and to carry out on-site work for all Category B insurers and 90 percent of the total number of firms.
  - Future visit frequency: high risk firms every twelve months; medium risk at least every three years; low risk on an adhoc basis.
- Preventive, corrective and enforcement powers:
  - Powers include imposing conditions on authorization, directions (Article 36), suspension or cancellation of permits, requiring remedial financial schemes, and applying to Royal Court for appointment of a special manager.
  - Limited civil penalty powers; fines and imprisonment may be imposed by the Royal Court on conviction. Enforcement follows published internal decision-taking procedures.
- Winding-up and exit:
  - Article 24 empowers JFSC to require remedial schemes and to apply to the Royal Court for winding-up orders where necessary.
  - Article 26 requires Category B permit holders to keep long-term policyholders’ assets and liabilities separate from shareholders’ assets and liabilities.
  - No compensation arrangements for non-life policyholders.
- Group-wide supervision:
  - JFSC is not regulator for any insurance group or financial conglomerates; no group solvency framework or powers to obtain information from unregulated group companies.

### Selected technical and conduct areas (findings and assessments)
- Corporate governance (ICP9): Observed — comprehensive corporate governance requirements in Insurance Codes; no requirements for Board sub-committees.
- Internal control (ICP10): Observed — comprehensive requirements in Insurance Codes; supervision includes review of internal reports and auditors' management letters.
- Insurance activity (ICP19): Observed — reliance on six-monthly returns and five year rolling business plans; no specific collateral/security requirements for reinsurance recoverables.
- Liabilities (ICP20): Observed — no formal framework in legislation; reliance on international (normally UK) actuarial standards; GAD used for technical review.
- Investments (ICP21): Observed — permitted asset types listed in Solvency Margin Order; boards required to ensure asset/liability matching; paragraph 5.11.3 requires regular resilience testing.
- Derivatives (ICP22): Observed — Insurance Codes require policy governing use of derivatives; Solvency Margin Order treats derivatives as non-admissible unless authorized via special permit condition.
- Capital adequacy and solvency (ICP23): Largely Observed — solvency regime based on Solvency I; minimum share capital £100,000 (Principle 5 of Insurance Codes); no explicit risk-based capital component.
- Intermediaries (ICP24): Observed — intermediaries licensed under FS(J)L; comprehensive powers including client asset protection.
- Consumer protection (ICP25): Observed — extensive market conduct requirements; no compensation scheme; complaints handling systems required.
- Information, disclosure & transparency (ICP26): Not Observed — JFSC has no requirements that insurers disclose information specified in ICP 26; financial statements do not have to be published except for Jersey public companies.
- Fraud (ICP27): Observed — legal framework and JFSC powers cover fraud; no requirement for firms to allocate resources for fraud procedures; no island databases for fraud.
- AML/CFT (ICP28): Observed — applicable legislation: Proceeds of Crime (Jersey) Law 1999; Terrorism (Jersey) Law 2002; Drug Trafficking Offences (Jersey) Law 1988; Money-Laundering (Jersey) Order 2008 (ML(J)O); regulatory guidance: AML/CFT Handbook. FATF-related measures preserved (customer due diligence, enhanced measures, records retention for five years, monitoring complex transactions, reporting suspicious transactions, developing internal programs). Category B permit holders required to provide an annual directors’ declaration on AML compliance; no equivalent annual declaration for Category A firms where these take the form of branches.

### Authorities’ response
- The JFSC welcomes the IMF assessment noting that insurance regulation in Jersey has been strengthened since the 2003 assessment.
- The JFSC is in broad agreement with the recommendations and has prepared an action plan to address each recommendation while considering the very limited nature of the Jersey insurance market.
- The JFSC will develop disclosure requirements (ICP 26) in the context of the specialized local market and, in some cases, will amend legislation to incorporate explicit provisions reflecting current JFSC practices.

*Source: IMF assessment based on the November 2008 FSAP Update mission documents and materials provided by Jersey authorities.*

### 1.   Summary of Observance of the Insurance Core Principles—Detailed Assessments ..........9

### 1.   Summary of Observance of the Insurance Core Principles—Detailed Assessments

### Introduction and methodology
- Assessment context:
  - Carried out as part of the 2008 FSAP Update; updates and replaces the assessment conducted in 2002 (published in 2003).
  - Assessor: Ian Tower of the IMF’s Monetary and Capital Markets Department.
  - Based on information available at the time of the November 2008 mission, updated to reflect documented regulatory and economic developments since then.
- Information and methods:
  - Authorities provided a full self assessment and further information in response to a pre-mission questionnaire; full documentation, including all relevant laws and regulations, was supplied.
  - Assessment took account of discussions with the Jersey Financial Services Commission (JFSC) and meetings with government, insurance companies and managers, local accountancy profession representatives, and a representative of a major audit practice.
  - Assessment was based on the 2003 version of the IAIS ICPs and Methodology and took into account relevant IAIS standards and guidance.
  - Assessment of ICP 28 (AML/CFT) informed by the IMF’s November 2008 assessment of Jersey’s compliance with the FATF AML/CFT standards using the 2004 Methodology.

### Institutional and market structure—overview
- Characterisation:
  - The insurance sector in Jersey is underdeveloped, in relation to banking and investment business on the island and to the insurance sectors in Guernsey and the Isle of Man.
  - A large number of insurers are licensed by the JFSC, but the majority undertake business on a cross-border basis using brokers and have no physical presence in Jersey.
  - Some companies established in the island are closed to new business or are in the course of relocation.
  - Challenges exist for the JFSC in regulating diverse remaining business in an effective and proportionate manner.
- Sources of insurance business:
  - (i) Local businesses and individuals: property, motor, household risks, life assurance and pensions.
  - (ii) Trust and company service providers based on the island: cover for mostly international risks such as property portfolios abroad.
  - (iii) Limited international business attracted by the island: focus on catastrophe and weather risks.
  - Domestic insurers seek reinsurance to cover a percentage of catastrophe losses.
- Market size and composition:
  - No comprehensive data for overall market size.
  - Mission estimate: total annual general insurance premium flows may be around GBP 150 million (based on discussions and JFSC data on brokerage income).
  - Net retained insurance risk (after reinsurance) is low for Category B firms.

