Industry Questions/Comments
Industry Questions/CommentsWith the dismantling of the statutory fund and deposit with the new Insurance Act, what will be the process for retrieving assets pledged? Also, what is the requirement with respect to the setup of the Catastrophe Reserve Fund? Will it function just like the existing statutory fund/deposit or will there be more latitude in terms of the pledging of assets? Central Bank of Trinidad and TobagoMaintenance of a Catastrophe Reserve Fund 1. Under the Act, maintenance of the Catastrophe Reserve Fund will no longer require that assets equal to the value of the Reserve Fund be segregated and pledged, as was the case under the Insurance Act 1980. The mandatory requirement for establishment and maintenance of the Reserve Fund will be solely by way of annual appropriations from the retained earnings of insurers carrying on property business, to the Catastrophe Reserve in equity. Reductions to the Reserve Fund must be solely in accordance with section 44(5)(c) of the Act. 2. Insurers will be required to report the details on the appropriations to and reductions of the Reserve Fund on an annual basis in the form specified in the Central Bank Circular Letter “Regulatory Reporting Requirements for Insurance Companies registered in Trinidad and Tobago” dated December 22, 2020. 3. It is prudent practice for insurers to have sufficient assets in the event that they have to pay out. Commercial practice dictates that they should have a list of identified assets related to the Catastrophe Fund.
Dismantling of the Catastrophe Reserve Fund, Statutory Deposit and Statutory Fund 4. Effective January 1, 2021, insurers will no longer be required to maintain a statutory fund and statutory deposit. Further, general insurers which maintained a catastrophe reserve fund will no longer be required to hold that Fund on trust. Insurers should communicate with their trustees regarding the dismantling of the trust arrangement for catastrophe reserve funds and statutory funds and the removal of pledges in respect of the assets pledged to the funds. Insurers should also contact the Central Bank in its capacity as Paying Agent/Registrar in respect of Government securities and cash proceeds held in statutory deposits and statutory funds/catastrophe reserve funds. Further guidance is provided in the Central Bank Circular Letter “Release of assets in the Statutory Fund, Catastrophe Reserve Fund and Statutory Deposit Portfolios / Proclamation of the Insurance Act, 2018” dated February 9, 2021.
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Establishment of Catastrophe Reserve Fund
Thank you for the information provided. However, while is seems that the assets of the Catastrophe Reserve Fund need not be held in trust, it is still not clear what the specified form or the expected process for establishing the Fund should be. Some clarification on this would be greatly appreciated.
Establishment of Catastrophe Reserve Fund
Final Response from the Central Bank to clarify the queries posted.
Insurers carrying on property insurance are required to establish and maintain a Catastrophe Fund under section 44 of the Insurance Act. The Catastrophe Reserve Fund is not required to be established by the segregation of assets. Instead, insurers are to account for it as a Catastrophe Reserve Fund in the capital and reserves on their balance sheets and to make the requisite appropriations from the retained earnings account as outlined in the section. Further, insurers may only reduce the fund in circumscribed scenarios set out in section 44(5). The template for the reporting form evidencing establishment and maintenance of the Catastrophe Reserve Fund was specified in the Central Bank Circular Letter “Regulatory Reporting Requirements for Insurance Companies registered in Trinidad and Tobago” dated December 22, 2020. This form incorporates the calculation of the appropriation required pursuant to section 44(2) and any applicable reductions pursuant to section 44(5). It is further noted that the form must be submitted:
1. as a stand-alone unaudited return, within thirty (30) business days after the financial year end;
2. within the annual audited fiscal package (Form 30.30 of the Insurance Act Annual Returns for General Insurers), within four (4) months after the first financial year end following proclamation and within sixty (60) business days after each subsequent financial year end; and
3. at any other times as required by the Inspector.
Insurers are reminded that all forms specified by the Inspector for all of the regulatory reports and returns required under the Act, can be accessed at https://www.centralbank.org.tt/publications/regulatory-returns/insuranc….
