ISSUES PAPER
ON SUPERVISION OF CROSS-BORDEROPERATIONS THROUGH BRANCHESOCTOBER 2013

About the IAISThe International Association of Insurance Supervisors (IAIS) is a voluntary membershiporganisation of insurance supervisors and regulators from more than 200 jurisdictions in nearly
140 countries. The mission of the IAIS is to promote effective and globally consistentsupervision of the insurance industry in order to develop and maintain fair, safe and stable
insurance markets for the benefit and protection of policyholders and to contribute to global
financial stability.
Established in 1994, the IAIS is the international standard setting body responsible fordeveloping principles, standards and other supporting material for the supervision of theinsurance sector and assisting in their implementation. The IAIS also provides a forum forMembers to share their experiences and understanding of insurance supervision and insurance
markets. In addition to active participation of its Members, the IAIS benefits from input in select
IAIS activities from Observers representing international institutions, professional associations
and insurance and reinsurance companies, as well as consultants and other professionals.
The IAIS coordinates its work with other international financial policymakers and associations ofsupervisors or regulators, and assists in shaping financial systems globally. In particular, theIAIS is a member of the Financial Stability Board (FSB), founding member and co-parent of the
Joint Forum, along with the Basel Committee on Banking Supervision (BCBS) and theInternational Organization of Securities Commissions (IOSCO), member of the Standards
Advisory Council of the International Accounting Standards Board (IASB), and partner in the
Access to Insurance Initiative (A2ii). In recognition of its collective expertise, the IAIS also isroutinely called upon by the G20 leaders and other international standard setting bodies for
input on insurance issues as well as on issues related to the regulation and supervision of the
global financial sector.

This paper was prepared by the Insurance Groups and Cross-Sectoral Issues Subcommittee in
consultation with IAIS Members and Observers.
The publication is available free of charge on the IAIS website (www.iaisweb.org).
© International Association of insurance Supervisors 2013. All rights reserved. Brief excerpts
may be reproduced or translated provided the source is stated.

Issues Paper on Supervision of Cross-border Operations through Branches
Contents
1

Introduction ......................................................................................................................... 4
1.1
Background and objectives........................................................................................... 4
1.2
Literature review ........................................................................................................... 4
1.3
Overview of business practices and supervisory requirements ..................................... 6
2
Regulation of foreign branches ........................................................................................... 8
2.1
Licensing ...................................................................................................................... 8
2.2
Financial commitments ................................................................................................. 9
2.3
Business ..................................................................................................................... 10
2.4
Governance ................................................................................................................ 11
2.5
Solvency ..................................................................................................................... 11
2.6
Assets backing insurance liabilities ............................................................................. 12
3Supervision of foreign branches ........................................................................................ 14
3.1
On-site inspection ....................................................................................................... 14
3.2
Off-site monitoring ...................................................................................................... 15
3.3
Supervisory reporting and public disclosure................................................................ 15
3.4
Supervisory intervention ............................................................................................. 15
3.5
Cross-border cooperation ........................................................................................... 17
4
Resolution of foreign branches.......................................................................................... 18
4.1
Policyholder protection schemes ................................................................................ 18
4.2
Run-off ....................................................................................................................... 18
4.3
Portfolio Transfer ........................................................................................................ 18
4.4
Insolvency proceedings in the home jurisdiction ......................................................... 19
5
Possible challenges and approaches in supervision of foreign branches .......................... 19
5.1
Challenges in supervision of foreign branches............................................................ 19
5.2
Possible approaches for supervising foreign branches ............................................... 20
6Conclusion ........................................................................................................................ 22
Annexes - Case studies ............................................................................................................ 23
I.
Freedom of establishment and freedom to provide services in the EU .............................. 23
II. Branch operation within U.S. States .................................................................................. 25
III. Resolution of branches: Confederation Life Insurance Company, Canada ........................ 26

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1 Introduction
1.1 Background and objectives
1.

Insurance cross-border activities are usually carried out through:(i) subsidiaries - legal entities which are wholly or majority owned or controlled by anotherlegal entity, such as an insurer or insurance holding company;(ii) branches - operating entities which are not legal entities separate from an insurer but
part of the insurer in terms of its organisation;(iii) joint ventures - legal entities jointly established by two or more parent institutions, atleast one of which is incorporated in a different jurisdiction, and not all of which arenecessarily insurers; and,(iv) cross-border provision of services - in some jurisdictions insurers also provide
services on a cross-border basis without establishing a subsidiary, branch, or joint
venture.

2.

Supervision of foreign branches (those established in a jurisdiction other than that inwhich the insurer is headquartered) is an essential theme of cross-border supervision.
However, there are few academic articles that review how foreign branches aresupervised and examine how supervision of foreign branches is different from that offoreign subsidiaries (those established by an insurer or insurance group headquartered ina foreign jurisdiction).

3.

This paper has two objectives:(i) to identify how foreign branches are supervised, highlighting differences as well as
similarities in supervisory practices;(ii) to consider (possible) challenges in the supervision of foreign branches.

4.

This paper looks at the prudential supervision of foreign branches writing both direct
insurance and reinsurance. However its primary focus is on direct insurance. This paper
does not deal with the market conduct supervision of foreign branches or the prudential
supervision of branches established in a jurisdiction where the insurer is headquartered(“domestic branches”). The supervision of cross-border services as a general rule also
falls outside the scope of this paper, however some references are made in order toprovide a broader picture of particular issues.

5.

In developing this paper the IAIS conducted a survey of its members and undertook areview of academic literature. Members from 35 jurisdictions participated in the survey 1
including ten G20 jurisdictions.
1.2 Literature review
1.2.1

6.

Industry perspective

In considering how to supervise foreign branches, it is important to understand why
insurers choose to operate as branches or subsidiaries when they operate internationally.
As there appear to be few articles that study cross-border operation of insurers throughbranches, articles dealing with branch operations within banks were reviewed. Since both

1

Australia, Austria, Belgium, Bermuda, Canada, Chile, Chinese Taipei, Costa Rica, France, Germany, Hungary, Korea, Japan,
Jordan, Macau, Morocco, Netherlands, New Zealand, Peru, Poland, Portugal, Russia, Singapore, Slovakia, South Africa, Spain,
Sweden, Switzerland, Trinidad and Tobago, Turkey, United Arab Emirates, United Kingdom, and United States (Michigan, Missouri,
Washington).

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banks and insurers are prudentially regulated and supervised financial institutions thisreview has provided useful insights for the supervision of insurance.
7.

Cerutti et al. (2007) 2 provide observations from two perspectives: exogenous andendogenous. Although the article refers to cross-border operations of banks, theseobservations are also relevant to this discussion on the cross-border activity of insurancecompanies. Cerutti at al. identify four exogenous factors – regulations, taxation, degrees
of penetration, and economic and political risks in host jurisdictions. Regulations may
prohibit the establishment of foreign branches. They observe that branches are favoured
in jurisdictions with higher corporate taxes. Branches are also more likely in jurisdictions
with smaller scale operations, i.e. in jurisdictions with a lower market penetration. They
also find that subsidiaries are more common in jurisdictions where economic risks arehigh so as to isolate the group from these risks, whereas branches are more likely injurisdictions with high level of risks stemming from possible government intervention andother major political events. Cerutti also states that banks are actually more exposed
when operating as subsidiaries, which typically have higher capital and reserve
requirements and larger investments in local fixed assets, relative to branches.

8.

Fiechter et al. (2011) 3 also examine endogenous factors and the exogenous factors
highlighted above with reference to the banking sector. However their conclusions havealso been considered in relation to the insurance sector. With respect to business models
and market penetration strategy, they note that banks set up branches in jurisdictions
where they target corporate clients, while they prefer subsidiaries when targeting retailcustomers. They also observe that branches are often associated with the centralised
form of organisation where capital flows within a group are managed by the parent, whilea group with a decentralised structure tends to set up subsidiaries which are
independently managed and financially and operationally self-sufficient.
1.2.2

Supervisory perspectives

9.

Fiechter et al. conclude that both branch and subsidiary structures have advantages froma supervisory perspective although the home and the host supervisors may havecompeting priorities. They find that the host supervisor has greater supervisory control
over, and oversight responsibility for, subsidiaries than branches and the opposite is true
for the home supervisor. Fiechter et al. observe that host supervisors prefer a subsidiarystructure so that they can protect depositors appropriately as there is increased
uncertainty over the control of assets and capital in a branch structure.

10.

As for the transferability of assets, Fiechter et al. observe that during times of stress, abanking group with a centralised organisation structure that operates through branches
outside the home jurisdiction is able to transfer funds from healthy entities to a troubled
entity, or draw on the excess capital from the host jurisdiction. They also note that hostsupervisors prefer the subsidiary structure when facing adverse external shocks but prefer
the branch structure when facing domestic shocks, while the opposite is true for the homesupervisor. The subsidiary structure may serve to protect the interests of individual
subsidiaries, while the branch structure may receive financial support from the parent.

2

Cerutti, E., Dell’Ariccia, G., Martínez Pería, M., 2007. How banks go abroad: Branches or subsidiaries? Journal of Banking &Finance 31 (2007) 1669-1692.
3Fiechter, J., Ötker-Robe, İ., Ilyina, A., Hsu, M., Santos, A., Surti, J., 2011. Subsidiaries or Branches: Does One Size Fit All?
International Monetary Fund, SDN/11/04.

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1.3 Overview of business practices and supervisory requirements
1.3.1

Business practices

11.

