Guidelines on the Regulation and Supervision of Captive Insurance Business in Mauritius

PART I

1. Introduction

1.1 The Guidelines on the Regulation and Supervision of Captive Insurance Business in Mauritius hereinafter referred as the “Guidelines” are issued under Section 13 of the MOBA Act and should be read in conjunction with the Offshore Insurance Regulations 1992 as amended, (the “Regulations”).

PART II

2. Permitted forms of captive

2.1 There is no restriction on the forms of captive permissible in Mauritius. Both wholly-owned single parent captives and group or association captives are allowed.

2.2 The application to form a captive shall highlight the uses to which the captive will be put.

2.3 Particular care will be taken in processing applications to form group or association captives as in a group or association structure, where there is a number of unrelated shareholder and insureds, there is greater potential for

problems than in a single parent captive.

2.4 Full details will be sought of the proposed group captive and of the financial arrangements which support it. This degree of scrutiny will also be applied during the on-going supervisory process.

2.5 A captive, through its Principal Representative, will be required to notify MOBAA of any material changes in its business, including those which may lead to the captive falling out of compliance with these Guidelines or the Regulations.

3. Permitted lines of business

3.1 There is no restriction as to the lines of business which a captive insurance company can write nor is there a requirement to file standard information specific to any given line.

3.2 MOBAA will, instead, in the course of its on-going supervision, require to be satisfied that the captive is financially sound, that it has been conservative and professional in funding its exposures, and that it will not become a burden on Mauritius.

3.3 MOBAA will expect all captive programmes to be entirely legal. In the case of a captive found to be contravening any law, its licence and that of its manager will be liable to forfeiture.

3.4 To ensure the financial integrity of captives, risks assumed must be fully secured in excess of the declared retention levels by reinsurance or other security satisfactory to MOBAA.

3.5 When considering applications from captives which propose to write liability insurance, MOBAA will evaluate the long term nature of the runoff on the covers and will require that all long tail business should be reserved according to professional standards.

4. Non-related business

4.1 MOBAA will require an applicant to provide information on the relationship between the insured and the captive’s parent, where the common shareholding of the captive between the insured and the parent is less than 50 per cent.

4.2 MOBAA will classify the degrees of relationship as follows:

4.2.1 If the parent owns between 20% and 50% of the insured the business will be generally treated as first party.

4.2.2 If the relationship between the parent and the insured is substantial, but is not by shareholding, but is for example, by common management, the business will be generally treated as first party.

4.2.3 If there is a business relationship not amounting to common control or ownership, for example, the insured is a customer of the parent, then, provided the risk to be insured is related to that business relationship, the business will be generally treated as second party.

4.2.4 If the parties are unrelated or have a tenuous relationship, the

business will be treated as third party.

4.3 Second party business

Second party business will be permitted. MOBAA will for example, allow programmes instituted on behalf of customers of the captive parent, where the captive takes a risk bearing position, such as extended warranty programmes sold by auto dealerships. These are known as “product enhancement” coverages because the companies offering them do so in an effort to give their product or service a competitive edge. Credit life programmes where credit life cover is given on outstanding loan or credit card balances will also be allowed.

4.4 Third party business

Third party business will be permitted, but where the applicant proposes to accept business from the general public or from commercial insurance companies, it will be required to demonstrate how it will access the necessary underwriting or analytical skills. MOBAA will, in particular, require to be satisfied on the following points:

4.4.1 How is the captive selling the policies it offers and to whom are they targeted?

4.4.2 Who is issuing the policies and setting the premium rates?

4.4.3 How are the underwriters being remunerated? Is it purely by commission on premium written?

4.4.4 How are the underwriters licenced to offer the policies concerned?

4.4.5 How is business ceded to the captive? If the captive writes direct then MOBAA will require confirmation from a professional third party that it can legally do so.

4.4.6 All deductions to be made from premiums before reaching the captive should be detailed.

4.4.7 How are claims to be handled and by whom, and how are they remunerated?

4.4.8 Full details of the reinsurer and any involvement they, have in the “front end” arrangements.

5. Reinsurance of captives

5.1 All captive insurance companies formed in Mauritius will be required to be reinsured unless MOBAA is satisfied that the captive has access to sufficient security without the need for reinsurance.

5.2 The Business Plan should contain sufficient details of the reinsurer, including its last audited accounts, so that MOBAA can be satisfied as to its financial standing and bona fides.

5.3 As general rule MOBAA will only be satisfied with a good rating from Bests, Moody or Standard & Poors, and the relevant rating together with accompanying comments from the rating agency should be provided in the application.

