CODES OF PRACTICE

February 2005

INSURANCE BUSINESS(JERSEY) LAW 1996Issued pursuant to Article 42 of theInsurance Business (Jersey) Law 1996

CODES OF PRACTICE

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CONTENTSPages

Introduction 2-3

Advisory note regarding the application of the Codes of Practice 4

Principles

1. A permit holder must conduct its business with integrity. 5

2. A permit holder must have due regard for the interests of its 6policyholders.

3. A permit holder must organise and control its affairs effectively 7for the proper performance of its business and be able to demonstrate the existence of adequate risk management systems.

• 3.1 Corporate Governance 8-9• 3.2 Internal Control Systems 10-11• 3.3 Compliance Officer and Money-laundering Reporting 12-13

Officer• 3.4 Record Keeping and Reporting 14-16• 3.5 Derivatives and Off-Balance Sheet items 17• 3.6 Complaints 18• 3.7 Integrity & Competence 19• 3.8 Continuing Professional Development 20

4. A permit holder must be transparent in its business arrangements 21-22

• 4.1 – 4.5 Information for policyholders 21• 4.6 – 4.8 Information relating to new policies 21-22• 4.9 – 4.11 Information about policyholders 22

5. A permit holder must maintain and be able to demonstrate at all 23-24times the existence of adequate capital resources to enable it tomeet its insurance liabilities

6. A permit holder is expected to deal with the Commission and 25-27other authorities in the Bailiwick in an open and co-operativemanner

• 6.1 – 6.2 General Information 25• 6.4 – 6.5 Notifications 25-27

7. Advertising Guidelines 28-30

INTRODUCTION

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The Codes of Practice (the “Codes”) are issued by the Jersey Financial ServicesCommission (“the Commission”) in accordance with the powers given to it by Article 42of the Insurance Business (Jersey) Law 1996 (“the Law”). The Codes have been preparedand issued for the purpose of establishing sound principles for the conduct of insurancebusiness, and it is the responsibility of the insurance business permit holder not only tofollow these principles but also to implement such additional practices, as it considersnecessary for the proper management and control of its business. However,in circumstances where strict adherence to the Codes would be at variance with regulatoryrequirements in the home jurisdiction (Category A permit holders) or produce ananomalous result, a permit holder may apply to the Commission for a variation from theCodes.

The Codes are arranged in numbered sections. Each section is captioned with afundamental principle that is then further described and explained. The fundamentalprinciples are:

A permit holder must conduct its business with integrity.A permit holder must have due regard for the interests of its policyholders.A permit holder must organise and control its affairs effectively for the proper performanceof its business activities and be able to demonstrate the existence of adequate riskmanagement systems.A permit holder must be transparent in its business arrangements.A permit holder must maintain, and be able to demonstrate the existence of, adequatefinancial resources in accordance with the provisions of the Insurance Business (SolvencyMargin) (Jersey) Order 1996, as amended from time to time.A permit holder is expected to deal with the Commission and other authorities in theBailiwick in an open and co-operative manner.

Each section of the Codes is designed to be understood by reference to its full textincluding any notes.

Failure by an insurance company to follow these Codes may be grounds for theCommission to take enforcement action. Where the Commission has reason to believethat at any time there has been a failure on the part of a permit holder to follow theseCodes it may consider making use of its regulatory powers, perhaps by the use acompliance visit or the appointment of reporting accountants, or in serious cases therevocation of the insurance business permit.

As the Codes establish sound principles for the conduct of insurance business, a failure tocomply with them may support a decision by the Commission that, for example,continued non-compliance or other failure to remedy the circumstances that gave rise tothe breach, may be addressed by the issue of a specific, additional permit condition underArticle 7 of the Law. In appropriate circumstances the Commission may issue a publicstatement concerning the permit holder.

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Failure to follow these Codes shall not of itself render any person liable to proceedings ofany kind or invalidate any transaction, but the Codes shall be admissible in evidence inany proceedings if it appears to the court to be relevant to any questions arising in theproceedings, and shall be taken into account in determining any such question.

