The Guidance aims to encourage effective international supervision of all the entities in an insurance group, particularly in light of the recent financial crisis. It discusses non-regulated holding companies and operating companies. The key risks they pose are identified as relating to:
- financial and reputational damage spreading from the non-regulated entities to the rest of the group
- capital adequacy at group and entity level
- the lack of supervisory reach over non-regulated entities.
The “indirect approach” that certain jurisdictions take to supervising non-regulated entities, including the UK and other EU jurisdictions which apply the Insurance Groups Directive, is identified as having drawbacks in terms of supervising group governance, risk management and intra-group transactions.
The key features of an effective international supervision regime are identified as:
- a comprehensive group-wide supervisory approach
- understanding regulated entities’ exposure to non-regulated entities
- assessing capital adequacy on a group-wide basis
- assessing fitness of senior management on a group-wide basis
- obtaining accurate information about non-regulated entities in a group
- cooperating with other supervisors internationally
- being flexible enough to capture emerging risks from non-regulated entities
- considering risk mitigation and ring-fencing measures to protect the regulated entities in the group.