5.4 If the captive propose reinsurance that does not meet MOBAA’s standard, it will be required to satisfied MOBAA as to why it thinks the security is adequate. MOBAA will be concerned to ensure that the reinsurer can pay should a loss occur.

5.5 If the captive has access to sufficient security without the need for reinsurance, such as parental guarantees or letters of credit, the security should be fully explained in the Business Plan.

6. Rent-a-captives

6.1 The formation of rent-a-captive vehicles is allowed.

6.2 The risk ceded to the rent-a-captive by each user should normally be secured by the user itself, through premium, letters of credit, bank guarantees or other security provided by the user.

6.3 Rent-a-captives shall oblige their users to post security equivalent to the limits of risk being assumed.

7. Protected cell companies

7.1 Companies established under the protected cell company legislation will create what is effectively an insurance experience account on behalf of each participant to underwrite the selected and initially agreed classes of insurance. Each of these cells will operate in isolation without any contagion from another. The success or otherwise of each insurance experience account is determined by premium and investment income earned within the cell, less claims and management costs and any reinsurance purchased for that particular participant’s programme.

7.2 A protected cell company shall ensure that each separate cell meets the solvency margin requirement.

7.2.1 In the case of smaller cells the application of the assets of the protected cell company owner which are surplus to the central, overall solvency margin may be allowed to make up the shortfall for the cell.

7.2.2 A solvency margin of 15% may be allowed for cells within a protected cell company and the minimum capital requirement of US$100,000 may be waived.

8. Minimum statutory capital and surplus requirements

8.1 Companies which carry on general insurance business shall maintain a minimum capital of US$100,000.

8.2 Companies which carry on long-term insurance business shall maintain a minimum capital of US$250,000.

8.3 Companies which carry on both general insurance business and long-term insurance business shall maintain a minimum capital of US$350,000.

8.4 The minimum statutory capital shall be fully paid up.

8.5 MOBAA may require a captive to have a capital in excess of the minimum set out above.

9. Margin of solvency

9.1 The regulations provide for a solvency margin for captives whereby the value of the captive’s admitted assets is required to exceed the amount of its admitted liabilities by not less than US$100,000 or 15% of net premium, whichever is higher.

9.2 The regulations provide for a solvency margin for insurers carrying on long term insurance business whereby the amount of the insurer’s admitted liabilities in respect of policies issued shall not exceed the amount of its long term insurance fund, as certified by the insurer’s actuary.

10. Permitted assets and the liquidity ratio

Permitted assets

10.1 The list in Regulation 5(6)(a) of the Regulations of non-admitted assets for the purposes of calculating the margin of solvency has been replaced by a list of admitted assets as follows:

(i) any investment issued or guaranteed by the Government of Mauritius;

(ii) cash in hand and in bank deposits, and bank certificates of deposit;

(iii) treasury bills, tax reserve certificates, certificates of tax deposit, savings bonds and fixed interest securities issued by Mauritius or the United States;

(iv) any dated investment listed on a recognised exchange;

(v) insurance and reinsurance balances receivable net of doubtful items;

(vi) accounts receivable net of bad debts, including loans to related companies provided prior approval is granted by MOBAA;

(vii) letters of credit issued by recognised banks;

(viii) any other assets approved by MOBAA;

The new Regulation 5(6)(a) gives MOBAA both greater control over the investments of the captive and the flexibility to allow other forms of investment. MOBAA will permit loans from the captive to the parent or a related company provided they are made on a commercial basis.

10.2 The liquidity ratio

The liquidity ratio set out below and provided in Regulation 5(8)(A) of the Regulations will apply to assets counting towards the maintenance of the minimum solvency margin:

The value of the captive’s liquid assets must not be less than 75% of the amount of its admitted liabilities.

PART III

11. Application to form a captive

11.1 An application for permission to form a captive insurance company should be submitted to MOBAA for consideration by the Captive Admissions Committee.

11.2 The application should contain the following documentation:

11.2.1 Captive Application Form

11.2.2 Directors and Officers Information Form

11.2.3 Business Plan

11.2.4 Actuarial report in the case of long term business

11.3 The Captive Application Form

11.3.1 The Captive Application Form is set out in Appendix 1 to these Guidelines. The Form does not provide for a comprehensive summary of all facets of the captive programme but should be compiled in conjunction with the Business Plan, and may be answered by referring to the Business Plan where appropriate.

