A country guide to Insurance in the Isle of Man originally published on 20 October 2022. Reproduced from Thomson Reuters with the permission of the publishers. For further information, visit legal.thomsonreuters.com
The guide provides a high-level overview of various subjects including: regulation of insurance business; regulation of insurance intermediaries, including regulation of the transfer of risk; insurance mangers and corporate governance. It also covers: taxation on insurance companies; re-domiciliation and protected and incorporated cell companies; policyholder compensation scheme; insurance linked securities and the Isle of Man’s ongoing Insurance Core Principles project.
The guide was authored by Cains’ insurance expert Jonathan Latham.
Overview
The Isle of Man is not part of the United Kingdom, but is within the British Isles. The island is politically and constitutionally separate from the UK and is internally self-governed and is independent in all matters except most foreign affairs and defence, both of which are the responsibility of UK government.
The UK parliament, therefore, legislates for the island in some matters that are of mutual concern to both territories, such as defence, nationality and immigration, while Tynwald, the Isle of Man parliament, legislates for the island in all other matters.
The Isle of Man is neither a member state nor an associate member of the European Union.
Regulation of insurance business
Insurance business in the Isle of Man is regulated primarily pursuant to the Insurance Act 2008. The Isle of Man Financial Services Authority is charged with administration of the Insurance Act.
Pursuant to section 5(2) of the Insurance Act, insurance business may be carried on in or from the Isle of Man by (i) an authorised insurer, (ii) a person who is the holder of a permit issued under section 22 of the Insurance Act, (iii) a person who is exempted by regulations from the requirement to be an authorised insurer or to hold a permit under section 22, (iv) a person who carries on a class of insurance business which is exempted by regulations from the requirement to be carried on by a person specified in section 5(2) of the Insurance Act, or (v) the Isle of Man government or a person who is not an authorised insurer but who is acting on behalf of the Isle of Man government.
Section 22 of the Insurance Act, which deals with insurers authorised outside the Isle of Man, provides that where, upon application by any person, the Financial Services Authority is satisfied that the person is carrying on any class of insurance business in a country other than the Isle of Man in accordance with the laws of that country, the Financial Services Authority may issue a permit to that person to carry on an insurance business in or from the Isle of Man.
Pursuant to regulation 11 of the Insurance Regulations 2021, an insurer that is authorised to carry on an insurance business in an approved jurisdiction and does not have a fixed place of business (other than an agency) in the Isle of Man, is exempt from the authorisation requirement under section five of the Insurance Act. (Broadly speaking, an approved jurisdiction is (a) the UK, (b) any Member State of the EU, (c) a jurisdiction that has been determined by the European Commission to meet Solvency II equivalence requirements, whether fully, provisionally or temporarily, or (d) any other jurisdiction the insurance supervisory authority of which has been approved by the Financial Services Authority.)
Both authorised insurers and permit holders are required to meet certain minimum capital, solvency and capital adequacy requirements and are subject to the Financial Services Authority’s supervision. They are also required to comply with ongoing Isle of Man reporting and other regulatory requirements. With effect from June 30, 2018, authorised insurers carrying on long-term business became subject to new solvency capital requirements that replaced the existing requirements. The new requirements are intended to be capable of receiving a positive equivalence assessment under the Solvency II framework in respect of life insurance business.
With effect from 30 June 2022, authorised insurers other than those carrying on long-term business also became subject to new solvency capital requirements, albeit that the new requirements were not intended to be capable of receiving a positive equivalence assessment under the Solvency II framework in respect of non-life insurance business. (Following consultations with the local insurance industry, a decision was made to put in place a regime only for long-term insurers for which Solvency II equivalence could be sought from the European Insurance and Occupational Pensions Authority.)
Change of control notification requirements apply to authorised insurers and to registered insurance intermediaries and insurance managers. No person may become a controller of an authorised insurer or a registered insurance intermediary or insurance manager unless notice has been given to the Financial Services Authority and the Financial Services Authority has not objected within a period of 28 days or such other period as the Financial Services Authority may agree in writing from date of the notice.
“Controller” is defined very broadly in the Insurance Act and includes, among others, shareholders who, whether alone or with any associated person, hold 10% or more of the voting power at a general meeting of the authorised insurer or the registered insurance intermediary or insurance manager, as the case may be, or any holding company of any of them.
Regulation of insurance intermediaries
Insurance intermediaries that are involved in general business are subject to a different regulatory regime from that applicable to those involved in long-term business. An insurance intermediary that carries on business in or from the Isle of Man in relation to contracts of insurance (broadly speaking, general business) which do not constitute investments for the purposes of the Financial Services Act 2008, is required to be registered pursuant to section 24 of the Insurance Act.