### Licensing, permit categories, and industry structure
- IB(J)L permit types and counts (as of end-September 2008):
  - Category A—firms incorporated overseas and licensed to sell business in Jersey:
    - Total: 172 firms.
    - 102 offered general insurance and 70 life.
    - Only 3 firms have a physical presence on the island.
    - Most originate from the UK and other EU jurisdictions; some from South Africa and the USA.
    - JFSC approach relies heavily on the home state regulator; Category A firms must submit annual accounts and copies of home regulatory returns, but these documents do not include data on business originating in Jersey.
  - Category B—firms incorporated on the island:
    - Total: 14 firms.
    - 3 (2 life and 1 general) are closed to new business (1 is in liquidation).
    - A further 3 have yet to write new business.
    - Remainder writes mostly specialist risks.
    - Net premium income in 2007 of the Category B firms was less than GBP 4 million.
    - Total assets of Category B firms are around GBP 800 million.
- Exemptions under the IB(J)L:
  - Jersey Mutual Insurance Society (writes personal lines business for members on a direct basis) is exempt.
    - Gross premium income was GBP 3.6 million in 2007; net premium income was around GBP 1 million.
  - Lloyd’s insurance business is also exempt.
- Intermediaries:
  - JFSC licenses intermediaries under the Financial Services (Jersey) Law 1998 (FS(J)L), not under IB(J)L.
  - Around 120 intermediaries for general insurance (about half are primary brokers); 98 for life insurance.
  - General insurance broking has been licensed in Jersey since 2005.

### Regulator, governance, and operational capacity
- JFSC:
  - Sole regulator of insurance in Jersey.
  - Established under Article 2 of the Financial Services Commission (Jersey) Law 1998 (FSC(J)L).
  - Composition: a chairman and at least six other commissioners (currently nine), appointed by Jersey Parliament (the States) on nomination of the minister for economic development.
  - Appointment convention: members of the States are not appointed commissioners.
  - FSC(J)L requires balance between interests of providers, users, and the public.
  - The minister may give general guidance or directions under Article 12 of the FSC(J)L; an MOU covering Article 12 has been signed, but the minister has given no guidance or directions to date.
  - JFSC total staff: 108.
- Motor insurance authorization:
  - Applications to carry motor insurance business require additional authorization from the minister for transport and technical services under the Motor Traffic (Third Party Insurance) (Jersey) Law 1948.
  - No company may be authorized unless it is a member of the Motor Insurers’ Bureau (MIB) in the UK.
  - In practice, the minister will not grant authorization without assurance from the JFSC that it is prepared to issue an insurance permit and that MIB membership is held by the applicant.
- Consumer protection and dispute resolution:
  - There is no ombudsman to adjudicate customer complaints and no policyholder compensation arrangements for insurance business on the island.
  - The IB(J)L provides for schemes for compensating policyholders to be established if needed.
  - The government’s approach to consumer protection regulation and ombudsman services across all business on the island is under review and may lead to changes.

### Legal, accounting, and actuarial framework
- Constitutional and legal context:
  - Jersey is a dependency of the Crown, self-governing in internal matters, with its own courts and legislative assembly (the States).
- Legislation and standards referenced:
  - Companies (Jersey) Law 1991 (Companies Law): requires auditors of companies in Jersey to be members of a professional body in the UK or Ireland.
  - Financial statements of insurance companies must be prepared in accordance with IFRS or the GAAP of the UK, the USA, or with prior approval of the JFSC, “the country or territory in which the beneficial owner of the permit holder resides or is incorporated.”
  - Life insurers must appoint as actuary either a Fellow of the Institute of Actuaries in England and Wales or a Fellow of the Faculty of Actuaries in Scotland or someone who can satisfy the JFSC that he has “such actuarial qualifications and experience as are appropriate.”
  - The JFSC considers the appropriateness of actuarial standards adopted by insurers when assessing new permit applications and reviewing financial statements.
- Audit oversight:
  - No official oversight of the quality of audit work of Jersey companies currently exists.
  - Auditors are subject to reviews by their relevant professional body (e.g., practice assurance review scheme operated by the Institute of Chartered Accountants in England and Wales).
  - Legislation to amend the Companies Law is being drafted that, in respect of companies that have securities admitted to trade on regulated markets, will:
    - (i) result in one or more professional bodies monitoring the quality of audit work; and
    - (ii) enable action to be taken against auditors that breach rules designed to facilitate high quality audits.

### Recent performance
- Data limitations:
  - Absence of data on Jersey business of Category A permit holders and limited business of Category B firms make it not possible to assess performance and profitability of Jersey insurance business.
  - The mission did not undertake stress tests for the insurance sector.
- Market conditions and solvency:
  - General insurance business in Jersey is highly competitive.
  - Limited indications as yet of a return to harder market conditions.
  - All Category B firms maintain solvency cover well in excess of their minimum required margins.

*Source: IMF assessment based on the November 2008 FSAP Update mission documents and materials provided by Jersey authorities.*

### 18.      The impact of the global credit and liquidity problems on Jersey insurers

### 18.      The impact of the global credit and liquidity problems on Jersey insurers

### Impact summary
- The impact of the global credit and liquidity problems on Jersey insurers (Category B) has been limited, reflecting the nature and scale of their activities.
- There have been no significant losses.
- Impacts are expected to be indirect, for example through reduced interest in the use of Jersey registered insurers by fund managers that wish to establish special purpose vehicles holding investment instruments and which have an insurance element.

### Main findings — observance of IAIS Insurance Core Principles
- Aggregate: Observed (O) – 20, largely observed (LO) – 4, partly observed (PO) – 2, not observed (NO) – 1, not applicable (N/A) – 1.
- Key supervisory strengths:
  - ICP1 (Conditions for effective insurance supervision): O — well-defined, transparent and effective policy, legal and institutional frameworks; access to professional services locally and via the UK and elsewhere.
  - ICP2 (Supervisory objectives): O — JFSC has clear and appropriate objectives and clear distinction between regulation and promotion.
  - ICP4 (Supervisory process): O — transparent and accountable operations; scope to provide more insurance-specific regulatory information.
  - ICP5 (Supervisory cooperation and information sharing): O — committed to exchanging information; developing overseas contacts, particularly UK.
  - ICP7 (Suitability of persons): O — comprehensive framework for suitability of key functionaries; could consider barring dual positions that create conflicts.
  - ICP9, ICP10, ICP11, ICP12, ICP14, ICP15, ICP16, ICP19, ICP20, ICP21, ICP22, ICP24, ICP25, ICP27, ICP28: graded O with specific supportive comments (see detailed assessment).
- Areas requiring attention (grades and principal issues):
  - ICP3 (Supervisory authority): LO — JFSC has adequate powers and resources and is operationally independent; Schedule 1 (FSC(J) L) should provide an explicit requirement that the reasons for the dismissal from office of any commissioner be made public.
  - ICP6 (Licensing): PO — comprehensive licensing framework exists, but one general insurance business with significant domestic business is exempted; no internal policy for assessing adequacy/equivalence of home state regulation for Category A firms; Category A insurers include a small number of branches that should be regulated to reflect branch status.
  - ICP8 (Changes in control and portfolio transfers): PO — IB(J)L provides framework but lacks direct obligations on controllers to seek approval and shareholder controllers are not required to notify or seek approval for increases above predetermined control levels.
  - ICP13 (On-site inspection): LO — increased on-site work; should develop thematic visit program and apply model to branches (Category A firms with physical presence).
  - ICP17 (Group-wide supervision): NA — JFSC currently has no group/home supervisory responsibilities; framework lacks group-wide elements such as a group solvency test.
  - ICP18 (Risk assessment and management): LO — requirements developed but relatively limited; could be expanded (e.g., require a statement of risk appetite and assessment/management of operational risks).
  - ICP20 (Liabilities): O — no formal framework for establishment of provisions; firms required to use international standards (normally UK), with GAD support for reviews.
  - ICP23 (Capital adequacy and solvency): LO — appropriate solvency regulations and monitoring processes, but should consider whether reliance on EU Solvency I framework is appropriate given international developments.
  - ICP26 (Information, disclosure and transparency towards markets): NO — JFSC has no requirements on disclosure by insurance companies of information specified in this ICP; while disclosure may be limited in value for some Category B firms, some firms have significant numbers of policyholders and some are open to new business.