The motives identified in Section 1.2 for establishing international bank operations throughbranches may also apply in the insurance sector. Taxation is also an important factor.
Branches may also be a preferred option for initial market penetration as set up costs areoften lower than that for subsidiaries and for operations in jurisdictions experiencing ahigher political risk profile. The branch structure seems to be more common among
insurers conducting wholesale business in other jurisdictions. For example, a number ofreinsurers operate cross-border through branches, or through cross-border provision ofservices. Even though in the majority of jurisdictions foreign insurers are allowed tochoose the form of operation, in some jurisdictions, such as Russia and South Africa, it isprohibited to establish branch operations.

12.

Insurers (or insurance groups) and insurance industry associations (“the industry”)
maintain that branches are less costly to operate than subsidiaries. Branches, for example,
usually do not require a separate board of directors and in some jurisdictions they are
subject to fewer regulatory requirements. The industry argues that, due to the lower
operating costs, insurers can supply products at lower prices, thus benefitting
policyholders. Additionally, they point out that foreign branches have access to the capitalof the parent – this is a benefit that should not be underestimated. It is particularly
important for reinsurance business where size is critical.

13. Insurers choose their own business structure, which is supported by the General
Agreement on Trade in Services (GATS) 4 and the OECD Code of Liberalisation of Current
Invisible Operations. The GATS states that “measures which restrict or require specifictypes of legal entity or joint venture through which a service supplier may supply a service”
are defined as one of the measures “which a Member shall not maintain or adopt either on
the basis of a regional subdivision or on the basis of its entire territory, unless otherwise
specified in its Schedule.” At the same time however, the GATS also states that “a Member
shall not be prevented from taking measures for prudential reasons, including for theprotection of investors, depositors, policy holders or persons to whom a fiduciary duty is
owed by a financial service supplier, or to ensure the integrity and stability of the financial
system” 5 to the extent that such measures are not used as a means of avoiding theMember’s commitments or obligations under the GATS. Such measures are often referred
to as “prudential carve out(s)”. The OECD Code of Liberalisation of Current Invisible
Operations is a legal instrument under which OECD members have made commitments in
respect of the treatment of cross-border provision of financial services and commercial
presence. The OECD Code stipulates that “Members may take regulatory measures in thefield of insurance and pensions, including the regulation of the promotion, in order toprotect the interests of policyholders and beneficiaries, provided those measures do notdiscriminate against non-resident providers of such services.”
1.3.2

Supervisory requirements

14.

There are three differences in the supervision of foreign branches: (i) differences among
jurisdictions; (ii) differences between foreign branches conducting primary insurance andthose conducting reinsurance; and (iii) differences between domestic insurers (including
foreign subsidiaries) and foreign branches.

15.

The most prominent difference among jurisdictions was observed between the European
Economic Area (EEA) and other jurisdictions. The unique supervisory regime adopted in

4
5

General Agreement on Trade in Services, Part III, Article XVI, Paragraph 2 (e).
General Agreement on Trade in Services, Annex on Financial Services, Paragraph 2 (a).

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the EEA is based upon freedom of establishment and freedom to provide services. Underthe regime, once insurers headquartered in a jurisdiction within the EEA are licensed, they
are free to operate within the EEA by establishing branches (on the basis of freedom of
establishment) or without permanent presence in a host jurisdiction (on the basis of
freedom to provide services). In addition, the EEA host supervisor has, in principle, noprudential supervisory authority over the intra-EEA foreign branches in its jurisdiction. (Fordetails about EEA freedom of establishment and freedom to provide service, see Casestudy 1.)
16.

It is worth highlighting the supervisory regime established between the European
Economic Community and the Swiss Confederation (L205). An agreement adopted isrelated to activities of direct insurance (except for life assurance) carried out through abranch established in a different jurisdiction to that of the agreement, with the aim toensure the freedom of establishment. In particular, in accordance with the scope andterms agreed, the supervisor in the jurisdiction where the insurer is headquartered is incharge of solvency supervision of branches established in other jurisdictions under the
regime. In other words, insurers licensed by an EEA jurisdiction may operate in
Switzerland through branches for which the supervisor in the home jurisdiction has a
responsibility of solvency supervision. Insurers licensed in Switzerland may operate within
the EEA through branches for which the supervisor in Switzerland has a responsibility ofsolvency supervision. The agreement includes specific rules for cooperation between thehome and the host supervisors in terms of solvency supervision.

17.

For reinsurance branches, it was observed that (i) reinsurers tend to operate throughbranches rather than subsidiaries and (ii) even within the EEA reinsurers establish
branches as well as subsidiaries. According to the limited information collected throughthe survey however, it appears that foreign reinsurance branches are likely to be subject
to similar regulation and supervision as foreign primary insurance branches. Supervisors
assess the profitability (performance), asset quality, liquidity, leverage, and overall
financial position, etc. of reinsurance branches, but reinsurers appear to have theimpression that supervisors are less likely to routinely drill down into these areas for anumber of reasons, such as the degree of sophistication of policyholders. Reinsurers also
observe that local regulatory approval and requirements would not be likely to differ for
traditional insurance branches and reinsurance branches, while the depth and level of ongoing monitoring activities are likely to vary based on the inherent differences between
traditional and reinsurance branches described above.

18.

The survey highlighted three major differences between the supervision of subsidiaries
and branches: (i) foreign branches are generally subject to requirements regarding
location and control of assets (in many jurisdictions, foreign branches are required to holdassets covering financial commitments and backing their insurance liabilities in hostjurisdictions), and in a very few jurisdictions foreign branches are required to obtainapproval from the host supervisor prior to accessing the assets backing insurance
liabilities; (ii) foreign branches are not required to establish Boards of Directors as
branches are not legal entities and in some cases certain control functions of a branch
can be performed by the insurer in its home jurisdiction where the company has a Board;and (iii) several jurisdictions do not conduct suitability checks of representatives of aforeign branch.

19.

The rest of this paper is structured as follows: Chapter 2 deals with regulation of foreign
branches; and Chapter 3 addresses supervisory approaches to foreign branches. Chapter
4 focuses on resolution of foreign branches. Chapters 2 to 4 are developed based on
findings from the survey. (Possible) challenges in supervision of foreign branches andpossible approaches to meet such challenges are discussed in Chapter 5. In addition,
paragraphs in Chapters 2 to 4 refer to regulation, supervision and resolution regimes,
respectively, for foreign branches other than those established within the EEA by insurers
headquartered in other EEA jurisdiction (hereinafter referred to as “intra-EEA branch” orIssues Paper on Supervision of Cross-Border Operations through Branches

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“intra-EEA branches”), unless otherwise specified. (When intra-EEA branch specificissues are referred to, such paragraphs say, for example, “in the case of intra-EEA
branches” for clarification purposes.)

2 Regulation of foreign branches
20.

This Chapter examines the licensing, financial commitment, business, governance, andsolvency of foreign branches based on the findings from the survey. Observations withrespect to the regulation of intra-EEA branches are made at the end of each subsection. 6
2.1 Licensing

21.

Most jurisdictions require foreign branches, including reinsurance branches, to belicensed. In number of jurisdictions the requirements are the same as those for foreignsubsidiaries and domestic insurers. Some jurisdictions have different licensing
requirements for foreign branches and may, for example, require less paid-in capital
and/or deposits, while other jurisdictions have common licensing requirements for foreign
branches.

22.

The extent to which cross-border provision of services is permitted varies acrossjurisdictions. Where cross-border provision of services is permitted, the scope is usuallylimited. 7

23.

In the EEA jurisdictions, an insurer whose head office is outside the EEA is subject to an
official authorisation in the host jurisdiction in accordance with Article 23(1) of the Directive
73/239/EEC concerning non-life and Article 51(1) of the Directive 2002/83/EC concerning
life assurance. According to Article 23(2b) of Directive 73/239/EEC and Article 51(2b) of
Directive 2002/83/EC, the establishment of an agency or branch in the territory of an EEA
Member State is one of the conditions for authorisation of the foreign insurer.

24.

In most EEA jurisdictions, it is also possible for a non-EEA reinsurer to set up a branch.
Some EEA jurisdictions make the establishment of a branch mandatory for non-EEA
reinsurers, and the majority of these jurisdictions require a full authorisation process,which is equivalent to that required of a subsidiary.

25.

Provision of services on a branch basis within the EEA is subject to a notification
requirement only. Reinsurers from other EEA jurisdictions operating under a freedom toprovide services (when a reinsurer has no permanent presence within the jurisdiction) arepermitted to do so in the majority of EEA Member States without a formal authorisation
requirement although usually under special conditions. 8

6

EEA-related descriptions in the paper reflect those under the current Solvency I Directives. These directives are in the process of
being repealed and replaced with a new Directive, Solvency II (Directive 2009/138/EC). The Solvency II Directive would make anumber of changes to the rules that apply to foreign branches and the European Commission has specifically asked the European
Insurance and Occupational Pensions Authority (EIOPA) to produce guidelines to ensure an appropriate level of harmonisation
amongst supervisory authorities in Member States in this area.
7
Examples include maritime shipping; commercial aviation; goods in transit but also insurance of risk with regard to which an
insured person has received a written refusal to conclude an insurance contract from at least three insurance companies authorised
in a particular jurisdiction (in Poland); insurance of risk located outside the jurisdiction, if the concluding of insurance contract withthe local insurance undertaking is required by law in force in that country; insurance of risk which is required under international
agreement to be insured in a particular insurance company.
8
Please refer to the CEIOPS's Report on the responses to the Questionnaire on the Regulatory Treatment of Third Country
Reinsurance Undertakings and on Existing Equivalence Procedures.

