Isle of Man
Back in 2015, the Isle of Man decided to combine the functions of its Insurance Pension Authority (IPA) and the Financial Supervision Commission (FSC) under a single regulator.
The Isle of Man Financial Services Authority (FSA) took on the roles of both the IPA and FSC and subsequently they dissolved.
As part of the merger, Karen Badgerow was appointed to the role of chief executive of the FSA. Two years on from the merger and Badgerow suggests the FSA is “well on track to deliver on key priority projects”.
Badgerow explains: “The merger has been built on the strengths of the two predecessor organisations and has allowed us to leverage resources across our priority initiatives.”
She notes that, going into the merger “it was important we maintained the right balance and focus across all of our sectors, and we believe the ongoing progress of the International Association of Insurance Supervisors (IAIS) Insurance Core Principle (ICP) project is a testament to the success of this”.
“We have been fortunate to have a board and staff that are highly representative of the key sectors we supervise and this has allowed us to draw upon a unique set of skills in the work we do,” she adds.
According to Ross Dennett, chairman of the Isle of Man Captive Association, the island is currently undertaking a project to amend its framework to take into account changes to standards that are considered appropriate.
Dennett suggests that, as a responsible international financial centre it is “essential” that the Isle of Man retains the confidence of investors and financial markets by implementing and maintaining a robust and up-to-date regulatory framework.
A fundamental aspect of the new framework will be a more “fully articulated, risk-based capital and solvency regime”.
Dennett says: “The concept of risk-based capital is not new to the island’s insurance sector, and is already contained within the provisions of the FSA’s Corporate Governance Code of Practice for Regulated Insurance Entities.”
“However, the new framework will expand on this concept using more detailed implementation measures, which will require insurers to calculate regulatory capital using a new risk-reflective solvency and capital model.”
Dennett explains that the new framework recognises that pure captives represent an “inherently lower regulatory risk” than commercial insurers.
Arguably, areas of greatest proposed change are around risk-based capital and enhancements to enterprise risk management (ERM) requirements, according to Dennett.
These requirements will apply to commercial and captive alike, with the calibration of capital requirements being lightest for pure captives and heaviest for commercial insurers and ERM frameworks needing to be appropriate to their risks.
He notes that a simple captive is likely to require a less sophisticated approach to ERM than a complex commercial insurer, for example a proportionate or simpler own-risk and solvency assessment.
Dennett suggests: “It has been particularly comforting to see the captive sector working very closely with the Isle of Man FSA. The approach to this journey has been proactive and collaborative by industry and regulator and this supportive approach positions the Isle of Man well.”
Badgerow adds: “Implementing the updated framework in a way that is proportionate and appropriate to the Isle of Man’s insurance sector will strengthen the island’s position as a responsible and attractive jurisdiction for captive business.”
There has also been a focus in other areas of regulation, such as Solvency II. With the island being located outside of the EU, Dennett reveals there has been a lot of interest around what impact Solvency II is having on captive domiciles within the EU.
He says: “When I last spoke to the captive managers, there was an uptake in the interest and level of enquiries coming through, whether that’s attributable to what’s happening in other EU domiciles is debateable.”
“However, there is certainly a view that for a simple pure captive domiciled within the EU, the regulatory burden can be disproportionate, and at times a deterrent,” he adds.
The island is receiving an increased level of interest in relation to prospective captive owners, which Badgerow suggests reflects its position as a “long-standing captive jurisdiction with an established infrastructure of insurance management and professional services to support captive business”.
Looking ahead, Dennett suggests the association is set to focus on opportunities arising from Brexit, or changes in the market.
He explains: “At some point the reinsurance market will harden and the conventional market will price risk more realistically. There is also a lot of interest for captive opportunities in China, which obviously has massive potential.”
According to Badgerow, the island recognises from discussions with industry that Asia’s markets are of increased interest to many market participants.
She says: “We maintain an open-door policy to discussion of expansion plans with the regulated sector and we encourage a healthy and early dialogue with our licence holders as they consider embarking in new markets.”