### Recommended action plan (selected, by Principle)
- ICP3 - Supervisory authority:
  - Amend Schedule 1 of the FSC(J) L to provide an explicit requirement that the reasons for the dismissal from office of any commissioner be made public.
- ICP6 - Licensing:
  - Narrow scope of exemptions from the IB(J)L so all insurers are licensed and subject to JFSC supervision.
  - Develop an internal policy on assessing whether home state regulation of Category A firms is equivalent to JFSC regulation.
  - Review approach to Category A firms with a presence on the island so they are regulated as branches.
- ICP8 - Changes in control and portfolio transfers:
  - Amend IB(J)L to require potential shareholder controllers to seek the JFSC’s consent at appropriate control levels.
- ICP13 - On-site inspection:
  - Apply the JFSC’s risk model to branches (Category A firms with physical presence) and undertake on-site work as justified by risk assessment.
  - Introduce a thematic (cross-firm) approach to supervisory work.
- ICP17 - Group-wide supervision:
  - Review adequacy of powers and policies in the event JFSC were to take on group/home supervisory responsibilities; consider legislative amendments to obtain information from unregulated group entities.
- ICP18 - Risk assessment and management:
  - Develop further requirements on risk management, e.g., require insurers to have a statement of risk appetite and to assess, monitor and manage operational risk.
- ICP23 - Capital adequacy and solvency:
  - Continue monitoring development of international standards for risk based solvency.
  - Pending new standards, review existing solvency requirements and consider revised standards or individual minimum requirements based on firm risk assessments.
- ICP26 - Disclosure and transparency:
  - Work with insurers to develop disclosure requirements tailored to the nature of business conducted on the island and decide which insurers should be subject to them (e.g., Category A firms with physical presence).
  - Consider publishing all or part of supervisory returns.

### Authorities’ response
- The JFSC welcomes the IMF assessment noting that insurance regulation in Jersey has been strengthened since the 2003 assessment.
- The JFSC is in broad agreement with the recommendations and has prepared an action plan to address each recommendation while considering the very limited nature of the Jersey insurance market.
- The JFSC will develop disclosure requirements (ICP 26) in the context of the specialized local market and, in some cases, will amend legislation to incorporate explicit provisions reflecting current JFSC practices.

*IMF staff report: "18. The impact of the global credit and liquidity problems on Jersey insurers" (section and tables as provided).*

### 21.      The JFSC will continue to consider developments in international standards for

### _cr09283 - 21.      The JFSC will continue to consider developments in international standards for

### Conditions for Effective Insurance Supervision
- Government policy: develop a growing financial sector—2 percent sustainable growth in real terms across the finance industry as a whole.
- Institutional arrangements:
  - No formal body responsible for financial stability; Jersey has no central bank.
  - No explicit government statement on financial stability; financial stability not explicitly included in the JFSC’s functions and general principles.
  - JFSC is required to have regard to the best economic interests of Jersey.
- Legal, institutional and market infrastructure:
  - Well-developed legal and institutional infrastructure; Jersey develops its own framework for financial services regulation while keeping close regard to EU standards and practices.
  - Transparency via publication on government, Jersey Finance and JFSC websites; system-wide issues reviewed in meetings between JFSC and government.
  - Well-established and resourced court system; no alternative dispute resolution mechanism outside judicial system for handling complaints.
- Accounting, auditing and actuarial frameworks:
  - Jersey has its own company legislation but no local accounting or actuarial standard-setting bodies; looks to other jurisdictions (especially the UK) for frameworks.
  - Insurance companies must produce financial statements in accordance with IFRS or the GAAP of the UK, the USA, or, with prior JFSC approval, “the country or territory in which the beneficial owner of the permit holder resides or is incorporated.”
  - Auditors must be approved by the JFSC by virtue of the Schedule to the Insurance Business (General Provisions) (Jersey) Order 1996 (General Provisions Order) and have a majority of partners or directors who are members of a professional body in the UK or Ireland.
  - All major accounting firms present on the island; adequate capacity to audit Category B insurers; majority of Category B insurers audited by major accounting firms.
  - Life insurers must appoint as actuary either a Fellow of the Institute of Actuaries in England and Wales or a Fellow of the Faculty of Actuaries in Scotland or someone who can satisfy the JFSC of appropriate actuarial qualifications and experience; few actuaries practice on the island but actuarial expertise available in Guernsey or the UK.
  - Except for Jersey public companies, accounts do not have to be published (see ICP26).
  - Accounting and auditing work are not currently subject to oversight locally; legislation to amend the Companies Law is being drafted to: (i) result in one or more professional bodies monitoring the quality of audit work; and (ii) enable action against auditors that breach rules designed to facilitate high quality audits.
- Financial markets and currency:
  - No developed domestic financial markets (money or securities); insurance companies access markets in the UK and elsewhere for financial instruments and reinsurance.
  - Domestic liabilities may be backed by overseas investments due to the currency union between the Jersey pound and the UK pound sterling.
- Assessment: Observed
- Comment: Jersey has well-defined, transparent and effective policy, legal and institutional frameworks for insurance business and access to well-functioning financial markets overseas; benefits from local accounting/auditing availability and access to actuarial expertise in the UK and elsewhere.