The Codes may be revised after consultation with such persons or bodies as appear to berepresentative of the interests concerned.

D CarseDirector General

ADVISORY NOTE REGARDING THE APPLICATION OF THE CODES

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Methods of compliance with the provisions of these Codes will vary depending on the type ofinsurance business permit held, the home jurisdiction of the permit holder, the classes ofbusiness written and the extent of the permit holder’s physical presence in the Island:

• A Category A permit holder will be subject to the regulatory regime prescribed in its homejurisdiction. It must therefore satisfy itself that its conduct, procedures, controls and riskmanagement systems comply with the requirements in its home jurisdiction.Compliance with the home regulatory and supervisory requirements will usually besufficient to meet the obligations of these Codes. Should any significant contradictionsemerge between regulations in the home jurisdiction and these Codes they must be broughtto the attention of the Commission for discussion and resolution.

• A Category B permit holder shall be subject to the requirements of these Codes. Where sucha permit holder has entered into a contract for the services of a management company,such an outsourcing contract must be in accordance with the Commission’s Policy Statementand Guidance Notes on Outsourcing. The permit holder must also satisfy itself that thecontrols and risk management systems applied in combination by its parent company andby the management company meet the requirements laid down in these Codes.

• A Category B permit holder that has subsidiaries or branches outside Jersey, or that makes itsproducts available outside Jersey through brokers or other intermediaries, must ensure as faras possible that Jersey legal and regulatory requirements, and the provisions of these Codes,are applied to those subsidiaries or branches or observed by the brokers and otherintermediaries. Any contradictions between the Codes and the regulations in the jurisdictionoutside Jersey must be brought to the attention of the Commission for discussion andresolution.

1 - INTEGRITY

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1 A permit holder must conduct its business with integrity

1.1 Failure to comply with the above principle will be considered amongst the most seriousbreaches of the Codes.

1.2 Without limiting the scope of this principle, a permit holder must not:

• Act or refrain from acting; or

• Contract or have any other form of arrangement

so as to avoid, or seek to avoid, any regulatory responsibilities that it may have under theCodes and the full consequences at law of not following them unless the Codes expresslypermit any such avoidance.

2 - POLICYHOLDERS’ INTERESTS

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2 A permit holder must have due regard for the interests of its policyholders

2.1 A permit holder must act with due skill, care and diligence to fulfil the responsibilities thatit has undertaken and the obligations of the policies that it has accepted.

2.2 Where a permit holder is responsible for providing advice or exercising discretion for or inrelation to its policyholders, it must be able to demonstrate that the advice, or exercise ofdiscretion, is appropriate for its policyholders.

2.3 Where a permit holder is responsible for providing advice or exercising discretion for itspolicyholders, it must seek from them such information regarding their financial situationand objectives as may be appropriate with regard to the services requested.Documentary evidence must be maintained in this respect.

2.4 A permit holder must only exercise its power or discretion for a proper purpose.

2.5 A permit holder must either avoid any conflict of interest arising or, where conflicts dooccur, must address such conflicts by disclosure, by applying internal rules ofconfidentiality, by declining to act, or otherwise as appropriate. A permit holder must notunfairly place its interests above those of its policyholders and, where a properly informedpolicyholder would reasonably expect that the permit holder would place his/her interestsabove its own, the permit holder must live up to that expectation.

2.6 A permit holder must transact its business (including the establishment, maintenance,transfer or closure of business relationships with its policyholders) in an expeditiousmanner.

2.7 Any delegation of obligations or responsibilities, whether by Power of Attorney, formalagreement or otherwise, must only be entered into for a proper purpose, and be limitedand monitored as appropriate.

2.8 A permit holder must ensure that adequate procedures are implemented to ensure that theinsurance services that it provides to policyholders are regularly reviewed at appropriateintervals.