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/CEIOPS-ConCo-05-09-report-questionnairetreatment-of-3rd-countries-reinsurers.pdf

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2.2 Financial commitments
26.

In most jurisdictions a foreign branch is required to make financial commitments, i.e. tohold a certain amount of assets when it is set up, as one of the licensing requirements.
Such financial commitments are sometimes called “brought-in capital” or “deposits.” They
are backing (part of) capital (or assets over liabilities) and thus are different from assetsbacking liabilities. According to the survey, all jurisdictions (except for Bermuda) require
foreign branches to hold such assets in the host jurisdiction, but details of therequirements vary jurisdiction by jurisdiction.

27.

Some jurisdictions determine the amount required on a risk basis, while others require thesame amount of brought-in capital or deposit amount from all foreign branches. (In thelatter case, it does not mean that foreign branches are not subject to risk-based solvency
requirements.) There are various ways to hold such assets - many jurisdictions require theassets to be deposited in a bank in the host jurisdiction, while others require them to beheld in trust with a trustee. It is also worth mentioning that some jurisdictions require
foreign branches to obtain approval from the host supervisor before accessing the assets.
The following table summarises the survey results regarding financial commitments forforeign branches (excluding intra-EEA branches).

Jurisdiction

Is a foreign
branch required
to make financial
commitments in
the host
jurisdiction?

Australia

Yes

9

Other

Bermuda

12

NA

No

Yes

13

FranceYes

15

Germany

Yes

Canada

Italy

Yes

Japan

Yes

18

Korea

Yes

Are thecommitments
deposited in a bankaccount or held in
trust with a trustee
in the hostjurisdiction?
10

Is prior approval
from the hostsupervisor
required when the
branch intends toaccess theassets?
Yes

11

NA

Do the samerequirements
apply to domestic
insurers/foreignsubsidiaries?

Yes
Yes

14

No

Yes

No

Yes

No

Other

17

Yes

No

Other

19

No

No

No

Yes

Held in Trust
Other

16

Deposited

DepositedYes

9

The amount at least corresponding to PCR needs to be held in the host.
Held by custodians or agents in the case of non-life. In the case of life, a foreign branch is required to hold them in statutory funds(i.e. separate account). A life insurer is required to establish statutory funds that relate solely to the life insurance business of theinsurer or a particular part of that business. A statutory fund includes all the assets related to the business of the fund and all
liabilities (including policy liabilities) of the insurer arising out of the conduct of the business of the fund. Any other assets andliabilities of the insurer are held in the shareholders’ fund.
11
Prior approval is not required in all circumstances, insurers must seek APRA’s consent for certain planned capital reductions andmust inform APRA of any significant adverse changes in the capital position.
12
Branches are required to make financial commitments as one of the licensing requirements, although they are not required tomake such commitments in Bermuda. While there is not a requirement, under certain circumstances, the supervisor has power torequire assets to be kept in Bermuda. There is a requirement for pre-approval prior to certain planned capital reductions.
13
Assets covering capital (i.e. assets over liabilities).
14
Except for limited cases, for example, when the asset withdrawn is replaced, either prior or simultaneously, with a similar asset.
15
A surplus corresponding to 30% of the increase of the level of technical provisions from one year to another. As of reciprocity,
additional financial commitments can be required from foreign branches if the home country requires the same commitments from
French branches.
16
Deposited by the “Caisse des Dépôts et Consignations” or on an account by the “Banque de France.”
17
An amount equal to at least the minimum guarantee fund shall be invested in Italy. An amount in cash or bonds equal to at least
one-half of the minimum guarantee fund shall be deposited as security with Cassa depositi e prestiti or with the Bank of Italy. The
provision does not apply to Swiss non-life branches.
18
200 million JPY.
19
Deposited with the deposit office.
10

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Jurisdiction

Is a foreign
branch required
to make financial
commitments in
the host
jurisdiction?

Netherlands

Yes

20

PolandYes

SingaporeYes

Are thecommitments
deposited in a bankaccount or held in
trust with a trustee
in the hostjurisdiction?

Is prior approval
from the hostsupervisor
required when the
branch intends toaccess theassets?

Do the samerequirements
apply to domestic
insurers/foreignsubsidiaries?

Deposited

Yes

No

Deposited

Yes

21

No

Other

22

No

Yes

Yes

23

Yes

26

Yes

28

No

U.K.

Yes

30

Deposited

No

No

U.S.

Yes

Deposited

Yes

Yes

Deposited

Yes

Yes

Held in Trust

Yes

Yes

Spain
Switzerland
UAE (Dubai)

Deposited

Yes

24

Yes

27

Yes

Yes

No

Yes

Deposited29

25(Michigan)
31

U.S. (Missouri)

Yes

U.S.

Yes

(Washington)

28.

In the EEA, pursuant to relevant EU directives, foreign branches (excluding intra-EEA
branches) are required to possess assets of the value equal to at least one-half of theminimum amount of guarantee funds 32 in the EEA and to deposit one-fourth of theminimum amount as security. 33

29.

Intra-EEA branches are not required to lodge financial commitments in EEA jurisdictions.
2.3 Business

30.

Most jurisdictions do not permit an insurer to write both life and non-life business within asingle entity. In a few jurisdictions however, a foreign branch may engage in both life andnon-life business within a single entity under certain conditions.

20

An amount equal to at least half of the so-called minimum amount of the guarantee fund needs to be deposited.
Not explicitly expressed in the legislation.
22
Maintained in separate bank accounts or custodian accounts from those of the Head Office.
23
Not applicable to Swiss non-life branches. The amount is not smaller than that of capital or mutual funds required for Spanish(re)insurers. The amount is determined depending on class(es) of bussines engaged and receives the denomination of “permanent
fund with the head office that needs to be maintained in Spain."24
The requirement on the deposit is extended only to the one fourth of the minimum amount of the guarantee fund. If the branchintends to access the mentioned deposit the prior approval of the Spanish Authority should be required.
25
In terms of the amount.
26
FINMA determines the required amount of the organisational fund of each foreign branch. The amount ranges from 20% to 50%of the minimum capital requirement. In addition, a security deposit, proportionate to the solvency margin related to the business in
Switzerland, is to be established. FINMA determines the amount. In addition, there is a requirement of a minimum amount to be held
for restricted assets (ISO, Art. 70). When first established, the required amount of restricted assets is at least: CHF 750’000 for Life
insurance business; CHF 100’000 for Non-Life insurance business.
27
Organisational funds (paid-in capital) are deposited in a bank account in Switzerland. Security deposits (proportionate to solvency
margins) are held at the Swiss National Bank.
28
Assets in excess of their insurance liabilities.
29
No requirement on how the assets are held.
30
Except for reinsurers and Swiss non-life insurers.
31$600,000 for life companies and $1.2 million for property & casualty companies.
32
Required capital amounts to the value of solvency margin or guarantee funds. The guarantee fund amounts to one-third of thesolvency margin or the minimum amount stipulated in the directives. Apart from these required capital, branches are obliged tomaintain technical provisions.
33
Article 23 (2) (e) of the First Non-Life Directive (73/239/EEC) and Article 51 (2) (e) of Consolidated Life Directive (2002/83/EC).
21

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31.

Compared to foreign subsidiaries and domestic insurers foreign branches tend to carryout fewer operations. According to the survey, material operations, such as underwriting,claims management, record keeping, and management of policyholders’ information, aremostly performed at the foreign branch level, while few foreign branches engage inintermediation (brokerage). This is because insurance companies do not necessarily sell
their products themselves but do so through brokers.

32.

For intra-EEA branches, fewer operations are carried out at the branch level compared tothose by non-EEA branches. Only a few EEA jurisdictions have the same list of operations
to be done at the branch level for both EEA and non-EEA branches.
2.4 Governance

33.

While there may be some elements of oversight and governance requirements imposedon a foreign branch in the host jurisdiction, critical governance and oversight functions of
the branch are generally located in the head office. This implies, for example, thatstrategic decision making (including decisions around capital) would not take place in thejurisdiction of the branch.

34.

As a general rule, a foreign branch (including an intra-EEA branch) is required to identify arepresentative in a host jurisdiction. In general the representative performs management
functions and/or represents the insurer with regard to the branch’s operations. Although
there are likely to be responsibilities in accordance with the host jurisdictional regime,
generally the representative will not have the same legal obligations as those of board
members in terms of governance35.

In most jurisdictions, a foreign branch is required to have in place functions such ascompliance, actuarial, risk management, internal and external audit. In some jurisdictions
legislation on the mandatory functions provides for exceptions (e.g. control functions canbe established at the level of a parent insurer). Most jurisdictions do not require a branch
to have its own board of directors because a branch is not a legal entity.

36.

In some jurisdictions (e.g. Australia 34 , Bermuda, Chile) one person has the general
responsibility for the overall operations and functions of a foreign branch performed at thebranch level.

37.

There is no overall pattern with regards to suitability checks of persons withresponsibilities for the operations of a foreign branch. In some cases, the host supervisor
alone carries out the suitability checks, while in other cases, both home and hostsupervisors are responsible for the assessment. In some jurisdictions the activity is
conducted by the branch itself.

38.

For intra-EEA branches control functions in branches are not obligatory.
2.5 Solvency

39.

Solvency requirements for branch operations can be similar to those of foreignsubsidiaries.

40.

In almost all the jurisdictions, supervisors require branches to calculate a solvency margin
and report a branch solvency margin.

41.