### The Supervisory System
- Principle 2 — Supervisory objectives:
  - JFSC functions under the FSC(J)L (Article 5) and guiding principles (Article 7) together equivalent to statutory objectives.
  - No objectives relating specifically to insurance (integrated regulator), but guiding principles promote insurance-related objectives listed in ICP 2.
  - Guiding principles include: reduction of risk to the public from dishonesty/incompetence/malice or financial unsoundness; protection and enhancement of Jersey’s reputation and integrity; regard to the best economic interests of Jersey; need to counter financial crime in Jersey and elsewhere.
  - Deviation or contradiction in objectives would be highlighted and addressed with government; in practice JFSC believes objectives are not in conflict.
  - Assessment: Observed
  - Comment: JFSC has clear and appropriate objectives and a clear distinction between regulation and promotion of the insurance sector.
- Principle 3 — Supervisory authority:
  - Legal powers and instruments:
    - IB(J)L identifies JFSC as regulator of insurance, defines scope and gives powers to make and enforce regulatory requirements.
    - JFSC does not have explicit rule-making powers but may issue Insurance Codes of Practice (IB(J)L Article 42) which provide practical guidance and establish sound principles; failure to follow Codes provides basis for regulatory action.
    - Minister may make orders (on JFSC recommendation) covering requirements including solvency margin requirements; States may overturn such orders. Regulations may be made directly by the States where provided.
    - Insurance Codes are enforced similarly to Orders and Regulations; material breaches may attract public statement (Article 43) or directions (Article 36). Breach of a direction is a criminal offence. Insurance Codes have evidential status in court but do not on their own render a person criminally liable.
  - Governance and accountability:
    - JFSC governance and structure defined in FSC(J)L; includes internal corporate governance and an internal audit function.
    - Commissioners appointed by the States on the minister’s nomination; composition must secure balance between providers, users and public interests.
    - Commissioners serve maximum term of three years (renewable once). Provisions for termination by the minister set out in FSC(J)L Schedule 1, Part 2 paragraph 1; not used to date. No provision requiring publication of reasons for removal; JFSC notes Article 13 could be used to publish matters if removal necessary.
    - Minister may give general guidance under Article 12 only of a general nature; MOU signed between minister and JFSC; no guidance or directions given to date.
  - Resources and operational independence:
    - JFSC has full operational autonomy over expenditure and staff remuneration; staff are JFSC employees.
    - Income derived from fees on licensed companies and annual returns from Jersey company’s Companies Register; may receive grant or loan under Articles 16 and 17 but has been self-funding.
    - Subject to Regulation of Undertakings and Development (Jersey) Law 1973 population office staff caps; proposed staff increases require approval but not a practical constraint to date.
    - Insurance division staff: has a staff of four—an increase from two in mid-2007 and only one some years ago.
    - Increase and restructuring enabled introduction of a risk assessment process and more extensive on-site supervision; resources can be supplemented with external consultants as required.
    - Staffing judged adequate given limited number of Category B firms and sector risks but kept under review pending international standards developments.
  - Regulatory process and transparency:
    - Regulatory framework set out in legislation and JFSC publications including codes of practice.
    - Except for codes of practice, JFSC not legally obliged to consult on new requirements but has committed to consultation via policy statement; regulatory impact assessments are conducted.
    - Annual report includes audited financial information; JFSC publishes annual report and seeks to account for activities at public events.
    - Has not published details of failed insurers—there have been no cases.
    - JFSC has powers to take immediate action to protect policyholders and can require insurers to meet costs where insurer at fault.
  - Confidentiality and information gateways:
    - Restrictions on disclosure in IB(J)L Articles 29 (restrictions) and 30–34 (gateways); applies to information collected by experts and consultants.
  - Assessment: Largely Observed
  - Comment: JFSC has adequate powers, resources and operational independence. The need for government to make Regulations and Orders on key requirements could, in certain circumstances, constrain JFSC’s ability to meet objectives and expose it to political influence; in practice JFSC enjoys a high degree of operational independence. Recommendation: Schedule 1 of the FSC(J)L should provide an explicit requirement that reasons for dismissal of any commissioner be made public.
- Principle 4 — Supervisory process:
  - Transparency and accountability:
    - Requirements and processes readily available on JFSC website (including decision-making guidance) and in Annual Report.
    - Approach to regulation grounded in functions and guiding principles of the FSC(J)L; acts consistently and equitably considering risks in different insurance business.
    - Article 9 of IB(J)L provides for appeals to the Royal Court on refusal, variation or cancellation of a permit; Article 8A(3) provides for JFSC to apply to Royal Court to avoid or reduce delay in variation/cancellation effective date where in best interests of policyholders.
    - Annual Report contains some information on insurance sector and regulation; other statistical information available on JFSC website.
  - Assessment: Observed
  - Comment: JFSC conducts functions transparently and accountably; more information could be made available specifically on the insurance sector and its regulatory activities for insurance.
- Principle 5 — Supervisory cooperation and information sharing:
  - Legal basis and practice:
    - Articles 29–34 of IB(J)L set out provisions for disclosure of information; formal agreements not required as prerequisite for sharing.
    - JFSC must consider whether corresponding assistance would be given in recipient country but no requirement for reciprocal exchange.
    - JFSC has MOUs with 16 overseas authorities in respect of insurance—those with which it expects to exchange information regularly.
    - JFSC applying to become signatory to the IAIS Multilateral MOU.
    - Articles 33(2)(a) & (b) and 33(3) require receiving supervisor to treat information as confidential and use only for supervisory purposes.
    - JFSC would inform home supervisor in advance of enforcement action and has exchanged information in practice in response to formal requests and regulator meetings.
    - JFSC would attend college meetings where Jersey business represents significant part of group business.
  - Assessment: Observed
  - Comment: JFSC committed to exchanging information with other supervisors; focusing on developing contacts with overseas regulatory agencies most important to its market, particularly the UK.

### The Supervised Entity
- Principle 6 — Licensing:
  - Definitions and permit types:
    - Article 1 of IB(J)L includes definition of an insurance company, which includes reinsurance.
    - Article 5 of IB(J)L provides two types of permit:
      - Category A permits: granted to insurers that hold an authorization to carry on insurance business under the law of a jurisdiction outside Jersey—provided JFSC is satisfied business is subject to regulation in home state.
      - Category B permits: issued to any other insurer that carries on insurance business in or from within Jersey.
    - Article 5 requires no person shall carry on insurance business in or from within Jersey unless authorized by an insurance business permit under Article 7.
  - Exemptions:
    - Exemptions for trade union and employers’ associations and banks in respect of certain business, Society of Lloyd’s members, and business carried on under other legislation.
    - Significant effect: one general insurance business established under its own legislation is not regulated by the JFSC or any other authority.
- Assessment and comment not separately stated in supplied text for this principle beyond description. 