Notes:

1. The obligations described in paragraphs 2.2 and 2.3 above include, at the time when a contract of long term insurance isfirst taken out and the permit holder is providing such insurance to the general public either directly or through a tiedagent or direct sales force:

A fact-finding exercise that is recorded in writing and is carried out to identify the most appropriate policy for theapplicant’s needs; and

A written statement that explains the reasons why a policy is being recommended to an applicant. Both parties must signthe statement, and a copy made available to the policyholder prior to the policy being taken out.

2. Should an applicant not wish to provide the information necessary for the completion of a full fact-finding exercise, withthe result that a written statement cannot be produced of the reasons why a particular policy is being recommended, the permit holder must confirm in writing to the applicant that no advice has been given or sought and that the policy hasbeen provided on an “execution only” basis. Similarly, where an applicant provides only partial information, perhapsbecause advice is being sought on one specific area, then the permit holder must provide written confirmation that thepolicy has been provided following “limited advice”.

3 - RISK MANAGEMENT

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3 A permit holder must organise and control its affairs effectively for the properperformance of its business activities, and be able to demonstrate the existence ofadequate risk management systems.

3.1 - CORPORATE GOVERNANCE

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3.1.1 Corporate governance is the system by which a company is directed and controlled.A corporate governance framework specifies the distribution of rights andresponsibilities among different participants in the company and sets out the rules andprocedures for making decisions. Risk management is an integral part of a corporategovernance framework.

3.1.2 Insurance companies must operate an effective corporate governance system that mustinclude the following key elements:

3.1.2.1 An adequate span of control must exist that is appropriate to the nature of thebusiness. Permit holders must be controlled by at least three appropriately qualifiedand experienced people.

3.1.2.2 The relationship of directors and managers within the company must be such as toensure that they can all exercise independent judgement without duress or undueinfluence from one another in the best interests of policyholders, and so as to securecompliance with the Law, any Orders made under it, and these Codes.

3.1.2.3 The apportionment of responsibilities among directors (executive and non-executive)and senior managers must be such that their individual responsibilities are clear,there are separated critical functions and the business of the permit holder is adequatelymonitored and controlled at the appropriate level.

3.1.2.4 The procedures for the appointment of directors, both executive and non-executive,must be documented and in line with the stated structure, functions and accountabilitiesof the board of directors.

3.1.3 Clearly defined procedures must be in place so that there is appropriate oversight by theboard of directors and senior management in order to address the underlying principlesof risk management:

3.1.3.1 The management must assess the risks present in the business, and they must bedocumented, as must the ways in which these are monitored and controlled.

3.1.3.2 Investment, valuation, liquidity and underwriting rules must be documented that set outthe limits by type appropriate to the class and volume of business undertaken so as toprovide the necessary basis for decisions on individual limits.

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3.1.3.3 The approval of exposure limits and investment procedures must be the responsibility ofthe Board.

3.1.3.4 The permit holder must maintain accurate and reliable information systems and timelyand appropriate management reporting.

Notes:

1. The span of control will usually include at least three persons. To form part of the span of control, a person need notnecessarily be appointed as a director. Senior employees may be considered by the Commission to form part of the spanof control.

2. Where the size of the permit holder’s business warrants it, a separate risk management function and a riskmanagement committee should be established.

3.2 - INTERNAL CONTROL SYSTEMS

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3.2 A permit holder’s systems must ensure that:

3.2.1 The business is planned and conducted prudently, and in an orderly manner inaccordance with management policies.

3.2.1.1 Transactions and commitments are entered into in accordance with laid down generalor specific authority.

3.2.1.2 The assets of the permit holder are safeguarded and the liabilities controlled throughmeasures designed to minimise the risk of loss from irregularities, error and fraud,and to identify any such occurrences promptly.

3.2.1.3 The accounting and other records of the permit holder are complete, accurate, andtimely, and can be used to compile financial statements, management information andreturns in line with the requirements of the Law and any Orders made under it.

3.2.1.4 Management is able to monitor the adequacy and quality of the permit holder’s assets,liabilities, liquidity and profitability.

