CI-2.1.1

An entity in Bahrain must be authorised if it wishes to conduct regulated insurance services, including effecting insurance contracts, the broking of insurance contracts, the offering of advice to third parties and the provision of insurance management services. Insurance firms must restrict their business to insurance under their memorandum and articles of association.

CI-2.1.2

An insurance firm's license will state the classes of insurance that the firm is authorised to conduct. In recognition that thepolicyholders of captive insurers are limited to their owners (or shareholders), captive insurers may be licensed to underwrite either general insurance business or long-term insurance business, or both. In the latter case, however, they are required to maintain separate funds for general and long term insurance business and to apply the appropriate capital requirements to each fund.

CI-2.1.3

For captive insurers, the legal status of an insurance firm must be:

CI-2.1.4

Subject to CBB approval, an insurance licensee that is a captive (re-) insurance company may maintain its Head Office or place of business at the offices of the insurance manager appointed to manage its affairs.

CI-2.1.5

A firm that is authorised as a captive insurance firm will have one of the following permissions granted by the CBB:

Category C1 — a Bahrain authorised insurer whose business is restricted to insuring only the insurance risks (other than liability risks) of its shareholder(s) or those of subsidiary or associated companies of its shareholder(s); or

Category C2 — A Bahrain authorised insurer whose business is restricted to insuring only the risks of its shareholder(s) or of subsidiary or associated companies of its shareholder(s), and whose business may include liability risks, subject to the CBB being satisfied that the activity, capital structure and management provide sufficient protection to potential third party claimants.

Some examples of business models that could qualify for captive licensing include:

CI-2.1.6

A captive insurance firm may be licensed to write either insurance and reinsurance business or may restrict its business to reinsurance only.

CI-2.1.7

A captive insurer may also be licensed either as a takaful firm (in which case it will appoint a Shari'a Supervisory Board and will operate in accordance with the principles of the Shari'a). For further details please refer to the Module TA (Takaful).

CI-2.2.1

There are 10 Principles of Business that apply to all insurance licensees including captive insurers.

CI-2.2.2

Non compliance with the Principles of Business can lead to enforcement action, which can include the calling into question of whether the firm or its management continue to meet the fitness and propriety criteria for approval.

CI-2.2.3

The Principles of Business are:

CI-2.3.1

In accordance with Principle of Business 10, insurance licensees must put in place effective management, systems and controls for their business. The High-Level Controls Module sets out the Directives that put this principle into practice.

CI-2.3.2

Some of these Rules govern the establishment, composition, functions and responsibilities of Boards of Directors. All incorporated insurance licensees must have a Board that is ultimately accountable and responsible for the management and performance of the firm. Captive insurers are subject to various provisions relating to corporate governance contained in Legislative Decree No. 21 of 2001, with respect to promulgating the Commercial Companies Law ("Commercial Companies Law 2001"). In case of conflict, the Commercial Companies Law shall prevail.

CI-2.3.3

Responsibility for the day-to-day management of a captive insurer is vested in the Chief Executive Officer, which is a controlled function. Captive insurers, unlike other insurance licensees, are not required to consider the need to operate Committees.

CI-2.3.4

The CBB expects, for Bahraini insurance licensees, for Bahrain to be the principal place of business and for Bahrain to be the centre of its governance and management. In the case of a captive insurance firm, this must include:

In order to satisfy the second and third of these requirements, it is expected that most captive insurance companies will outsource their day-to-day operations to a firm licensed by the CBB to manage captives (insurance manager) although captives may use their own staff and premises. The appointment of an insurance manager must be approved by the CBB and should be in accordance with the outsourcing requirements of the Rulebook (refer to the Risk Management Section of this guide).

CI-2.3.5

As part of their management structure, captive insurance firms should include an internal auditor.

CI-2.3.6

An insurance manager must nominate a Compliance Officer, who must also be designated as the Compliance Officer for the managed firms. A self-managed captive insurer must also appoint a Compliance Officer, although this role may be combined with other functions.

CI-2.3.7

Chapters HC-10 contains additional guidance applicable to all captive insurance firms in respect of financial statements certification, appointment, training and evaluation of the Board, remuneration of approved persons, management structure, corporate ethics, communication between the Board and shareholders and corporate governance disclosure.

CI-2.4.1

Captive insurance firms must have an annual external audit. Firms must obtain prior written approval from the CBB before appointing or re-appointing their auditor.

CI-2.4.2

There are specific Rules and Guidance governing the duties and restrictions of external auditors.

CI-2.4.3

All insurance firms — including captives — who conduct long-term insurance business must appoint an actuary that must provide an annual actuarial evaluation and report.

CI-2.4.4

Insurance firms that undertake general insurance business only must consider the need for an annual actuarial evaluation and report, from an actuary, at least once every three-year period.

CI-2.4.4A

Insurance firms can appoint a Registered Actuary or Signing Actuary to meet the CBB requirements.

CI-2.4.5

The CBB maintains on its website a list of Registered Actuaries that can practise in the Kingdom of Bahrain. A Registered Actuary must be independent of the insurance firm for which he is providing an actuarial evaluation and report.

CI-2.4.6

A Signing Actuary is a Director or employee of the licensee concerned; he occupies a controlled function, and is subject to CBB approval as per Section AU-1.2

CI-2.5.1

Captive insurers are expected to maintain books and records sufficient to produce financial statements and show a record of the business undertaken. Where this function is carried out by an insurance manager, the captive insurer should ensure that the CBB has access to these records at any time and these should be sufficient to allow an audit of the insurer's business or an on-site examination of the captive insurer by the CBB.

CI-2.5.2

Where the clients of captive insurance firms are limited to related companies, captive insurers are exempted from the due diligence requirement for client records.

CI-2.5.3

As the business of captive insurers is limited to related parties, captive insurers do not require prior approval from the CBB for their corporate name and any trade names.

CI-2.5.4

Captive insurers do not require CBB pre-approval for the distribution of dividends to shareholders.

CI-2.5.5

Where a captive insurer transfers its portfolio to a third party, prior written approval from the CBB is required. Where all the policyholders affected by the transfer have given their consent in advance, then the disclosure requirements in Paragraph GR-4.2.1 do not apply. The CBB may waive some or all of the requirements in Section GR-4.2 where, in its opinion, they are not necessary in order to protect the interests of policyholders.

CI-2.5.6

Where the transferor is a Category C1 captive captive insurance firm, it is not subject to the publication requirements set out in Section GR-4.4.

CI-2.5.7

The management company of a captive insurance firm is not automatically a controller of the captive insurer.

CI-2.5.8

All requirements dealing with close links apply in full to captive insurance firms.

CI-2.5.9

Insurance firms are required to maintain statutory deposits as per Article 181 of the CBB Law. For captive insurers, the statutory deposit referred to in Article 181 is to be zero (nil).

CI-2.5.10

In accordance with the Bahrain Commercial Companies Law, captive insurance firms are required to set aside a proportion of their annual profits, being no less than 10 per cent as a compulsory reserve, until the total of such compulsory reserve equals 50 per cent of the paid-up capital.

CI-2.5.11

Captive insurance firms may, at the CBB's discretion, be exempted from the disclosure requirements that apply when an insurer suspends its business. However all other provisions of Chapter GR-8 apply.