*Source: _cr09283 - 21.      The JFSC will continue to consider developments in international standards for*

### Part 2 of the IB(J)L sets out clearly and comprehensively the requirements that insurers

### _cr09283 - Part 2 of the IB(J)L sets out clearly and comprehensively the requirements that insurers

### Licensing framework and initial authorisation
- Part 2 of the IB(J)L sets out the requirements that insurers must meet to be authorized.
- When insurance permits are initially issued, special conditions may be attached under Article 7 of the IB(J)L.
- Under Condition 9 of the Schedule to the General Provisions Order, the auditors must formally report on a six monthly basis that the company has complied with such conditions.
- Under Condition 10 of the Schedule to the General Provisions Order, the permit holder must, when submitting annual audited financial statements, provide the JFSC with a five year rolling business plan including appropriate explanations of variances and amendments from year to year.
- A permit application must include details of the products to be provided by the insurer; under Condition 4 of the Schedule to the General Provisions Order, the permit holder cannot introduce new products without the prior consent of the JFSC.
- The JFSC is the only authority permitted to issue an insurance permit. Articles 7(10) & 8 of the IB(J)L require the JFSC to give notice in writing, and an explanation, where a permit is refused, the permit conditions are varied, or a permit is cancelled.
- The JFSC’s internal performance standards require that applications are determined within 30 days of receiving all relevant information regarding the application.
- If a permit application is to be refused, the applicant will be informed of the Guidance on the JFSC’s Decision Making process as published on the JFSC website.

### Ongoing monitoring and on-site examinations
- The JFSC conducts on-site examinations after licensing to assess compliance with the IB(J)L and its associated orders and with the insurance codes.
- Auditors’ six monthly reporting on compliance with special permit conditions is required (Condition 9, Schedule to the General Provisions Order).

### Foreign insurers, home supervisor interaction, and renewals
- For every application from a foreign insurer, the JFSC will seek appropriate information from the home supervisor as part of the initial application process.
- The JFSC will obtain a copy of the return (financial statements and regulatory return together with solvency statements) as submitted to the home regulator as part of the annual renewal application.
- The JFSC always obtains confirmation from the home regulator that there are no regulatory issues in the home jurisdiction as part of the application review process.
- While in licensing a foreign insurer (a Category A firm), the JFSC must satisfy itself that the regulatory framework in the home state is “adequate”, but the JFSC has not developed an internal policy for making such an assessment (e.g. is equivalence required?).

### Permitted activities and restrictions
- An insurer may write only general or long term insurance; composites are not permitted. This requirement is detailed in the JFSC’s published IB(J)L Licensing policy (now under review).
- Insurers are not usually permitted to carry on activities that are not related to insurance.

### Motor insurance special authorisation
- In applications to carry on motor insurance business, additional authorization is required from the minister for transport and technical services under the Motor Traffic (Third Party Insurance) (Jersey) Law 1948.
- No company may be authorized unless it is a member of the Motor Insurers’ Bureau in the UK.
- In practice, the minister will not grant such authorization without prior assurance from the JFSC that it is prepared to issue an insurance permit and that membership of the MIB is held by the applicant.

### Assessment summary on licensing (finding)
- Assessment: Partly Observed.
- Comments: There is a comprehensive framework for licensing as defined by the IB(J)L. However:
  - The law includes exemptions and one general insurance business with significant domestic business is not regulated in Jersey.
  - The JFSC has not developed an internal policy for assessing adequacy/equivalence of home state regulatory frameworks for foreign (Category A) insurers.
  - Category A insurers include a small number of firms with physical presences in Jersey (branches); the JFSC should review its approach to implement regulation that reflects their branch status.

### Principle 7 — Suitability of persons
- Scope: Significant owners, board members, senior management, auditors and actuaries must be fit and proper (integrity, competency, experience, qualifications).
- IB(J)L Articles 7 and 23 identify key functionaries whose appointment/introduction must be notified to the JFSC (Category B insurers): directors, chief executive, key persons (compliance officers, money laundering compliance and reporting officers) and shareholder controllers.
- Shareholder controllers are defined as those who alone or with associates control 15 percent or more of the voting power.
- The IB(J)L gives the JFSC power to object to continued appointment or holding of a key functionary regarded as no longer fit and proper.
- JFSC powers do not extend explicitly to auditors; the appointment of an auditor is approved by the JFSC via the schedule to the General Provisions Order. The JFSC would use general powers (directions or permit conditions) to remove an auditor if necessary.
- No explicit provision prevents a person holding two positions with potential conflict of interest; the JFSC would use its general powers to prevent such doubling up if conflicts are not being managed.
- Insurers are required to notify the JFSC of developments that might call into question fitness and propriety.
- IB(J)L Article 25 requires insurers doing long-term business to appoint an actuary and specifies required professional qualifications; the JFSC may liaise with the professional body and may serve notice of objection on an actuary and the firm.

- Assessment: Observed.
- Comments: The JFSC has a comprehensive framework for suitability of key functionaries; the range of functionaries is limited compared with some jurisdictions but adequate. The JFSC could consider a formal provision preventing dual office-holding where conflicts may arise.

### Principle 8 — Changes in control and portfolio transfers
- IB(J)L defines shareholder controllers (Article 1) and places obligations on insurers regarding changes in control and significant shareholding increases (Article 23).
- There is no direct obligation on shareholder controllers themselves to seek the approval of the JFSC, nor are controllers required to notify or seek approval for increases above predetermined control levels (e.g., 50 percent).
- Article 23(6) provides power for the JFSC to accept or reject any change in control of an insurance company.
- The JFSC communicates with overseas regulators when an application is received from a potential controller based overseas; ultimate beneficial owners must be disclosed and group structures examined.
- Information on financial and other resources of applicant controllers is obtained and assessed.
- The JFSC does not routinely ask insurers to provide shareholder details but does ask where necessary and has powers to require disclosure. Article 23(1) requires the permit holder to give written notice of any person who has become or is to become, or has ceased to be, a shareholder controller.
- Under Article 27 and Schedule 2, insurers undertaking portfolio transfers for life insurance business must apply to the Royal Court for sanctioning (JFSC approval is not required, although the JFSC has a right to be heard in court). The JFSC submits a report on each scheme to the Royal Court.

- Assessment: Partly Observed.
- Comments: Framework exists but there is a gap: the IB(J)L does not place obligations directly on controllers to seek approval and does not require notification for increases above predetermined control thresholds, although firm notification requirements should enable JFSC to identify most changes.

### Principle 9 — Corporate governance
- The JFSC sets out comprehensive corporate governance requirements in its Insurance Codes and reviews governance in supervisory work.
- Paragraph 3.2.1.10 of the Insurance Codes requires directors to provide an annual declaration accepting and understanding responsibilities for compliance with the IB(J)L, Orders, and Insurance Codes, and to specify any instances of non-compliance.
- Insurance Codes include material on conflicts of interest and fair treatment of customers.
- There are no requirements for Board sub-committees.
- Insurers must have remuneration policies and ensure incentive schemes are managed to avoid encouragement of improper or imprudent behavior.
- Requirements on actuaries are set out briefly in the General Provisions Order.

- Assessment: Observed.
- Comments: The JFSC has developed a comprehensive set of corporate governance requirements in its Insurance Codes.