In some jurisdictions, when the host supervisor recognises the home solvency regulationof the branch as equivalent, a solvency margin can be calculated following the principlesof the home jurisdiction.

34 In the case of a life insurance, the Compliance Committee has general responsibility for the branch.

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42.

In most of the cases, branches are required to book contracts that they underwrite forresidents in the host jurisdiction on the branch balance sheet.

43.

In the case of intra-EEA branches, branches are not required to calculate a solvency
margin at the branch level, since the solvency margin is calculated for the whole entity
and monitored by the home supervisor. As a consequence, branches do not have toprovide the host supervisor with solvency reporting at the branch level. Regarding booking
requirements, insurance contracts underwritten at the intra-EEA branch level are bookedin the balance sheet of the parent insurer in the home jurisdiction.
2.6 Assets backing insurance liabilities

44.

In most jurisdictions foreign branches are required to hold assets backing insurance
liabilities (in some jurisdictions such assets are called “tied assets”) in the host jurisdiction.
According to the survey, Austria, Belgium, Bermuda, Chile, Germany, Jordan, Peru, andSingapore do not have this requirement. Foreign branches in Germany need to hold tied
assets within the EEA, and in Bermuda and Singapore the supervisor has power torequire foreign branches to hold such assets in their jurisdiction where deemed necessary.

45.

Unlike financial commitments in Subsection 2.2, many jurisdictions do not require assetsbacking insurance liabilities to be deposited in a bank account or held in trust in the hostjurisdiction. Exceptions are Canada, Germany in case of life insurance, substitutive healthinsurance and compulsory long-term care insurance and U.S. states (which require such
assets to be held in trust) and Korea (which requires deposits). A small number ofjurisdictions require prior approval from the host supervisor when a branch intends toaccess the assets held in trust (e.g. withdraw or transfer (part of) the assets). An
observation is that assets backing insurance liabilities, though they are required to beplaced in the host jurisdiction, tend to be easily accessible and transferable, and priorapproval from the host supervisor is not required when the branch accesses the assets(though this may be a breach of the law). The following table summarises the survey
results regarding assets backing insurance liabilities for foreign branches (excluding intraEEA branches).

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Jurisdictions

Is a foreign branchrequired to holdassets backing
insurance
liabilities in thehost jurisdiction?

Australia

Yes

BermudaCanadaNo

Are the assets
deposited in abank account orheld in trust with atrustee in the hostjurisdiction?

35

Other

39

NA

Yes

40
42

Other

36

43

FranceYes
No

44

Held in trust

Italy

No

46
47

Do the samerequirements
apply todomestic
insurers/foreignsubsidiaries?

37

Other

NA

Yes

No

Held in trust

Germany

Is prior approval
from the hostsupervisor
required when the
branch intends toaccess theassets?

Yes

41

No

Yes

No

No

Yes

No

No

Yes

45

38

Japan

Yes

No

No

Yes

Korea

Yes

Deposited

No

No

Netherlands

Yes

No

No

Yes

Poland

No

48

NA

NA

Yes

Singapore

No

49

NA

NA

Yes

Spain

Yes

No

No

No

50

35

Non-life: assets in Australia must exceed the liabilities in Australia. Life: sufficient assets to meet the liabilities relating to thatbusiness.
36
Non-life: held by a branch’s custodians or agents. Life: held in the statutory fund. (In the case of non-life, where assets are held bycustodians, they must satisfy the requirements set out in APRA’s prudential framework, although some assets are not required to beheld by a custodian or the foreign branch’s agent in Australia, including real property, premiums receivable (provided that any
premiums receivable outstanding for more than six months from the date when the premiums receivable became due and payable
are excluded from being an asset in Australia), and, cash held in the foreign branch’s bank account in Australia.)
37
However insurers must seek APRA’s consent for certain planned capital reductions and must inform APRA of any significant
adverse changes in the capital position.
38
Non-life: domestic insurers and foreign subsidiaries general insurers are required to hold assets in Australia in excess of their
Australian liabilities (i.e. all liabilities in Australia), although there is no requirement that they are held with a custodian or agent inAustralia. Life: foreign branches are subject to similar legislative and prudential requirements to Australian-owned and incorporated
life companies, for business which is carried out through Australian statutory funds.
39
Branches are required to demonstrate that they have available adequate capital to support the liabilities of the branch in Bermuda
in other jurisdictions. While there is not a requirement, under certain circumstances, the supervisor has power to require assets
corresponding to the value of Bermuda insurance liabilities of a branch to be kept in Bermuda under an approved trustee of the
Authority and such assets cannot be removed without the Authority’s consent in the event it was felt that these measures werenecessary. There is a requirement for pre-approval prior to certain planned capital reductions.
40
Assets covering all liabilities.
41
See footnote 12.
42
There is a predefined list of assets that insurance companies can hold to cover insurance liabilities.
43
Assets covering technical provisions must be deposited by the “Caisse des Dépôts et Consignations” or on an account by the“Banque de France”, which are both public institutions (Art. R332-37 and following of the Code des Assurances).
44
Assets backing insurance liabilities have to be hold within the EEA.
45 In case of life insurance, substitutive health insurance and compulsory long-term care insurance.
46
Third country branches may localise assets representing technical provisions in one or more EEA States. At the undertaking's
request, ISVAP may authorize the localization of part of the assets in a third State. ISVAP may however require that such assets
shall be localized in Italy wherever that is deemed necessary to protect the interests of policyholders and of those entitled toinsurance benefits. This provision does not apply to reinsurers.
47
Assets backing insurance liabilities.
48
There is no requirement to keep the assets in the territory of Poland. However in a case where the risk is located in the territory ofa European Union Member State, the assets may be invested solely in the territory of the European Union Member States.
49

But, MAS has the power to require any insurer, on a case-by-case basis, to maintain certain assets in Singapore for the purposeof meeting liabilities. In addition, investable assets of the foreign branch in Singapore have to be separately identified in the name of
the foreign branch in Singapore, and maintained in separate bank accounts or custodian accounts from those of the Head Office.
50
The assets in the case of domestic insurers/foreign subsidiaries, with the exception of the credits towards reinsurers, can besituated in any Member State of the EEA. Subject to the appropriate authorisation, the assets covering the tecnhnical provision
could be situated outside the EEA.

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Jurisdictions

Is a foreign branchrequired to holdassets backing
insurance
liabilities in thehost jurisdiction?

Are the assets
deposited in abank account orheld in trust with atrustee in the hostjurisdiction?

Switzerland

Yes

Other

UAE (Dubai)

Yes/No

U.K.

Yes

53

Yes

54

U.S. (Michigan)
U.S. (Missouri)

No

U.S. (Washington)

Yes

57

52

Is prior approval
from the hostsupervisor
required when the
branch intends toaccess theassets?

Do the samerequirements
apply todomestic
insurers/foreignsubsidiaries?

No

Yes

No

No

Yes

No

No

Yes

51

Held in Trust

55

Yes

NA

Yes

58

Yes

No

NA
Held in Trust

56

No

3 Supervision of foreign branches
3.1 On-site inspection46.

In most jurisdictions a host supervisor has an explicitly granted power to conduct an onsite inspection of a foreign branch located in its jurisdiction. Belgium, Costa Rica, New
Zealand and Sweden grant such a power to both home and host supervisors. Participationof the home supervisor in on-site inspections of a branch in a host jurisdiction is possible
in many jurisdictions on the basis of an agreement, such as a Memorandum ofUnderstanding between the home and the host supervisor, or with prior agreement fromthe host supervisor.

47.

According to EU directives in the case of intra-EEA branches, the home supervisor in ajurisdiction within the EEA may, after having first informed the host supervisor, carry out

51
The Swiss Insurance Supervisory Ordinance (ISO) regulates the custody of investments as follows (Art. 86): Moveable
investments allocated to restricted assets may be held at the headquarters of the insurance business in Switzerland, or at the office
for all Swiss business, as applicable, (own custody) or be held by a third-party custodian; investments held in own custody are to be
kept segregated from the other assets of the insurance business and are to be marked as such. If stored in a safe, storage insegregated, locked compartments is sufficient; whoever maintains investments with a third-party custodian shall maintain an
inventory of the investments and shall mark them as allocated to restricted assets; FINMA may at any time for important reasonsorder a change of the location of custody.
52
Assets may be held outside of our jurisdiction due to regulatory obligations elsewhere. This may be recognised on a case by casebasis.
53
Except for reinsurers and Swiss non-life insurers.
54
In the case of reinsurance, trusteed assets could be reduced assuming the provisions for receiving this credit have been met.
Cessions which do not meet the credit for reinsurance requirements must be collateralised by an amount equal to the credit forreinsurance - this collateral does not need to be held exclusively within the Michigan trust.
55
Under the direction of the Michigan Insurance Commissioner. The trustee must be a Qualified United States Financial Institution,
which means any state or nationally chartered bank or trust company, organised under the laws of any state or of the United Statesthat has been granted authority to operate with fiduciary powers.
56
Trusteed assets are restricted in that they are under the control, ultimately, of the Michigan Insurance Commissioner. The
Commissioner is a party to the trust agreement, which is also signed by the trustee and the branch. It should be noted, however thata branch might have assets reported on the regulatory state that are not in trust. These assets (i.e., the non-trusteed assets) may be
used to pay valid claims of the branch. In short, while approval from the Commissioner is needed to access the trusteed assets to
pay claims, it is also possible that a branch would be paying claims using non-trusteed assets to minimise the need to request
approval from the Commissioner for a release of assets, since otherwise they are not allowed. The legislation requires 15 days
advance notice to the Commissioner when the Commissioner's prior approval is required. From a supervisory review perspective,
the supervisor would perform a review of the request, including the reason for the release, and make a recommendation to theCommissioner for such release (if approval is granted by the Commissioner, a letter would be sent to both the company and thetrustee indicating such approval and the amount to be released). The supervisor monitors trust assets quarterly through a review
and reconciliation of trust statements (which are filed quarterly by the trustee; the trustee also certifies the assets in trust on the
Trusteed Surplus Statement; the Trusteed Surplus Statement is filed quarterly by the branch and comes in with the quarterly or
annual statement filing). The supervisor requires that the trust statements be filed with OFIR monthly.
57
Held in the state of a primary supervisor.
58
Similar to Michigan.

