On 20 July 2018, the Financial Sector Conduct Authority ("FSCA") published the proposed Conduct Standard regulating the requirements for the conduct of cell captive insurance business in relation to third party risk ("Draft Conduct Standard").
The draft Conduct Standard follows recently published Joint Communication 2 of 2018, which provided an update on the regulatory policy proposals mooted in the Third-party Cell Captive Insurance and Similar Arrangements Discussion Paper, 2013.
The Draft Conduct Standard contains the conduct of business regulatory policy proposals of the FSCA, including:
- the proposed limitations on the ownership of cell structures by non-mandated intermediaries (or an associate of non-mandated intermediaries). Inter alia, the Draft Conduct Standard states that (i) the cell owner, or non-mandated intermediary of which the cell owner is an associate, renders services as intermediary only in respect of policies underwritten through a cell structure of that cell owner; (ii) the cell owner, or non-mandated intermediary of which the cell owner is an associate, does not own cells in more than cell captive insurer; (iii) an affinity relationship must exist between the main business of the cell owner and the insurance business conducted through the cell structure; and (iv) the primary business of the cell owner is not the rendering of services as an intermediary or the performance of any functions in terms of any binder or other outsourcing agreement with an insurer;
- providing clarity regarding what type of relationship would constitute an "affinity relationship", namely (i) the primary business of the cell owner is not insurance business; (ii) the broader business relationship between the cell owner and the policyholder results in the offering of suitable insurance products and consistently offers fair value to the policyholder; and (iii) the conducting of insurance business through the cell structure does not otherwise compromise the delivery of fair outcomes to the policyholder;
- imposing certain reporting requirements on all cell captive insurers. It is proposed in the Draft Conduct Standard that all cell captive insurers must, at least 30 days before entering into any cell structure or at least 60 days before terminating a cell structure, notify the FSCA in writing of the proposed arrangement; and
- introducing an exemption from the cell ownership limitations in order to promote transformation of the insurance sector. It is intended that the FSCA will, consider an exemption inter alia, if the exemption will (i) facilitate an incubation process leading to the cell owner becoming a microinsurer or insurer, within a specified time period, and (ii) such will substantively contribute to the achievement of transformation in the insurance sector (as defined in the Insurance Act, 2018).
Submissions on the draft Conduct Standard must be submitted in writing to the FSCA on or before 31 August 2018.
The Draft Conduct Standard is accompanied by a supporting statement and a template for commentators to complete. The relevant documents may be found here:
- Draft conduct standard - cell captive insurance business
- Statement supporting the draft Conduct Standard
- Comment Template
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