### Principle 10 — Internal control
- The JFSC sets out comprehensive requirements on internal controls in its Insurance Codes.
- The JFSC covers internal controls in supervision work, including review of internal reports and the external auditor’s management letter, and in enforcement work.

- Assessment: Observed.
- Comments: The JFSC has developed comprehensive internal control requirements in the Insurance Codes.

*Source: _cr09283 - Part 2 of the IB(J)L sets out clearly and comprehensively the requirements that insurers*

### conclusions and takes action as appropriate.

### conclusions and takes action as appropriate.

### Supervisory monitoring and market analysis
- The JFSC monitors developments in the markets through:
  - relationships with insurers and intermediaries,
  - monitoring of press and other reporting,
  - membership of international supervisory groupings such as the IAIS and the Offshore Group of Insurance Supervisors.
- Analysis takes account of the nature of the Jersey market – most Category A firms are based overseas and the range of business undertaken by Category B firms is limited.
- Information is made available on the JFSC website of licensed insurers.
- Assessment summary line repeated in source: Observed.

### Principle 12 — Reporting to supervisors and off-site monitoring
- Description of reporting requirements:
  - Financial statements must be sent to the JFSC every six months within three months of the reporting date.
  - Insurers must submit audited accounts annually, to include (for life insurers) the actuary’s valuation.
  - Auditors are required to confirm to the JFSC every six months that the insurer complies with JFSC requirements regarding new risks/products and restrictions on investment of liquid assets.
- Process and resourcing:
  - JFSC staff review returns initially and then communicate with the GAD in London retained for technical analysis.
  - JFSC staff write formally to companies with findings; meetings and conference calls occur; issues are communicated formally in writing and follow-up is monitored.
  - Results from returns analysis are integrated with on-site and other information to develop overall firm risk profiles under the JFSC risk model.
- Reporting scope:
  - Returns are not required on a group basis.
  - Category A firms are exempt from all reporting requirements, although the JFSC can require reporting; Category A firms must submit annual audited financial statements.
- Ongoing review:
  - The JFSC keeps reporting requirements under review and makes periodic changes.
- Assessment: Observed.
- Comment: The JFSC has a well-developed process for analyzing returns and taking follow-up action. The JFSC by choice employs no qualified actuaries and the off-site work therefore relies on the GAD in the UK for analysis of the most technical issues.

### Principle 13 — On-site inspection
- Legal powers:
  - Wide-ranging powers under Article 8 of the FSC(J)L and under the IB(J)L to inspect and investigate books, records, documents and transactions; powers extend to former insurers, applicants or persons conducting insurance business without authorization.
- Scope and recent activity:
  - On-site work may include companies providing outsourcing services to an insurer.
  - Recruitment since mid-2007 enabled the JFSC to assess all Category B insurers and general insurance intermediaries under the risk model and to carry out on-site work for all Category B insurers and 90 percent of the total number of firms.
- Nature and frequency:
  - Most on-site work has been discovery-oriented linked to the risk assessment process using a risk model based on the UK FSA’s approach.
  - Future visit frequency will depend on risk rating: high risk firms will be visited every twelve months, medium risk at least every three years, and low risk firms on an adhoc basis.
  - Typical on-site visit takes two to three days and involves up to three JFSC staff.
- Communication and follow-up:
  - Findings communicated on-site and by written report to senior management; response required; action points followed up using a Post Examination Monitoring Schedule.
- Assessment: Largely Observed.
- Comment: The JFSC has greatly increased on-site work in the last 18 months and should develop a thematic visit program and apply the model to branches (Category A firms with physical presences).

### Principle 14 — Preventive and Corrective Measures
- Tools and procedures:
  - Supervisory dialogue and formal written communication to agree concerns and remedial action.
  - Powers to impose conditions on authorization (Article 7(5) and (6) of the IB(J)L) and directions (Article 36); Article 36 directions have been used.
  - Suspension or cancellation of a firm’s permit (Article 7(9)) if non-compliance persists.
  - In event of breach of minimum solvency, the JFSC can require a remedial scheme.
- Assessment: Observed.
- Comment: Approach informed by regular communication with a small number of authorized companies; formal powers are available and used when necessary.

### Principle 15 — Enforcement or sanctions
- Powers and mechanisms:
  - Limited powers to impose civil penalties; fines and imprisonment may be imposed by the Royal Court on conviction for prescribed infringements.
  - JFSC can issue public statements (Article 43 of the IB(J)L) and private warnings.
  - Powers to impose conditions on authorization and to issue directions (including preventing new business, requiring transfers, requiring additional capital, restricting dividends, objecting to/replacing key functionaries).
  - Can refuse to accept a remedial scheme unless it includes a special manager; can apply to Royal Court for appointment of a special manager (Article 9 of the IB(J)L and the Insurance Business (Appointment of Manager) (Jersey) Order 2008).
  - Can prevent individuals from holding functions (Article 36(2)(c)), cancel permits (Article 7), and take urgent action subject to Royal Court application where required.
- Decision procedures:
  - Enforcement action follows clearly defined and published internal decision-taking procedures.
- Assessment: Observed.
- Comment: Extensive formal enforcement powers exist; fines (apart from administrative fines) require court proceedings. The JFSC rarely uses formal powers in practice.

### Principle 16 — Winding-up and exit from the market
- Insolvency and winding-up mechanisms:
  - Article 24 of the IB(J)L requires insurers to notify the JFSC if solvency margin is not maintained; JFSC may require a short-term remedial financial scheme.
  - Article 24(8) empowers the JFSC to apply to the Royal Court for a winding-up order where a permit holder fails to submit/maintain a financial scheme, fails to maintain prescribed margin, or fails to notify JFSC of margin breaches; failure to comply with a scheme is also ground for winding-up under Article 24(8).
  - Alternative actions: issue special condition under Article 7(6) requiring close to new business; consider run off, transfer, or winding up; issue direction under Article 36.
  - JFSC may apply to Royal Court for winding up order pursuant to Article 155 of the Companies Law; full provisions Articles 144 to 194 (Part 21) of the Companies Law.
  - To date one insurer has been subject to a winding up order under Article 155 of the Companies Law.
  - Article 26 requires Category B permit holders to keep long-term policyholders’ assets and liabilities separate from shareholders’ assets and liabilities.
  - JFSC can apply to Royal Court for appointment of a special manager.
- Consumer protection gaps:
  - There are no compensation arrangements for non-life policyholders.
- Assessment: Observed.
- Comment: Framework provides for orderly exit and insolvency procedures; insolvency framework has not been tested in practice as no insurer has failed nor has the JFSC ever sought a winding up (source also notes one winding up order under Companies Law for an insurer).

