CI-3.1.1

Principle 9 requires insurance licensees to hold adequate financial resources for the needs of the business. Module CA (Capital Adequacy) sets out in detail the minimum financial resources requirements for insurance licensees. In addition, it is the responsibility of Boards of insurance licensees to make their own assessment of the financial resources needed to meet their liabilities.

CI-3.1.2

The base requirement is for firms to maintain at all times capital available in excess of the higher of its required solvency margin and minimum fund.

CI-3.1.3

The minimum fund, that captive insurance firms must maintain (at all times) is:

Category C1 firm: — BD 75,000; and

Category C2 firm: — BD 300,000.

These minimum requirements for C1 firms are lower than the corresponding amounts for conventional insurance firms, in recognition of captives' risk exposure being to its owning group rather than third parties.

CI-3.1.4

For general insurance, the required solvency margin is calculated on the basis of the premiums written and claims incurred by the firm. A risk factor is applied, to reflect the differing risk profiles of different classes of insurance. For long-term insurance, the required solvency margin is calculated on the basis of the aggregate of the mathematical reserves calculation and the capital sum at risk calculation. Refer to Chapter CA-2 for the detailed rules governing the calculation of the required solvency margin.

CI-3.1.5

Captive insurers must maintain a capital available at all times in accordance with the rules in Chapter CA-1.

CI-3.1.6

The Valuation and Admissibility of Assets Regulations are contained in Chapter CA-4. Assets of an insurance firm may only be given value for regulatory purposes in accordance with the Valuation of Assets Regulations. Surplus (inadmissible) assets are valued at zero for the purposes of calculating the firm's capital available. Assets considered inadmissible include those that exceed permitted categories and counterparty limits and intangible assets (e.g. brand value).

CI-3.1.7

The Valuation of Liabilities Regulations are contained in Chapter CA-5. Liabilities must be valued in accordance with International Accounting Standards (to the extent available) or, until such standards come into effect, with Section CA-5.1.

CI-3.1.8

There are also Rules concerning the matching of assets and liabilities, to minimise the risk of maturity and/or currency mismatch in the portfolio.

CI-3.1.9

Captive insurers are exempted from the requirements to report on their group solvency position.

CI-3.2.1

Module BC (Business Conduct) comprises general rules (BC-1) and a Code of Practice (BC-2). These rules apply in full to captive insurers. However, it should be noted that BC is principles-based. Because a captive insurer is insuring the risks of its parent group, it would be acceptable for the level of sales documentation and written disclosure to be less than would be required for retail customers. The CBB considers this to be compatible and consistent with maintaining a professional insurer-insured relationship between the parties.

CI-3.2.2

The CBB expects the insurance manager to consider the requirements of the Code in relation to the service provided, on behalf of the captive, to its 'clients', namely insured members of the group. In most situations, for captives, the CBB would expect however that the requirements of the Code could be met by putting in place a simple protocol between the captive and the insured members of the group.

CI-3.3.1

Principle 10 (CI-2.2.3) requires firms to have systems and controls that are appropriate for their business. Consequently, Module RM (Risk Management) contains Rules and Guidance on how, specifically, firms should monitor and manage risk. This Module applies to all licensees, and it is for firms to consider the scale and complexity of the procedures that are required, given the nature of their operations.

CI-3.3.2

The Module contains both:

In meeting these requirements for captive insurers, the CBB expects that insurance managers will put in place the systems and controls for on-going identification and monitoring of risks on behalf of the companies that they manage, and that these will be reported periodically to Boards. However, the overall responsibility for the management of risk ('the establishment and oversight of effective risk management systems'), and ensuring the adequacy of this reporting, lies with Boards.

CI-3.3.3

There are specific requirements for outsourcing. For a captive insurer, who outsources the day-to-day management (and perhaps other functions such as claims handling), it is a requirement that these should be governed by a written service agreement that meets the requirements of Chapter RM-7.

CI-3.3.4

The CBB has exempted captive insurance firms from the specific requirement to undertake stress and scenario testing to test the resilience of their financial resources to specific areas of significant risk. This does not in any way exempt the Board from its general requirement to ensure the effectiveness of its risk management systems (including, but not limited to, ensuring the appropriateness of its premium structure and carrying out any financial modelling considered necessary as part of its underwriting process). The CBB would consider it good practice, as part of this review of the Board, for the firm to carry out stress testing to evaluate the effect of the principal risks identified on the financial resources of the firm. The CBB would also expect an application for licensing to include such stress-testing of its financial projections with its application.

CI-3.4.1

The general law of Bahrain imposes obligations on individuals and firms in relation to the prevention and prohibition of the laundering of money. Module FC applies to all insurance licensees.

CI-3.4.2

In addition, Module FC contains specific Rules and Guidance for insurance licensees that require them to have effective money laundering controls and to report suspicious transactions to the relevant authorities.

CI-3.4.3

Chapter FC-1 outlines the requirements for customer due diligence. In the case of captive insurance firms it is expected that this identity will be apparent both from the ownership of the captive and the origin of insurance premiums from traceable bank accounts. In this case, no further verification will be needed as a matter of routine, although this does not exempt firms and individuals from reporting any transaction that they consider suspicious in nature.

CI-3.4.4

The reporting of suspicious transactions is the responsibility of the firm's Money Laundering Reporting Officer ('MLRO'). Captive insurance firms that are managed by an insurance manager are specifically exempted from appointing a MLRO, as the insurance manager must appoint one to perform these responsibilities for all firms under its management.

CI-3.4.5

The MLRO will prepare an annual report on compliance with the anti-money laundering and combating terrorism financing controls and procedures. The Boards of captive firms will need to include the consideration of this report as a standing item for Board meetings each year.

CI-3.4.6

Appendix FC-(iv) contained in Part B of the CBB Rulebook provides guidance material and examples of transactions that would be considered suspicious for the purposes of this Directive.