Industry Questions/Comments
[Sections 47 to 56 of the Insurance Act 2018]
This is an area that insurers definitely need guidance on given the variety of company structures that currently exist, so that there can be clear understanding re whether restructuring is required and how it should be approached as well as how to treat with requirements for permits etc. It is unclear whether existing significant or controlling shareholders, acquirers etc. Would be required to get a permit under the new Act or be considered to already have one.
Central Bank of Trinidad and Tobago
In order to fully understand restructuring, it is important to review the definitions of ‘controlling shareholder’, ‘financial entity’, ‘’financial group’, ‘financial holding company’, financial services’ and ‘related group’ in section 4(1) of the Insurance Act 2018 (Act).
1. Restructuring:
The purpose of the restructuring is to separate financial activities from the non-financial activities in the related group by the formation of a ‘financial group’ and the establishment of a ‘financial holding company’ for the financial group.
Where an insurer is a member of a related group in which there are two or more financial entities, restructuring will be required to facilitate consolidated supervision and involves the establishment of a financial holding company. For example, in a restructuring, all financial entities within the related group will be required to be under the control of the financial holding company.
Insurers which are unsure whether this scenario applies to their group structures should approach the Central Bank for clarification, since each scenario will be addressed on a case-by-case basis.
The restructuring must be completed within twelve months of a direction from the Central Bank. Where controlling shareholders are directed to restructure, they will be required to inform the Central Bank of their intended restructuring plan.
Note: Sections 48A and 263 of the Act gives an allowance for the transfer to be done by way of a Vesting Order. Also, the transfer could be exempt from the requirements for a scheme of transfer where the business portfolio is transferred to an insurer which has no liabilities to policyholders and other creditors
It should also be noted that insurers in particular are prohibited under section 87 of the Act from holding a significant interest in certain entities.
2. Existing Shareholdings in Insurers as at Jan 01 2021:
Existing controlling shareholders, significant shareholders and acquirers would be deemed to be such under sections 52 to 54 on commencement of the Act. However, for the sake of clarity, permits would be issued to them and may include conditions, if necessary.
After the Act commences, i.e., January 1, 2021, a permit must first be obtained from the Central Bank in order for:
(a) a person (individual or company) to become a controlling or significant shareholder of an insurer; and
(b) a financial entity or a significant shareholder/controlling shareholder to become an acquirer of an insurer or financial holding company.
Permits for financial group and controlling shareholder
Where a holding company already holds only financial entities and exempt from restructuring under s.49(b) and requires a permit under s. 51(1) but is also the sole controlling shareholder for the financial entities and is deemed to hold a permit under 52(5); would the CBTT be issuing two separate permits in these cases?
Permits for financial group and controlling shareholder
Final Response from the Central Bank to clarify the queries posted.
The following regarding FHC permits and controlling shareholder permits are to be noted
1. Deemed to hold a controlling shareholder permit:
Section 52(4) states that where a person holds a controlling interest in an insurer (.i.e. the ability to control or exercise more than 50% voting power) prior to the commencement of this Act, is deemed to hold a permit under this section, which is a controlling shareholder permit.
2. FHC Permit:
An application to the Central Bank for this permit must be made by any holding company (that is not an insurer and only controls financial entities directly or indirectly) regardless of whether the entity existed prior to commencement of the Act. The following sections in the Act refer:
a. Section 51(1) requires that where an FHC is required to be formed in accordance with section 47 (i.e. where the Bank required the restructuring of the group ) that FHC shall apply for an FHC permit.
b. A restructuring is not required for a holding company mentioned in circumstances under section 49(1(b)(i) i.e. the related group only comprises financial entities, all the insurers in the group are controlled by the holding company and the holding company only performs activities which are conducted by an FHC (i.e., see section 50(1)). However, that holding company is required to apply for an FHC permit.
3. Note that the only exception to item 2 is where the FHC was already granted a permit under the FIA 2008. In that case and in light of section 51(9), an FHC permit under the Insurance Act, 2018 will not be required.
4. Insurers should further note that pursuant to section 55 (2), where a controlling shareholder has been granted a permit or deemed to hold a controlling shareholder permit, and is now required to hold an FHC permit, then the controlling shareholder permit shall be revoked prior to issuing the FHC permit.