### Principle 17 — Group-wide supervision
- Current status:
  - The JFSC is not the regulator for any insurance group or financial conglomerates.
  - No definition of insurance group or conglomerate in law or otherwise.
  - No framework for group solvency or powers to obtain information from unregulated companies within a group.
- Host responsibilities:
  - JFSC has host supervisory responsibilities for some Category B firms and all Category A firms, but scope is limited for Category A firms with no physical presence.
  - JFSC empowered to share information and cooperate with home regulators; can request independent checks on information provided by a foreign insurer, usually jointly with home supervisor.
  - JFSC will accept requests from foreign home regulators for on-site visits where Jersey is host supervisor.
  - Article 7(4)(b) enables the JFSC to refuse or withdraw a permit on grounds of structure and organization.
- Assessment: Not Applicable.
- Comment: JFSC currently has no responsibilities as group/home supervisor of any insurance group. It lacks key elements such as a group solvency test but could adopt requirements using directions and conditions if needed.

### Principle 18 — Risk assessment and management
- Requirements and expectations:
  - Insurance Codes (Principle 3) require management to assess risks, document them and controls.
  - JFSC reviews risk assessment and risk management in supervisory and on-site work.
  - Larger companies expected to have a risk management function and committee (paragraph 3.1, note 2 of the Insurance Codes).
- Assessment: Largely Observed.
- Comment: Provisions on risk management are relatively limited and could be expanded (e.g., a statement of risk appetite, explicit operational risk requirements).

### Principle 19 — Insurance activity (underwriting and reinsurance)
- Requirements and supervisory approach:
  - No requirement that insurers have strategic underwriting and pricing policies.
  - JFSC relies on six-monthly returns and five year rolling business plans to assess insurance risks.
  - JFSC staff discuss reported data to assess adequacy of pricing, reserving, expense trends, and methodologies.
  - No specific requirements ensuring reinsurance security (e.g., collateral); supervision challenges quality of reinsurance taking exposure and reinsurer nature into account.
  - JFSC liaises with foreign regulators where reinsurance company is outside Jersey.
  - JFSC may stipulate maximum amounts of risk retained and set limits on reinsurance placement using directions.
- Assessment: Observed.
- Comment: JFSC has adequate powers and procedures to require insurers to have tools to price business and manage insurance risks.

### Principle 20 — Liabilities (technical provisions)
- Legal and regulatory arrangements:
  - No detailed requirements in legislation or Insurance Codes on valuation of liabilities; insurers and actuaries required to follow standards set abroad.
  - Article 7(2) of the General Provisions Order requires actuarial valuation prepared in accordance with rules of the Institute of Actuaries in England and Wales or Faculty of Actuaries in Scotland.
  - Paragraph 5.6 of the Insurance Codes requires calculation according to generally accepted insurance industry principles and accounting standards.
  - For long-term insurance, technical provisions must be calculated and certified by a qualified actuary; general insurance companies encouraged to use qualified actuaries.
  - IB(J)L requires Category B life insurers to appoint an actuary with responsibilities set out in Article 7 of the General Provisions Order, including annual valuation of liabilities and endorsement of solvency position in annual statements.
  - JFSC can prescribe specific standards and methods via permit conditions (Article 7).
  - Sufficiency of technical provisions is checked by the GAD as part of annual return reviews; JFSC can require strengthening of provisions via directions or conditions.
  - No requirements specifically relating to valuation of reinsurance recoverables. Stress testing is not required.
- Assessment: Observed.
- Comment: No framework of requirements for establishment of adequate provisions and valuation of reinsurance recoverables; JFSC requires firms to use international standards (normally UK) and uses external actuarial support (GAD).

### Principle 21 — Investments
- Investment rules and governance:
  - Article 2 of the Insurance Business (Solvency Margin) (Jersey) Order 1996 lists asset types in which Category B permit holders may invest.
  - Article 28 of the IB(J)L allows JFSC to stipulate how assets are held and require independent custodian trustees.
  - Insurers must ensure assets and liabilities are appropriately matched by product, time, currency and liquidity (paragraph 5.11 of the Insurance Codes).
  - Condition 6 of the Schedule to the General Provisions Order requires adoption of international accounting standards or UK or US GAAP in valuing assets.
  - Paragraphs 3.1.3 and 5.11 of the Insurance Codes require proper investment policies and internal controls, though no overall strategic investment policy is mandated.
  - No assets may be pledged or lent without prior JFSC approval.
  - JFSC may amend permitted investments per insurer circumstances via permit conditions (Article 7 and paragraph 5.4 of Insurance Codes).
  - Paragraph 3.1.3 requires board oversight; paragraph 3.1.3.3 states approval of exposure limits and investment procedures is the board’s responsibility.
  - Paragraph 3.7.1 requires permit holders to ensure directors and senior managers are fit and proper; paragraph 3.7.3 requires regular monitoring of competence and probity.
  - Article 17 requires appointment of an external auditor who reviews internal controls; paragraph 3.2.4 requires internal audit procedures.
  - Paragraph 5.11.3 requires permit holders to undertake regular resilience testing for a range of market scenarios.
- Assessment: Observed.
- Comment: Adequate framework exists; effectiveness depends on enforcement, stress-testing, and thematic programs. JFSC should continue monitoring compliance, particularly via on-site work.

### Principle 22 — Derivatives and similar commitments
- Rules and practice:
  - Paragraph 3.5 of the Insurance Codes requires policy governing use of derivatives, management, disclosure and controls, based closely on ICP 22.
  - Under the Solvency Margin Order, derivatives are not approved or admissible assets; JFSC can authorize limited use via a special permit condition (Article 7).
  - Authorized derivatives may remain fully or partially inadmissible for solvency purposes.
- Assessment: Observed.
- Comment: Use of derivatives by Jersey insurers is low; Insurance Codes include key requirements and JFSC adopts a tailored case-by-case supervisory approach.

### Principle 23 — Capital adequacy and solvency
- Solvency framework and monitoring:
  - Solvency requirements set out in IB(J)L, Solvency Margin Order and Insurance Codes.
  - Principle 5 of the Insurance Codes sets a minimum share capital of £100,000 and obligation to ensure continuous calculation and monitoring of insurance liabilities.
  - Article 24 and Solvency Margin Order set admissible assets and calculation of minimum solvency.
  - No explicit requirements in relation to reinsurance or defined suitable forms of capital; forms other than share capital require JFSC approval.
  - Intra-group claims are inadmissible unless JFSC agrees.
  - Solvency levels monitored via six-monthly returns; insurers must notify JFSC of breaches.
  - Breaches addressed via supervisory dialogue or Article 24 powers to require a short term financial scheme and possibly appointment of a manager; JFSC can seek winding up for failure to meet scheme terms (powers not used in practice for insurance companies).
  - Solvency regime based on existing international standards with some simplification; no explicit risk-based capital component.
  - JFSC can require tailored minimum solvency above the basic minimum using Article 7 powers but does not do so in practice partly because solvency cover ratios are high.
- Assessment: Largely Observed.
- Comment: Appropriate framework exists but JFSC should consider whether reliance on the EU Solvency I framework remains appropriate given international developments.