Following consultation by the Financial Services Authority, legislation implementing changes to the regulatory framework for general insurance intermediaries came into effect on December 31, 2020. This legislation included a corporate governance code and a conduct of business code applying specifically to general insurance intermediaries.
An insurance intermediary that carries on business in or from the Isle of Man in relation to contracts which are investments for the purposes of the Financial Services Act is required to be licensed pursuant to section five of the Financial Services Act.
For the purpose of the Financial Services Act, investments include “long-term insurance” which is defined as including the following: rights under contracts of insurance of the following descriptions, namely life, annuity, marriage, birth, permanent health, tontines, capital redemption and pension fund management. Excluded from long-term insurance are “pure protection contracts” (which, broadly speaking, are contracts which do not include an investment element).
Insurance intermediaries (both those involved in general business and those involved in long-term business) who do not carry on business in or from the Isle of Man will nevertheless be deemed to be doing so if they solicit business by means of marketing targeted at individuals or businesses in the Isle of Man or disseminated by means of a medium targeted in that way.
Insurance managers
If the management of an insurer authorised or permitted to carry on an insurance business in or from the Isle of Man is to be exercised solely by the directors and controllers of the insurer, it is usually a requirement that at least two of the directors are resident on the island. This is in addition to the requirement to ensure that staffing of the insurer is adequate and competent in regard to the nature of the business being conducted. The requirement in relation to directors resident in the Isle of Man is, however, subject to relaxation where the insurer appoints an insurance manager who is registered pursuant to the Insurance Act or who is exempt from the registration requirement.
Corporate governance
A corporate governance code, the Corporate Governance Code of Practice for Regulated Insurance Entities, came into effect on October 1, 2010. The Corporate Governance Code applied to authorised insurers, permit-holders under section 22 of the Insurance Act (except those authorised to carry on an insurance business in any member state of the EU) and registered insurance managers. Insofar as authorised insurers and permit holders are concerned, the 2010 code has been repealed and replaced by a new corporate governance code, the Corporate Governance Code of Practice for Insurers 2021, which came into effect on 30 June 2022. Registered insurance managers remain subject to the 2010 code, albeit as amended, with effect from 30 June 2022 so as to apply only to them.
A separate corporate governance code, the Corporate Governance Code of Practice for Designated Insurers, which came into effect on 1 July 2019, applies to insurers designated by the Financial Services Authority for the purpose of regulation by it of groups of companies the business of which includes insurance business.
Tax on insurance companies
Since April 2007, insurance companies, along with other companies (but excluding banks, retail business with annual taxable profits of £500,000 or more and companies deriving income from land and property in the Isle of Man), have been subject to income tax at a rate of 0%. There are no capital taxes, death taxes or stamp duty in the Isle of Man.
Re-domiciliation and protected and incorporated cell companies
To increase the attractiveness of the Isle of Man for insurance companies, legislation has been enacted pursuant to which foreign insurers may re-domicile to the Isle of Man without the need to comply with incorporation formalities which would otherwise apply and to make available the protected and incorporated cell company structures for use in the captive insurance market. The protected cell company structure was introduced in 2004 and the incorporated cell company structure in 2011.
Policyholder compensation scheme
A compensation scheme under the Life Assurance (Compensation of Policyholders) Regulations 1991 provides holders of life policies issued by an Isle of Man insurer and who qualify as protected policyholders, wherever they may reside, with compensation of up to 90% of their claims should the insurer be unable to meet its obligations to them.
Insurance linked securities
The Insurance (Special Purpose Vehicles) Regulations 2015 provide for the establishment of limited purpose insurers and reinsurers (referred to as “Insurance Special Purpose Vehicles” or “ISPVs”). The legislation puts in place a regulatory framework for insurance linked securities business in the Isle of Man (which includes, for example, catastrophe bonds, mortality bonds, sidecars and other collateralised insurance and reinsurance structures).
The ICP project
The Insurance Core Principles issued by the International Association of Insurance Supervisors are generally recognised as the benchmark for effective international insurance supervision. The IAIS updated the ICPs in October 2011 (they had last been updated in 2003). Against the background of the global economic crisis which had started to unfold in 2007, the updated ICPs emphasise the need for insurers and regulators to understand the risks which were being assumed by insurers and to provide for them adequately.
Following the updating of the ICPs, the Financial Services Authority carried out a comprehensive review of the Isle of Man’s existing regulatory framework and identified a number of areas where changes to the existing regulatory framework would be required.
Pursuant amendments to the Insurance Act effected by the Insurance (Amendment) Act 2017, significant changes to the Isle of Man’s insurance regulatory framework started to be introduced. With the most recent changes (some of which are referred to in this update), which became effective on 30 June 2022, the revised framework is now substantially in place. Introduction of public disclosure requirements and group solvency requirements for non-life insurers (which are expected to come into effect in the next year or so, following further consultations) are the main outstanding areas.