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an on-site inspection of the branch in the host jurisdiction. The host supervisor may
participate in the on-site inspection carried out by the home supervisor. This is also
addressed by the General Protocol, 59 which provides detailed rules for on-site inspectionof branches, including cooperation between home and host supervisors of relevant EEA
member states.
3.2 Off-site monitoring48.

In most jurisdictions a host supervisor has the power to carry out off-site monitoring of aforeign branch. In Austria, France, Jordan and Taiwan, both home and host supervisors
have this power. In some cases cooperation in this regard is carried out on the basis of a
Memorandum of Understanding (MoU).

49.

According to EU law, 60 financial supervision of an EEA insurance or reinsurancecompany, including the business carried out through branches, is the sole responsibility of
the home Member State supervisor. If the EEA host supervisor believes the activities ofan (re)insurer carried out through a branch may affect its financial soundness it shallinform the home supervisor.
3.3 Supervisory reporting and public disclosure

50.

Most host jurisdictions require the submission of audited financial statements on a branchbasis, while some, such as Michigan, Missouri, Switzerland, and the UK do not.

51.

As a general rule, foreign branches are required to disclose information to the public.
Most jurisdictions require audited financial statements to be disclosed, while in somejurisdictions branches are also required to disclose financial statements for solvency
purposes, information on risk management systems, on parent company and groupstructure, or on governance systems. Usually, the disclosures required of branches are
the same as those for foreign subsidiaries and domestic insurers.

52.

Preparation of financial statements and disclosure of information to the public is not
required for intra-EEA branches.
3.4 Supervisory intervention
3.4.1

Intervention power

53.

In most jurisdictions a host supervisor has the power to intervene in a foreign branch. In a
few jurisdictions, such as Turkey and Dubai, legislation may enable a home supervisor toact in the host jurisdiction with the agreement of the host supervisor as per the legislationin the host jurisdiction.

54.

With regard to intra-EEA branches, the primary responsibility for intervention in a branchwhose parent is in the EEA rests with the home supervisor as the prudential supervisor.
The host supervisor also has such an authority in the case of supervision of conduct ofbusiness. Where conduct of business is concerned, the host supervisor can intervene
either on the express request of the home supervisor or, under the EU Directives andGeneral Protocol, where prompt action is required.

59

General Protocol relating to the Collaboration of the Insurance Supervisory Authorities of the Member States of the European
Union (Revised Siena Protocol), March 2008
60
Article 10(1) of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life
assurance, Article 13 of Directive 73/239/EEC as amended by Directive 92/49/EEC, Article 15(1) of Directive 2005/68/EC on
reinsurance

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55.

It was observed by one jurisdiction that the ability to intervene as a host jurisdiction via thehome jurisdiction might be achieved by indirect means. Equally, whilst the legal framework
may not provide specific conduits for a home supervisor to act in a host jurisdiction, sucha matter may be covered by bilateral agreements.
3.4.2

Prohibition of assets transfer

56.

In some cases, especially at the time of crisis, assets held by a foreign branch could betransferred to other jurisdictions (sometimes subject to a direction of its parent). Many
jurisdictions have the power to prohibit the transfer of assets to other jurisdictions in orderto protect policy holders.

57.

Intervention powers vary among jurisdictions. While an early intervention framework goes
towards ensuring sufficiency of assets, the stage at which authorities intervene and themechanisms that can be used differ among jurisdictions. Some supervisors 61 have apermanent power to prohibit the transfer of assets to the parent, while others 62 may
exercise such power only in distress situations such as the case where an insurancecompany is put under a special administration regime due to financial difficulties.
According to the survey results, several supervisors have successfully used such powers
in the past.
3.4.3

Imposition of additional capital or provisions

58.

When it is likely that capital or technical provisions of the foreign branch would breachminimum requirements, the host supervisor in many jurisdictions has power to require theforeign branch to hold additional capital or increase technical provisions. Many
jurisdictions have predefined triggers for capital increases. One jurisdiction states that
capital increases are required where the firm falls below 100% of its risk based capital;
other reported thresholds were 150% and 200% of the respective solvency requirement.

59.

Host supervisors typically have the power to require increases to both capital andtechnical provisions. In Switzerland the supervisor does not have power to require
increases to solvency capital of foreign branches as the capital is held by the parent
company. However it has the power to require an increase to the organisation fund of theforeign branch as well as to technical provisions which subsequently will lead to anincrease in tied assets. A few jurisdictions, such as Dubai, Chile, and Sweden do not havesuch a specific power to require increases to capital or technical provisions of the foreign
branch as a host supervisor.

60.

In the EEA jurisdictions, host supervisors of intra-EEA branches do not have such power.
Their power in relation to branches of insurers headquartered in Switzerland differs: somehave power to increase both, whereas others only have power to increase capital.
3.4.4

61.

Conversion to subsidiary

According to the survey, most jurisdictions, including EEA jurisdictions, do not have a
specific power to require a foreign branch to convert to a subsidiary. Nevertheless, it
should be noted that several jurisdictions responded that they may ask the foreign branch
to convert to a subsidiary on a voluntary basis in certain circumstances.

62. Several supervisors in the EEA state that they may use persuasion to encourage anapplicant firm to establish a subsidiary rather than a branch. One jurisdiction notes thatthey may request the applicant to form a subsidiary if the risk profile of the firm warrants it.
Another jurisdiction states they would ask that a subsidiary be formed if warranted by size,
61
62

Please refer to sections 2.2 and 2.6.
For example New Zealand.

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market share and policyholder protection issues. The UK’s Prudential Regulatory Authority(PRA) has indicated in its planned supervisory approach to insurance supervision for UK
branches of non-EEA 63 insurers that in some circumstances “…the PRA will refuse
authorisation of the branch. It may instead decide to authorise a stand-alone subsidiary, inwhich case it may limit the interlinkages with the rest of the group or ring-fence thesubsidiary (for example where it considers the home supervisor does not deliver effective
consolidated supervision).” The document also states that “…where the PRA has assured
itself over the home regulator’s supervisory approach, the PRA relies where possible on
the home regulator’s prudential supervision.” Two jurisdictions noted they had encouraged
an EEA insurance company to establish a subsidiary instead of a branch. In one case thesituation arose in regard to the transfer of business to a new entity. In another case, thesupervisor considered it appropriate due to concerns over market share and policyholder
arrangements.
3.4.5

Suspension of branch operations

63.

Another measure that can be taken is to suspend business operations of the foreign
branch. Suspension is typically triggered where the branch fails to meet its regulatory
obligations. In most jurisdictions the host supervisor has the power to temporarily suspend
the business operations of a foreign branch. In Singapore the home supervisor has theoption of instructing the head office to suspend the activities of the foreign branch in ahost jurisdiction where it is deemed appropriate to do so.

64.

Under the EU directives and the General Protocol the EEA home supervisor has primary
responsibility for the suspension of the business operations of intra-EEA branches.
However the host supervisor may act using conduct of business regulations where thehome supervisor’s intervention is not successful or immediate action is required. Most
EEA Member States, in respect of branches located within the EEA, jointly require thesuspension of branches. Hungary noted that it had power in relation to the branches of
Swiss life insurers, whereas Sweden noted that it could not act to suspend the activities ofa Swiss branch.
3.4.6

Closure of a branch

65.

Non-EEA respondents noted that the host has the power to close a foreign branch. In
three jurisdictions, both home and host supervisors have this power. Triggers for closing abranch include the failure to comply with regulatory obligations or having written nobusiness for a specified period of time, for example, six months in Switzerland or twelve
months in Dubai.

66.

With regard to intra-EEA branches, the home supervisor has the prime responsibility to
act in closing a branch. However host supervisors may act to close a branch where there
is an immediate need to avert a risk to the interests of policyholders. Three EEA
respondents who answered specifically in relation to Swiss branches noted that the host
had the power to close a Swiss branch. Sweden responded stating the home supervisor
had the power to close a Swiss branch. Germany noted both home and host may close a
Swiss branch.
3.5 Cross-border cooperation

67.

Supervisors of foreign branches are very often members of colleges. Home supervisors
usually encourage host supervisors to participate in colleges when a branch is significant
for the insurer.

63 The Prudential Regulation Authority’s approach to insurance supervision (Bank of England Prudential Regulation Aurhotiry, April

2013, page 40): http://www.bankofengland.co.uk/publications/Documents/praapproach/insuranceappr1304.pdf.

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68.

Some supervisors are not members of a college but are occasionally involved in college
activities upon invitation by the home supervisor. In some cases the home supervisor
cooperates with the host supervisors bilaterally.