11.3.2 MOBAA may require the submission of information in addition to that requested in the Captive Application Form.

11.4 Directors and Officers Information Form

11.4.1 The Directors and Officers Information Form is set out in Appendix 2 to these Guidelines.

11.5 Business Plan

11.5.1 The following matters will be required to be covered in the Business Plan:

(i) The name of the parent company and the proposed name of the captive;

(ii) A brief description of the parent company, outlining the core business, and background information regarding its current insurance arrangements and the intent in establishing a captive;

(iii) The business to be written by the captive;

(iv) Exposure and premium details, including limits, deductibles and PMLs (where appropriate)

(v) How the business is to be accessed – will the programme be fronted or direct?

(vi) If fronted, full details should be provided of the proposed fronting company. Details of any letter of credit or other security arrangements between the captive and the fronting company should also be supplied.

(vii) If direct, details of where the captive will be issuing its policies and how they will be issued, and premiums calculated and billed.

(viii) Details of any reinsurance to be purchased, including lead reinsurer details

(ix) Premium flow chart showing inwards/outwards premium calculations; amount retained by the fronting company; fronting fees, brokerage and other deductions and net retained premium to the captive;

(x) Details of prior five years historical loss experience and expected loss analysis. This analysis should indicate the development of each underwriting year at the end of each financial year of reported claims outstanding and of provisions for losses incurred but not reported;

(xi) Five year financial pro-forma with profit and loss, balance sheet and cash flow projections;

(xii) A domicile selection section detailing options for domicile and why Mauritius was chosen.

11.5.2 Where more than one programme is proposed, the programme data should be provided for each line of business, with the financial pro-formas showing the consolidated captive position.

11.6 Actuarial report

For long term licences, an actuarial report should be submitted which certifies:

(a) that the financing of the captive is sufficient to cover both technical reserves and the required margin of solvency;

(b) that the Business Plan is actuarially sound as it relates to long term business.

12. Application process

12.1 An application to form a captive insurance company will be considered by the Captive Admissions Committee of MOBAA.

12.2 The Captive Admissions Committee may require more information to assist it in considering the application; it may refuse an application; and it may impose conditions on the grant of an application

12.3 Upon approval of an application and submission of the memorandum and articles of association, statutory forms and the appropriate fee, the company will be incorporated and a captive certificate will be issued which may contain conditions.

12.4 The captive certificate will be of indefinite validity subject to payment of the annual licence fee and to on-going compliance. The captive certificate will be kept in the custody of the Principal Representative of the captive. The captive certificate may be required to be returned to MOBAA for cancellation.

13. Fees

13.1 The application fee payable to MOBAA for formation of a captive insurance company shall be US$……

13.2 The annual licence fee payable to MOBAA shall be US$……

14. Reporting

14.1 The following documents must be filed with MOBAA annually:

14.1.1 Audited financial statements of the captive together with written confirmation from an independent auditor that the accounts are unqualified.

14.1.2 Certificate of the margin of solvency.

14.1.3 Certificate of the liquidity ratio.

14.1.4 Actuarial valuation of the adequacy of premiums and loss reserves for any long term business conducted.

14.1.5 Declaration of the Principal Representative of the captive that the accounts and returns are, to the best of his knowledge, accurate.

14.1.6 Written confirmation from the Principal Representative that the business has been conducted in accordance with the Business Plan, and stated reasons for any major departure from the Plan.

15. Records

A captive insurance company shall designate a principal office in Mauritius at which its full business records will be kept. The principal office may be at the office of the captive manager or at the office of a licenced offshore management company.

16. Principal representative

16.1 A captive insurance company will be required to appoint a Principal Representative who will be accountable to MOBAA for the activities of the captive he represents, and will be responsible to ensure that the captive is in on-going compliance with the law. The Principal Representative shall be an executive of the appointed captive management company.

17. Captive management companies

17.1 A captive insurance company shall appoint a local captive management company which shall be licensed by MOBAA.

17.2 In considering an application for a captive management licence, MOBAA will require to be satisfied that the captive management company has experience in the field of captive management and insurance accounting and has a sound in-depth understanding of the relevant captive regulations and of the duties imposed on it and on the companies for which it will act as manager.

17.3 A captive management company application form is set out in Appendix 3.

17.4 MOBAA recognises that initially a captive management company may not wish to move experienced staff to Mauritius and may prefer to support Mauritian management activity from a more established office outside Mauritius. In such cases, MOBAA will require specific details of which services will be provided from which locations and an online plan for the eventual development of full scale services in Mauritius itself.

17.5 A captive management company will be required to file annually with MOBAA details of the captives for which it acts and a copy of its annual/audited accounts.

17.6 The captive management company application fee and annual fee shall be the same as those for an Offshore Company.

18. Amendment

These Guidelines may be amended from time to time.

January 1998