Guidance Note on Supervisory Ladder of Intervention

Updated September 2025
GUIDANCE NOTE ON SUPERVISORY LADDER OF INTERVENTION

STAGE – Circumstances GFSC INTERVENTION Normal Operations Risk based supervisory monitoring activities applying to all licensed insurers. Capital resources are greater than 105% of the PCR, or in the case of retail general insurers1 , capital resources are greater than 135% of the PCR. Standard supervisory measures which may include:

• Scrutiny of applications and issuance of
  licences
• Review and assess wide range of
  requests for regulatory approval – e.g. loans to parent, change of controller
• Risk based approach to the on-going
  monitoring of companies based on information obtained from annual returns
• Risk based scheduling of routine on-site
  examinations
  The GFSC carries out macroprudential surveillance, analyses industry-wide issues and trends and publishes statistics. Stage 1 - Early Warning Identification of deficiencies in policies or procedures or the existence of other circumstances that could lead to the development of problems. The situation is such that it can be remedied, by a collaborative approach between the Licensee and the GFSC, before it impacts on the financial viability of the Licensee. Capital resources are between 100% and 105% of the PCR, or in the case of retail general insurers, capital resources are between 100% and 135% of the PCR. The GFSC will discuss the concerns with the Licensee and request measures to rectify the situation. Remedial actions will be monitored by the GFSC and may involve requests for additional information and/or follow-up examinations. 1 “Retail customer”, as defined in section 8.1 of the Insurance Business Rules, means a customer who is – (a) an individual who, in relation to a licensed insurer, is acting for purposes other than that individual’s trade, business, or profession; (b) a microenterprise; or (c) a charity other than a Non-Governmental Organisation (NGO); and in cases where it is not clear whether an individual qualifies as a retail customer, in accordance with this definition, they must be treated as a retail customer

STAGE – Circumstances GFSC INTERVENTION Stage 2 – Risk to financial viability or solvency Risks are identified which suggest weaknesses in the insurer’s systems and controls which could adversely impact upon its future solvency. This may include, inter alia:

• Evidence of previous non￾compliance with solvency
  requirements

• Deterioration in earnings or the
  profitability of the Licensee's business

• Concerns identified regarding the
  data, methods and assumptions for determining actuarial reserves

• Exposure to off-balance sheet risk

• Evidence that the Licensee has
  insufficient liquidity to meet expected claims

• Corporate Governance failings
  leading to deficiencies in management procedures or controls

• Other concerns arising from:
  o a shareholder controller in financial difficulties o systemic issues of non￾compliance with regulatory requirements o rapid growth o qualified report of external auditor o increased risk exposure as identified by business plan The situation can be resolved collaboratively but more formal regulatory action may be required to protect policyholders. Capital resources are between 50% and 100% of the PCR. The GFSC will intensify risk dialogue with the Licensee with the objective of mitigating the increased risk. The Licensee is notified of concerns and required to submit and implement a recovery plan appropriate to the nature, scale and complexity of its risks that will return the Licensee to Normal Operations within a defined period of the underfunding being detected. The scope of on-site examination and/or frequency of on-site examinations may be enlarged or increased. An external party (inspector) may be required to perform a particular examination relating to the adequacy of the Licensee's procedures for the safety of its creditors, shareholders and policyholders, or any other examination that may be required in the public interest, and report thereon to GFSC at the Licensee’s expense. An independent actuary may be required to perform a review of the appropriateness of the Licensee's technical provisions at the Licensee’s expense. The GFSC may require adjustments to the Licensee’s actuarial methods and assumptions. Business restrictions appropriate to the nature, scale and complexity of the Licensee may be imposed. These may be measures and/or actions provided by the Licensee or conditions imposed on the Licensee’s licence covering such matters as:

• restricting certain transactions that
  will reduce the capital resources (such as dividend payments, capital repayment, voluntary repayments of the Licensee’s own loans, and the distribution of with-profit bonuses to policyholders)

• restrictions on new business

• restrictions on investments

• restrictions on risky and complex
  transactions where it is not ensured that they serve to improve the solvency position

• other restrictions tailored to the
  specific circumstances
  The GFSC will maintain a regulatory 'watchlist' to monitor such companies until they have been rehabilitated. Status of Licensee discussed with other relevant regulatory bodies. STAGE – Circumstances GFSC INTERVENTION Stage 3 – Future financial viability in serious doubt The risks outlined as per stage 2 suggest significant weaknesses in the insurer’s systems and controls which are highly likely to impact upon its future solvency. Capital resources are between the MCR and 50% of the PCR. The GFSC may enhance the Stage 2 measures where applicable and/or initiate further actions including:

• modifying the Licensee’s capital
  requirement

• thematic on-site examinations
  focussing on the particular areas of concern. Such examinations may involve the engagement of external specialists or professionals to assess certain areas such as asset values, appropriateness of actuarial reserves, etc. The Licensee will be required to meet the costs of such examinations

• removal and replacement of
  Directors, Officers or Controllers The GFSC will develop a contingency plan for taking rapid action if necessary due to further changes in circumstances. Status of Licensee discussed with other relevant regulatory bodies.

STAGE – Circumstances GFSC INTERVENTION Stage 4 – Licensee not viable/insolvency imminent The Licensee has failed to identify and rectify risks to solvency at an earlier stage in the ladder resulting in an unacceptable level of risk:

• that policyholder obligations will
  not be paid; and/or
• that the reputation of the Bailiwick
  will be damaged; and/or
• that debts cannot be met as they fall
  due.
  Capital resources are less than the MCR. The GFSC notifies the Licensee’s management and board of directors of intended regulatory intervention measures that will be taken unless immediate actions to restore solvency are undertaken. It must be apparent to the GFSC within a short period of time whether the actions initiated by the insurer are likely to rapidly restore its financial position. Such immediate actions include:
• increase of capital resources or
  reduction of requirement capital
• voluntary transfer of the entire
  insurance portfolio
• partial transfer of the insurance
  portfolio, resulting in capital resources being above the MCR subsequent to the transaction New business restrictions will be imposed on the Licensee or existing restrictions expanded. The GFSC contingency plan will be implemented. Other relevant regulators are notified of proposed regulatory intervention measures to be applied to the Licensee. The GFSC may apply to the Court for an order to wind up or place the Licensee into administration if the remedial measures do not lead to success in the short term. The GFSC will consider the conduct of controllers, directors, auditors and actuaries in the context of Corporate Governance requirements and, if appropriate, will consider regulatory action against the individuals.