4 Resolution of foreign branches
69.

The survey identified that mandates and powers of resolution authorities differ among
jurisdictions. There are also differences in jurisdictional resolution frameworks applicable
to foreign branches. These frameworks seem to be generally similar to those forsubsidiaries. Branch resolution options can be summarised as follows:•

Rehabilitation: management, whether on its own or with assistance from
authorities and compensation schemes, works to address identified issues in orderto return the institution as a whole to a sound footing. This may involve exiting linesof businesses or activities through run-off, portfolio transfer, or partial sales.

•

Run-off: allow the policies in force to run-off. In some jurisdictions there are
specialist firms or the branch itself may administer the run-off. This may apply to abook of business, a specific branch or the entity as a whole.

•

Restructuring: as a branch cannot be sold as a legal entity, the primary restructuringoption available is via a transfer of the insurance business through portfoliotransfer/assumption agreements.

•

Wind-up: a final solution resulting in the liquidation of the assets of the branch.

4.1 Policyholder protection schemes
70.

While the majority of jurisdictions have life and non-life policyholder protection
schemes, a number of countries have indicated that such protection schemes have not(yet) been established. The majority of protection schemes do not cover policyholders inother jurisdictions.
4.2 Run-off

71.

In most jurisdictions a host supervisor may require insurance contracts of the foreign
branch to be placed in run-off. Certain EEA host supervisors of intra-EEA branches may
not require insurance contracts of the foreign branch to be placed in run-off.
4.3 Portfolio Transfer

72.

In most jurisdictions, the host supervisor may require the foreign branch to transfer thewhole portfolio of insurance contracts to third parties. In a few jurisdictions theportfolio transfer is approved by the home supervisor (Costa Rica and Spain, in
situations when the foreign branch’s direct parent is in the EEA) or by both the home andhost supervisors (Trinidad and Tobago and Poland, only in situations when the foreign
branch’s direct parent is in the EEA).

73.

In EEA jurisdictions, this ability primarily depends on whether the parent is within the
EEA. In most EEA Member States, when the foreign branch’s parent is within the EEA,
the host supervisor does not have the ability to require the foreign branch to transfer thewhole portfolio of insurance contracts to third parties. However when the EEA Member
State does not make a distinction between foreign branches according to where the direct
parent is based, the host supervisor (with the exception of Belgium and the UK) has theIssues Paper on Supervision of Cross-Border Operations through Branches

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ability to require a foreign branch to transfer the whole portfolio of insurance contracts to athird party.
74.

In most non-EEA jurisdictions, the host supervisor may require the foreign branch totransfer the whole portfolio of insurance contracts to third parties. However in a few ofthese jurisdictions this ability does not exist.
4.4 Insolvency proceedings in the home jurisdiction

75.

In the majority of the EEA jurisdictions, regardless of whether the foreign branch has
been categorised according to where the parent is based, it is not possible for a foreign
branch to continue its operations if the parent in its home jurisdiction is subject toinsolvency proceedings. The UK, for example, is an exception to this trend.

76.

In the non-EEA jurisdictions, about half of the respondents said that it is possible forthe foreign branch to continue its business operations even when the parent in its
home jurisdiction is subject to insolvency proceedings. Half said that a foreign branchcannot continue its business operation when the parent in its home jurisdiction is subject
to insolvency proceedings.

5 Possible challenges and approaches in supervision of foreign branches
5.1 Challenges in supervision of foreign branches
77.

This chapter highlights possible challenges 64 in supervising foreign branches, althoughsome of such challenges may also be applicable to foreign subsidiaries. 65

78.

Although home supervisors do not have direct supervisory power over foreign branches in
the host jurisdiction 66 they may impose additional requirements on the licensed entity inthe home jurisdiction when considering the situation of the foreign branch. It may occurthat the home supervisor finds that material gaps exist in regulation and supervision
between the two jurisdictions, which means that a certain area of a foreign branch’s
activity is regulated or supervised neither by the home nor by the host jurisdiction. In suchcase the home supervisor could consider how to deal with potential risks arising from suchgaps. This could affect the parent 67 in the home jurisdiction (Parent) or other entities within
the group (Other Group Entities).

79.

In general, foreign branches are required to hold assets that correspond to their insurance
liabilities and required capital (corresponding assets) in the host jurisdiction. From thehome supervisor’s point of view, such corresponding assets are not always available tothe parent or other group entities. 68

80.

Access to and transferability of corresponding assets are critical to the host supervisor. In
some jurisdictions the foreign branch may locate its corresponding assets outside the hostjurisdiction. These assets may not necessarily be available for the protection of the64

This subsection focuses on describing (possible) challenges and/or difficulties in the supervision of foreign branches.
Nevertheless, this subsection does not intend to imply nor should be read to imply that supervision of foreign branches is moredifficult than that of domestic insurers and foreign subsidiaries.
65
Analysing regulation and supervision of subsidiaries and thus analysing applicability of possible challenges in this Subsection as
well as possible approaches in Subsection 5.2 to subsidiaries are not an objective of the paper.
66
It should be noted that sometimes home supervisors do have such power and their supervision of the parent undertaking often
includes all the undertaking’s activities, wherever they take place, including through branches (as in the EEA for intra-EEA
branches).
67
An insurer in the home jurisdiction is not legally a “parent” of a branch in other jurisdictions. However the term “parent” is used inthis Chapter for the purpose of simplification.
68
In case of subsidiaries assets can be less available to the parent than in case of branches.

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branch’s policyholders. It must be stressed that location of assets is a critical issue ofcross-border operations and not just a consideration for branch operations.
81.

Even where the foreign branch is required to hold its assets in the host jurisdiction, thebranch may not be required to obtain prior approval from the host supervisor to access theassets. Where prior approval is not required such assets could be transferred from thehost jurisdiction to other parts of the group, where they may not be available for theprotection of the foreign branch’s policyholders. For example, where a foreign branch isfinancially sound but the parent in the home jurisdiction or the group as a whole is likely to
become insolvent, the parent might seek to use the branch assets and put branchpolicyholders at risk of not having their claims paid in full. The liabilities of the branch are
not only backed by assets in the host but also by assets in the home jurisdiction. In
difficult times policyholders of the branch may seek support from the home jurisdiction.
Nevertheless from the host supervisory point of view, it may be necessary to ensure thatan adequate level of assets is maintained in the host jurisdiction for the protection ofpolicyholders of the branch. Host supervisors consider issues related to availability andtransferability of assets as one of the most significant challenges in branch supervision.

82.

A challenge for the host supervisor may be the legal uncertainty that arises in applying
supervisory tools to a branch. Some supervisory tools may have a different effect whenapplied to a branch rather than a legal entity within the jurisdiction.

83.

Although this is not unique to branches, competing interests can sometimes occur
between home and host supervisors due to their supervisory perspectives and objectives,and on such occasions the host supervisor may need to take actions to protect
policyholders of the foreign branch.

84. Information asymmetry may also be a concern as host supervisors do not always receive
information on the parent or the group as a whole in a timely manner. For example, if thehost supervisor does not receive timely and accurately information about the condition of
the parent in a crisis situation, the host supervisor may not be able to carry out supervisory
actions with respect to the foreign branch in a timely and effective manner. 69 This
information asymmetry is not just relevant for branches, but also subsidiaries that are partof a group headquartered in other jurisdictions. In the interests of efficiency, supervisors
should consider seeking the relevant information about the wider group from the respective
supervisors to reduce duplicative reporting requirements.
85. Governance should be considered. A branch is not a legal entity and thus in mostjurisdictions a branch does not have its own board of directors. Most jurisdictions haveestablished suitability requirements for a representative of the foreign branch, but the
representative does not have the same legal responsibility as that of a board of directors.
5.2 Possible approaches for supervising foreign branches
86. Several approaches 70 have been used to supervise foreign branches. A specific approachthat applies in a particular situation may not be an appropriate measure in all
circumstances. This section attempts to analyse possible approaches that could be taken
without recommending any particular approaches. Such approaches include, but are notlimited to, the following 71: (i) strengthening communication and cooperation between thehome and the host supervisors; (ii) enhancing regulation and supervision of foreign
69

This is why some jurisdictions require basic financial reporting of the entire group so that this risk can be mitigated.
This subsection focuses on possible approaches to meet (possible) challenges/difficulties in the Subsection 5.1. Nevertheless,this subsection does not intend to recommend any specific approaches nor should it be read to imply that all jurisdictions need totake these approaches.
71
In some jurisdictions where a supervisory regime for the supervision of foreign branches is already established and there is nomaterial weakness or challenges in the supervision of the branches, the approaches discussed in this subsection need not to be
implemented.
70

