3.13 CONOCIMIENTOS BÁSICOS DE UNA RED DE AGUA POTABLE
3.13.3 DEFINICIONES
Background
1. Financial services in Gibraltar are regulated by the Financial Services Commission (“FSC”). The primary focus of the
FSC is to ensure that insurance companies remain solvent. Most of the reporting requirements of life insurers are aimed at demonstrating solvency. As well as the usual financial reporting required for all companies insurers also have to submit annually a detailed set of forms and text to the FSC. The FSC also carries out formal risk assessments of insurance companies at least once every four years. This risk assessment process assesses potential or actual risks affecting insurers on both a qualitative and quantitative basis, i.e. corporate governance, capital requirements, etc.
2. Gibraltar insurance regulation is primarily driven by European Insurance Directives and UK supervisory practice. The ‘Financial Services (Insurance Companies) Act” of 1987 in particular outlines the main requirements for life undertakings, although revised regulations subsequently published have brought Gibraltar’s insurance supervision to match aspects of that of the UK.
Capital Resource requirements
3. The Insurance Companies (Solvency Margins and Guarantee Funds) Regulations 2004 detail a firm’s capital requirements
using a principles-based approach. The regulations themselves are not very detailed. However, an actuary appointed by the firm has the responsibility to value its liabilities and determine the excess assets over those liabilities. The assets represent the fund(s) maintained by the insurer in respect of that business written.
4. The rules governing the valuation of the firm’s assets and liabilities are prescribed in the Insurance Companies (Valuation
of Assets and Liabilities) Regulations 1996 (“1996 Regulations”). Various amendments have been made to this piece of legislation, the most recent of which was issued in 2007, and the actuary should follow these alterations and incorporate any guidance issued by the FSC. Consolidated regulations are published on the FSC website and have been used those as a source for this summary.
5. Valuations under the 1996 Regulations should be conducted with consideration for the PCC structure where the liability emerging within a cell must be met by the assets held in that cell and not the assets owned by any other cell.
Technical Reserves
6. Each insurance undertaking must establish and maintain technical reserves, taking into account the nature and the term of its underwriting liabilities. The determination of liabilities is in accordance with generally accepted accounting concepts, bases and policies or other generally accepted methods appropriate for insurance undertakings. More detailed liability valuation approaches are given in the 1996 Regulations and its subsequent amendments.
7. The liability valuation is not a best estimate valuation. Each of the valuation assumptions should contain a margin for adverse deviation e.g. adverse changes to interest rates, credit spreads, volatilities, asset values, or other relevant factors.
8. The reserves must take into account scenarios which allow for future changes in the value of assets. The reserves are reported having taken these into account, as opposed to being on a “current scenario” basis plus a separate “resilience capital requirement”. The extent of adversity in the scenarios to be taken into account is not prescribed. For its 2011 year- end non-unit reserves (that is, reserves to cover the excess cashflows such as expenses over annual management charges, and death claims above the unit account), PAG assumed a 15% fall in the unit-linked assets (since charges based on the value of units would then be 15% lower).
10. Firms must cover their technical reserves using admissible assets subject to the rules in Regulation 43 of the 1996 Regulations. All assets must be valued net of any debts arising out of their acquisition and on a prudent basis, allowing for the risk of any amounts not being realisable.
11. Schedule 1 of the 1996 Regulations specifies limits on the amounts of individual asset types which may be used to count towards its statutory solvency calculations. Nevertheless, the Regulations also state that insurers may apply to the FSC to authorise exceptions to these limits provided that circumstances warrant the deviation and it remains a temporary
measure. The restrictions also impose admissible limits on the counterparty exposure for the insurer.
12. The liabilities of a non-linked insurance contract will be regarded in the currency in which the contract was entered and 80% of a firm’s non-linked liabilities must be localised. However, property linked liabilities are expressed in the same currency as the reference assets that determine the property linked benefits. Therefore, property-linked liabilities do not take regard for the currency in which the insurer’s obligation to the policyholder lies.
Required Minimum Margin and Guarantee Fund
13. In addition to technical reserves, each firm must establish and maintain an adequate solvency margin above a required minimum margin in respect of its business and subject to the rules in the Insurance Companies (Solvency Margins and Guarantee Funds) Regulations 2004.
14. The required minimum margin is a prescribed function of the amount of insurance in force, subject to a minimum (the “minimum guarantee fund”) of €3.7 million as at 31 December 2012, which increases periodically with inflation. This €3.7 million bites for PAG as at 31 December 2012.
15. The solvency requirement of a PCC is considered for the company as a whole rather than on a cell by cell basis by the FSC; thus enabling the owner of an individual cell to avoid increased Minimum Guarantee Fund requirements imposed on a standalone company.
Periodic Actuarial Investigations
16. The Financial Services (Insurance Companies) Act 1987 states that every licensed insurer which carries on long-term business shall submit a report investigating its financial condition by the Appointed Actuary at least once every 12 months. Nevertheless, the FSC may request such a report for the whole or any part of that business as at a specified date.