### Principle 24 — Intermediaries
- Regulatory framework:
  - Intermediaries carrying long-term or general insurance mediation business in or from Jersey must be registered under the FS(J)L.
  - Some long-term insurance types classified as investments fall under different regulatory requirements.
  - Article 7 of the FS(J)L prohibits unauthorized investment business and general insurance mediation business.
  - Article 9 permits refusal of registration based on integrity, competence, financial standing, structure, fit and proper status, and span of control.
  - Articles 9, 10, 12, 20, 23, 24, 25, 25A, 25B, 25C and 26 of FS(J)L provide a comprehensive suite of licensing, conditioning, client asset protection and enforcement powers.
  - Financial Services (Investment Business (Client Assets)) (Jersey) Order 2001 sets segregation and accounting requirements for client assets and permitted payments for long-term insurance broking.
  - Paragraph 4.3.5 of IB Codes requires intermediaries to explain whether acting as principal or agent.
- Assessment: Observed.
- Comment: Comprehensive framework exists; regulation is carried out under different laws than insurance companies but JFSC has equivalent powers for enforcement.

### Principle 25 — Consumer protection
- Market conduct requirements:
  - Extensive requirements on market conduct apply to Category A and B firms; Category A firms may apply for variations where Insurance Codes would conflict with home jurisdiction requirements.
  - Principle 2 in Insurance Codes, IB Codes and GIMB Codes requires acting with due skill, care and diligence and treating customers fairly.
  - Paragraph 3.3.5 of IB Codes requires appropriate professional qualifications; paragraph 3.4 details continuing professional development.
  - Paragraph 2.3 requires insurers/intermediaries providing advice to obtain client financial information.
  - Paragraphs 4.6 (Insurance Codes) and 4.5 (GIMB Codes) require written details of terms and conditions.
  - Paragraph 4.8 (Insurance Codes) and 4.6 (GIMB Codes) require disclosure of charges and notice periods for information provision.
  - Paragraph 2.1 requires effective claims handling.
  - Complaints handling systems required under paragraph 3.6 (Insurance Codes), paragraph 3.5 (GIMB Codes) and paragraph 3.6 (IB Codes); JFSC has issued policy statement on complaints handling.
  - Market conduct covered in risk model and supervisory monitoring.
  - No compensation scheme covering insurance business, including intermediation.
- Assessment: Observed.
- Comment: Well-developed market conduct requirements; JFSC could review approach to consumer protection in firms closed to new business.

### Principle 26 — Information, disclosure & transparency
- Disclosure requirements and practice:
  - Firms must produce and provide annual financial statements with auditor’s report to JFSC per Articles 16 to 19 of IB(J)L.
  - JFSC expects financial statements to be made available to stakeholders and believes they are available on request; they do not have to be lodged with Companies Registry or made public.
  - JFSC does not publish insurers' annual audited financial statements or six-monthly returns itself.
  - Where Jersey-authorized insurer is part of an overseas group, group accounts may provide additional information.
- Assessment: Not Observed.
- Comment: JFSC has no requirements on disclosure by insurance companies of the information specified in ICP 26. For some Category B firms disclosure would have limited value; one firm has significant numbers of policyholders and some are open to new business.

### Principle 27 — Fraud
- Legal and supervisory measures:
  - Countering financial crime is one of JFSC’s guiding principles in law; full range of powers can be used for fraud requirements.
  - JFSC has powers to obtain information (Articles 10 to 14 of IB(J)L) and information-exchange gateways (Articles 29 to 34).
  - Resources available in Supervision and Enforcement divisions; track record of cooperation with island authorities and overseas regulators on investigations.
  - Fraud covered in Jersey legislation; claims fraud is a punishable common law offence.
  - Insurers and intermediaries required to ensure high standard of integrity (Principle 1 of the Insurance Codes).
  - No general requirements for insurers to allocate resources and have procedures to deter, detect, record and report fraud, but insurers must ensure assets safeguarded and liabilities controlled (Insurance Codes, paragraph 3.2.1.3).
  - Fraud vulnerability and controls are included in the risk model and addressed in on-site visits.
  - JFSC does not actively promote cooperation between insurers on fraud and there are no island databases.
- Assessment: Observed.
- Comment: JFSC should consider including Insurance Code requirements for firms to allocate resources and have effective fraud procedures.

### Principle 28 — Anti-money laundering, combating the financing of terrorism (AML/CFT)
- Legal framework and supervisory tools:
  - Applicable legislation: Proceeds of Crime (Jersey) Law 1999; Terrorism (Jersey) Law 2002; Drug Trafficking Offences (Jersey) Law 1988; Money-Laundering (Jersey) Order 2008 (ML(J)O).
  - Regulatory guidance: Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Regulated Financial Services Business (AML/CFT Handbook).
  - Article 23 of IB(J)L and Article 14 of FS(J)L require permit holders to inform JFSC of changes in directors, CE, key persons, or shareholder controllers; enabling JFSC to prevent unfit persons from holding significant interests or management functions based on checks with police and law enforcement.
  - Articles 29 to 34 of the IB(J)L provide authority to disclose information and cooperate with domestic FIU (the Joint Financial Crimes Unit), enforcement authorities and other supervisors.
  - JFSC has taken supervisory action to enforce compliance; AML/CFT issues are covered in on-site visits.
- FATF-related measures (explicit references preserved):
  - Customer due diligence on customers (Part 3 of ML(J)O).
  - Enhanced measures with respect to higher risk customers (Article 15 of the ML(J)O).
  - Records retention for five years (Articles 19 and 20 of ML(J)O).
  - Monitoring for complex transactions (Article 11 of ML(J)O).
  - Reporting of suspicious transactions to the FIU (Article 21 of the ML(J)O).
  - Developing internal programs (Article 11 of the ML(J)O).
- Additional supervisory detail:
  - Paragraph 3.2.1.10 of the Insurance Codes requires Category B permit holders to provide an annual declaration to the JFSC, signed by the Directors, acknowledging responsibilities for compliance with regulatory and anti-money laundering legislation.
  - No equivalent annual declaration requirement for Category A firms where these take the form of branches.
- Assessment: Observed.
- Comment: The JFSC has a well-developed set of requirements. See also the IMF’s assessment, carried out in November 2008, of Jersey’s compliance with the FATF’s AML/CFT standards, using the 2004 Methodology.

*Source: _cr09283 - conclusions and takes action as appropriate.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09283.pdf_