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branches; and (iii) where legally permissible, setting requirements about the legal form anentity may take based upon a risk assessment.
87. In some cases, communication and cooperation has been strengthened between the home
and the host supervisors. This is essential for detecting any possible signs of an adverse
impact on the soundness of the foreign branch and its policyholders and taking necessary
actions in a timely manner. Communication and cooperation can be strengthened by, forexample, entering into an agreement for the information exchange and supervisory
cooperation, such as a MoU, and/or establishing a supervisory college in which hostsupervisors of foreign branches are members or at least are involved in college activities
on a permanent basis.
88. Host supervisors may strengthen regulatory requirements applied to foreign branches. For
example, to mitigate concerns about the outflow of corresponding assets of the foreign
branch, the host supervisor may consider requiring (part of) such assets to be held in trust
or deposited to a bank located in the host jurisdiction and requiring the branch to obtainprior approval from the host supervisor before accessing those assets. The host supervisor
may consider conducting more frequent on-site inspections of foreign branches. This is notpossible in case of intra-EEA branches on the basis of freedom of establishment.
89. Where legally permissible under applicable laws in their jurisdiction, host supervisors may
set requirements and/or guidelines regarding the legal form an entity may take and also
may ask foreign insurers, under certain circumstances, to operate in a specific form (forinstance, a subsidiary or a branch) in the host jurisdiction. Based on the survey results, thisapproach is taken on a case-by-case basis in some jurisdictions. Due consideration would
be needed before such an approach is taken. 72 This possible option may need to beconsidered from the following viewpoints: (i) accessibility to diverse insurance covers, (ii)legislation or agreement, (iii) nature of business and business strategy, and (iv) possible
impact on financial stability and policyholder protection. It should be stressed that in certain
cases such action could require novation or renegotiation of contracts written by thebranch or that these contracts could be put into run-off, depending on the legal system of ahost jurisdiction.
90. Entry into a jurisdiction could be facilitated by allowing insurers to set up branches. This
provides potential policyholders with greater access to insurance and could contribute to
the further development of an insurance market. Being required to set up subsidiaries
when entering a new market (especially emerging markets) may discourage insurers fromoperating in such a market and accessibility to insurance could be impeded. Thus, ajurisdiction may benefit from allowing insurers to enter a jurisdiction by setting up branches
especially in jurisdictions where the insurance market is still developing.
91. The nature of business as well as insurers’ business strategy also needs to be taken into
account. Reinsurance, for example, is a global business conducted between insurance
entities. In most jurisdictions, reinsurers may enter into markets on a cross-border basis
without having physical offices in host jurisdictions, although some reinsurers may choose,for commercial reasons, to maintain a physical presence in the form of a branch or asubsidiary if there is no specific regulatory requirement regarding a legal form in thosejurisdictions where they operate. In such a case, a branch tends to be favoured over a
subsidiary as it leverages the benefits of the global reinsurance market. As to businessstrategy, some insurers intend to do business with, for example, only some types ofcorporations or a limited number of individuals in foreign jurisdictions as is often seen in
the non-life sector. In these cases, the host supervisor may not see the necessity of
localising such a business operation in the host jurisdiction.
72
The paper does not intend to portray that this approach is routinely used as this could be a distortion to free market choices andcould also be to the detriment of policyholders if the approach were to be taken without due consideration of possible implications of
the approach such as those mentioned in Chapter 5.2.

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6 Conclusion
92. Operations through both subsidiaries and branches have advantages and disadvantages.
Supervisors currently use a range of supervisory tools and requirements in order to apply
prudential supervision to branches in a way that could achieve similar outcomes withrespect to policyholder protection and financial stability as supervision of foreignsubsidiaries. Such tools and requirements are very similar to those used for foreignsubsidiaries however the different legal structures could mean these tools may not havesame effect.
93. In the future the IAIS may consider undertaking further work to explore particular aspectsof cross-border operations.
94. A conclusion of this paper is that the supervision of the operations of an insurer or groupby the host or home supervisor (perhaps in coordination and cooperation with involved
supervisors) is based on similar principles whether the operations are structured as abranch or a subsidiary. However, the Issues Paper serves to highlight and contrast theunique features of branches and their possible supervisory implications.

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Annexes - Case studies

I.

Freedom of establishment and freedom to provide services in the EU

As of 1990 for non-life 73 and from November 1992 for life insurers, 74 insurers with anestablishment 75 in a Member State of the European Union (EU)/European Economic Area
(EEA) have the right to provide services to another Member State of the EU/EEA (i.e. to cover acommitment in another Member State of the EU/EEA). In order to do so the insurer first has to
notify the competent authority of the Member State of the head-office, or of the branch-office, of
its intention to provide services to another Member State and of the nature of the commitments
to be covered. Details regarding the intention to provide services to another Member State haveto be sent to the competent authorities of the Member State of provision of services. From themoment that the competent authorities of the Member State of provision have received all therequired information the insurer in the Member State of establishment is allowed to covercommitments in that other Member State through provision of services.
For a comprehensive overview of the relevant provision, please refer to Directive 2009/138/EC
of the European Parliament and of the Council of 25 November 2009 on the taking-up andpursuit of the business of Insurance and Reinsurance (Solvency II), Title I, Chapter VIII,
sections 2-4.
Following the implementation and application of these provisions – and also relating to theprovisions on the freedom of establishment as regulated to the so-called third generation
directives 76 - uncertainties did arise on the interpretation of these provisions and the distinction
between the rights of provision of services (without permanent presence in a host jurisdiction)and the rights of establishment (in form of a branch or an agency). In order to address these
uncertainties the European Commission used its powers to issue a so-called Commission
Interpretative Communication through the Communication on Freedom to provide services forthe general good in the insurance sector. 77
In this Interpretative Communication the Commission considered that it is not always easy todraw the line between the two concepts of provision of services and establishment. Somesituations are difficult to classify, in particular where the insurer, in order to carry on its
insurance business, uses a permanent infrastructure in the Member State of provision. This
arises in particular in the case of recourse to independent persons established in the host
Member State.
On the basis of the outcome of relevant Court decisions, the Commission considered that, forthe links between an independent person such as, for example, an independent intermediary
and an insurance company to be regarded as meaning that the insurance company falls within
the scope of the rules governing the right of establishment rather than those applicable to the73

Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions
relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom toprovide services and amending Directive 73/239/EEC
74
Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating
to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending
Directive 79/267/EEC
75
Establishment means head-office, branch-office or agent.
76
Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating todirect insurance other than life assurance and amending Directives 73/239/EEC and 88/357/EEC (third non-life insurance Directive)
and Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions
relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (third life assurance Directive) (the latter
replaced by Directive 2002/83/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 November 2002 concerning
life assurance).
77
Official Journal of the European Communities,16.2.2000, C 43/03).

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freedom to provide services, independent persons must meet the following three cumulative
conditions:•they must be subject to the direction and control of the insurance company they
represent;•

they must be able to commit to the insurance company; and,•they must have received a permanent brief.

It is, therefore, only where the independent person acts as a genuine extension of the insurancecompany that the insurance company falls within the scope of the rules applicable to theestablishment of a branch.
The Commission takes the view that it is only where the above three conditions are met (i.e.
where the independent person to the direction and control of the insurance company is able tocommit to the insurance company and has received a permanent brief) that an insurancecompany, using independent persons, for example, intermediaries permanently established in
the host Member State, must be treated as if it had a branch in the host Member State. In allother cases where an insurer operates in another Member State using some form of permanent
infrastructure in the other Member State, such an activity should be considered as performing
the provision of services and should be treated likewise.
Cooperation within the EU
From the very beginning of the coming into force of the first generation of European Insurance
Directives the relevant supervisory authorities of Member States of the EEC (now EU) started
developing a Protocol relating to the collaboration of insurance supervisory authorities, under
the aegis of Conference of Insurance Supervisory Authorities of European Union Member
States (Conference). In 2003 all rights and duties of the Conference were passed onto theCommittee of European Insurance and Occupational Pensions Supervisors (CEIOPS), and thenpassed onto the European Insurance and Occupational Pensions Authority (EIOPA) by 2011.
The latest version of the protocol referred to above is the General Protocol relating to thecollaboration of the insurance supervisory authorities of the Member States of the European
Union. 78
Part I of the General Protocol deals with general principles of cooperation and informationexchange and of professional secrecy. The second part covers the authorisation of domestic
insurers. Part III deals with cross-border activities, in this part focussing on the starting-up or
closing of activities through an establishment (branch) or provision of services.
The cooperation and information exchange during the on-going supervision of an insurancecompany is dealt with in part IV. This deals with, among others, all kinds of enforcement actions,transfer of insurance portfolios, treatment of insurers in distress, and withdrawal of licenses.
Part V addresses the treatment of branches of insurers of third countries (non EU/EEA
countries). The European Insurance Directives include a specific requirement on collecting andexchanging statistical information on the activities of insurance companies in host Member
States by authorities of the home Member States. Part VI deals with these informationexchanges. Cooperation and information exchange in the case of handling of complaints ofpolicy holders is dealt with in Part VII. Specific issues concerning assistance, data on healthinsurance, and maximum interest rates are addressed in Part VIII.

78

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/protocols/RevisedSienaProtocol.pdf.

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II.

Branch operation within U.S. States

In the U.S., non U.S. insurers, i.e. those headquartered outside the U.S., who wish to sell
insurance policies, are required to establish either a licensed insurance legal entity (subsidiary)or branch office. Such licensed insurance legal entity or branch may sell products in multiple
states, but must obtain licenses from each state in order to do so. The licensed insurance legal
entity may establish insurance subsidiaries or branches in other states, but it is not required to
do so. Rather, a more common practice is that the licensed insurance legal entity or branchestablishes offices (neither an insurance subsidiary nor an insurance branch) as bases for theirsales activities in other states, and then sells products. Such offices may be established only insome (key) states and the licensed insurance legal entity or branch may operate not only instates where it has such offices in place but also in neighbouring states. (For example, Insurer X
established by a non-U.S. insurer in State Y as a branch or subsidiary may sell products in 49
other states once Insurer X is granted a license in each state. Insurer X is required to set up
neither an insurance legal entity (subsidiary) nor a branch in the 49 other states. Insurer X may
have offices in some of the 49 other states, but it may sell products in states where it does nothave such offices.)
Branches of insurers and reinsurers established (domiciled) in states (hereinafter referred to as“U.S. branch” or “U.S. branches”) are subject to the same regulation as that applied toinsurance/reinsurance legal entities (i.e. (re)insurers). More precisely, U.S. branches are
required to comply with qualitative and quantitative regulatory requirements which are applied toinsurers under the NAIC Financial Regulation Standards and Accreditation Program(“Accreditation Program”), although each state may impose additional requirements. For
example, U.S. branches are required to calculate their solvency margins and prepare audited
financial statements in accordance with the same principles/rules required of insurers and must
maintain prescribed assets in trust to offset liabilities. They are also subject to ladders ofintervention and examinations (on-site and off-site) and holding company filing requirements aswell as requirement to produce additional information on the group when requested.
With respect to supervision, the Accreditation Program does not address supervision of
branches explicitly, but U.S. branches are supervised under the Program. As was mentioned
earlier, a U.S. branch in one state (e.g. U.S. Branch X established in State Y) may conductbusiness in other states (e.g. State Z) if it is granted a license in the states. In such a case, thesupervisor of the state where the insurer has established a branch, i.e. State Y, is responsible
for the supervision of the U.S. branch. Examination (both on-site and off-site) of the U.S. branchis performed by State Y. However State Z also has the power to perform such duties, but under
the U.S. state-based system, it would generally defer its authority to State Y. Any reporting,including filing of financial statements, is made by U.S. branch X to both States Y and Z. In
addition, U.S. branch X may set up a sales office in State Z. In this a case, the sales office issubject to supervision by the supervisor in State Z.
If the non-U.S. insurer establishes branches in multiple U.S. states, then each state where abranch is established is required to follow the requirements of the Accreditation Program. In thiscase (no current example) one single state (the lead) would be responsible for analysis of thefinancial condition of the group and/or working with the non-U.S. group-wide supervisor to
obtain and document such an analysis. However if the non-lead supervisor in the U.S. had
information that they believed the lead needed, they would communicate that to the lead. Evenin such a case, each state where the branch has obtained a license may conduct on-site andoff-site examination and impose additional requirements on the branch. However in a casewhere the state is accredited, supervisors in other states, in general, would rely on the
supervision by the state where the branch is established and the lead supervisor in regard to thesupervision of multiple U.S. branches that have been established.
In the case of U.S.-based insurers, like U.S. branches, they may sell products not only in a state
where it is incorporated but also in other states once it is licensed in those other states. They
are required to set up neither an insurance legal entity (subsidiary) nor a branch in other states,

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although they may do so. In practice, they generally have offices in place in other states, rather
than establish branches in multiple states.

III.

Resolution of branches: Confederation Life Insurance Company, Canada

Overview
The liquidation of the Canadian domiciled Confederation Life Insurance Company (Confed) was
the largest and most complex liquidation involving life branches in North America. Confed
operated in the US and the UK through both a branch and subsidiaries, and in Bermuda andCuba through branches. In August 1994, Confed’s policyholder liabilities were approximately$12.4 billion worldwide and it had in excess of $10 billion of assets under administration invarious funds. Over a million people depended on Confed for income support of all kinds,
including life insurance, health and disability benefits, and pensions. After the failure ofconcerted efforts to rescue Confed and avoid a liquidation, winding-up orders were made inAugust 1994.
Branch Specific Results: 79
All branch and subsidiary policyholders in all jurisdictions received their full policy benefits andall ordinary creditors were paid in full, together with interest. In total, payments of $900 million
were made to various claimants.
Factors Contributing to the Success for Branch Resolution included:a) The building of a co-operative relationship between the Canadian liquidator, theRehabilitator of the US State Branch and their regulatory and credit constituencies fromthe outset that allowed both estates to make progress before they reached a settlement,
and then to reach a settlement, avoiding litigation that could have seriously delayed theliquidation and prejudiced the results; and,b) Immediate action at the beginning of the resolution (intervention) process preserved
goodwill in the individual life and group life and health block, leading to substantial
benefits to the branch and subsidiary policyholders and the estate.
Overview of Approach to the Major Jurisdictions with Branch Operations
United States
As noted, Confed did business in the U.S. as a branch and through a subsidiary Confederation
Life Insurance and Annuity Company (“CLIAC”). Confed’s U.S. branch wrote approximately US$
6.173 billion of life insurance, including policies sensitive to competition from other carriers andannuities that funded pensions. For example, Michigan’s civil service retirement programs had
acquired a US$ 100 million annuity contract from the U.S. branch. The U.S. branch was in total
about twice the size of the estate in Canada.
For a branch to operate in certain U.S. states, it must be licensed as an insurer, so Confed had
to deposit assets in trust in Michigan, its U.S. port of entry, to support its insurance
liabilities. Prior to its liquidation, CTSL had removed cash from the Michigan trust account,replacing it with CTSL promissory notes. In August 1994, when the liquidation orders were
made, about US$ 640 million of notes were in the trust, which CTSL could not repay, and about
CAN$ 350 million of mortgages and private placements located in Canada were pledged to thetrust, but were effectively under the control of the Liquidator because of the windingup. Although the Canadian estate faced an apparent shortfall to policyholders, it was clear fromthe outset that the shortfall to U.S. policyholders would be significantly greater. There was a
79

A comprehensive case study and related results is available in the IAIS Issues paper on resolution of cross-border insurance legal
entities and groups.

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high risk of extremely complex and costly litigation, with ensuing uncertainty and delay to theadministration of both estates that would seriously prejudice an orderly wind-up in bothjurisdictions.
In order to assess the best interests of the estate, efforts were made to determine the likely
range of results under various scenarios involving unitary proceedings or separate
proceedings. Estimating the ultimate realisation from Confed’s assets required the exercise of
judgment in quantifying the expected results of future events. These estimates were, bynecessity, influenced by many factors that made precision virtually impossible.
The Canadian Liquidator and U.S. State Rehabilitator negotiated an interim arrangement while
different avenues for dealing with the two estates were being explored, pursuant to which theywould consult on all material transactions, given the possibility of combining the U.S. andCanadian proceedings, and given that as a result each was the major stakeholder in the other’s
estate. Further, at the request of the U.S. State Rehabilitator, the Canadian Liquidator spoke atmany U.S. stakeholder meetings, acknowledging the Liquidator’s obligation to all policyholders
of Confed wherever situated, thus providing the same level of disclosure as to Canadianstakeholders, and thereby building credibility for a negotiated solution.
In June 1996, a settlement was reached that was approved by both supervising courts without
opposition. The Canadian Liquidator initially paid US$225 million to the U.S. State Rehabilitator,
and $US309.2 million was returned to the Canadian Liquidator, under the true-up mechanism.
BermudaConfed was licensed under Bermuda law to conduct most types of life insurance and annuity
business in non–Bermuda currency and with non-Bermuda entities, on both a direct andreinsurance basis. Confed’s Bermuda branch targeted an international market of high net worth
individuals. The Bermuda branch business had approximately 170 outstanding policies with aface amount of approximately US$ 170 million (plus various term certain annuities), policyholder
liabilities of approximately US$ 7 million, and annual premium income of approximately US$
3.1 million.
By order of the Supreme Court of Bermuda in August 1994, a Bermudian liquidator was
appointed for the Bermuda branch. In March 1995, responsibility for administration of the
Bermuda branch was transferred, by that Court’s further order, to the Liquidator.
Following this, the Liquidator set up an escrow arrangement whereby premiums for the
Bermuda branch policies would continue to be received and held, pending completion of anassumption reinsurance transaction which was completed in July, 1995, with the approval of the
Bermuda and Ontario courts.
Cuba
Confed operated a branch in Cuba. The Cuban government had prevented the assets of the
Cuban branch from being removed from Cuba and had passed a decree ordering insurancecompanies not to pay any policyholder who left Cuba permanently in the 1950s. The liabilities of
the Cuban branch were primarily payable in Cuban pesos, which were not readily negotiable
outside of Cuba. The books and records remained at the Cuban branch, access to which
required a visa, and remained in the control of the Cuban government. The Liquidator’s best
estimate of the liability in respect of policies issued through the Cuban branch to policyholders
who had left Cuba permanently was in the range of US$ 2 million to US$ 4 million. The
Liquidator, with the assistance of the Canadian government, negotiated an agreement with the
Cuban government that ensured all policyholders of the Cuban branch, whether resident inCuba or not, would be paid. In addition, the Cuban government caused periodic payments
totalling US$ 9 million to be paid to the Liquidator.
The effect of the agreement was to ensure that all policyholders of the Cuban branch werecovered, to allow the Liquidator to realise a recovery in respect of the Cuban branch assets in aliquid form, notwithstanding that they were denominated in Cuban pesos and had been seized

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by the Cuban government, as well as ensuring that the Liquidator had access to the books andrecords of the Cuban branch to allow it to deal with policyholders resident outside of Cuba.
Some lessons learned related to branch considerations:a) US Rehabilitator had authority to restructure policies, which gave it far greater flexibility
in selling blocks of business. Canada also has adopted similar powers in its winding–up
legislation. Take away – authority to restructure policies can create value.
b) CTSL, the treasury subsidiary, managed Confed’s derivative book and also acted as amarket maker in its own right maintaining what was supposed to be a matched book ofbusiness and transferring funds among entities that required liquidity. Take away –youcannot consider the consolidated assets and liabilities in resolving a multi-national
financial institution insolvency. Each branch or subsidiary and jurisdiction will need to beconsidered on its own, even if there is the potential for some of the jurisdictions to accept
a universalist approach. Participants in a winding-up have a tendency to go into a shell
to protect themselves and their position (i.e., ring-fencing), which can becounterproductive to achieving an overall resolution.

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