3.2.1.5 Management is able to identify, regularly assess, and where appropriate quantify, the riskof loss in the business so that any necessary provisions can be made for bad or doubtfuldebts and for any other exposures both on and off balance sheet.

3.2.1.6 The permit holder is able to guard against involvement in financial crime (including thedetection and prevention of money laundering and terrorist financing) and to complywith these Codes and other regulatory requirements.

3.2.1.7 Adequate business resumption, disaster recovery and contingency arrangements are inplace and are tested at appropriate intervals.

3.2.1.8 A Category B permit holder must provide an annual declaration to the Commission,signed by the Directors, acknowledging that the Directors accept and understand theirresponsibilities for compliance with relevant regulatory and anti-money launderinglegislation, guidance notes, other regulations and guidelines, and these Codes, and thatsuch legislation and that all the aforementioned have been complied with, or if not,in what respect.

3.2.1.9 Adequate procedures are in place for controlling changes to systems and records toensure that only valid changes are made.

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3.2.1.10 Under no circumstances shall the permit holder provide loans to an independentintermediary or to any of that intermediary’s directors or staff. (In the case of Category Apermit holders this provision is only relevant to Jersey-based independent intermediariesor to any of those intermediaries’ directors or staff). Any gifts or entertainment providedby the permit holder must be limited in value and frequency so as not to be construedas an inducement for the provision of insurance business to the detriment of theprinciple of best advice to policyholders.

3.2.2 The permit holder may provide seminars and other training to the directors and staff ofintermediaries for the purpose of ensuring that policies can be properly sold.The provision of such training may include associated travel and accommodation costs.

3.2.3 A Category B permit holder must maintain an effective, documented system of internalcontrol that includes a thorough process of internal audit including, where appropriate,operations manuals for employees, in English and kept within the Bailiwick.

3.2.4 The control objectives in section 3.2.1 above apply equally to the operations undertakenin both manual and electronic environments. Special controls are required to addressthe unique risks encountered with computer systems, although these risks are notexclusive to the area of computer operations.

Notes:

1. In seeking to ensure that these objectives are met, management must exercise its judgement in determining the natureand scope of the controls that are necessary (also having regard to their cost effectiveness). Once such controls areestablished, it is the responsibility of management to monitor their proper operation on a regular basis.

2. The Commission will recognise and take comfort from those permit holders that do have effective internal auditcontrols or where such functions are provided from elsewhere within a group. The Commission may require access tointernal audit reports, and requires that such reports are made available to external auditors.

3. Anti-money laundering legislation includes the Proceeds of Crime (Jersey) Law 1999, the Money Laundering (Jersey)Order 1999, the Terrorism (Jersey) Law 2002 and the Drug Trafficking Offences (Jersey) Law 1988, as well as anyother applicable Laws and United Nations or European Union Sanctions Orders applied within the Bailiwick, all asamended from time to time. The legislation must be observed in conjunction with the standards set out in the Anti-money Laundering Handbook for the Finance Sector issued by the Commission, as amended from time to time.

4. In relation to paragraphs 3.2.1.10 and 3.2.2 above, the provisions are intended to apply only to Category B permitholders who make their insurance products available to the general public, through brokers or other intermediaries. These provisions also apply to those Category A permit holders who offer their insurance products to Jersey residentsthrough brokers or intermediaries.

3.3 - COMPLIANCE OFFICER AND MONEY-LAUNDERING REPORTING OFFICER

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3.3.1 A permit holder must appoint a Compliance Officer.

3.3.2 The permit holder must:

3.3.2.1 notify the Commission of the appointment, resignation or change of its ComplianceOfficer; and

3.3.2.1 submit to the Commission a completed Personal Questionnaire in respect of theappointed person.

Note: Upon receipt of a Personal Questionnaire, the Commission will make a number of enquiries. Permit holders may wishto await the Commission’s confirmation that it has no objection before confirming the appointment.

3.3.3 The Compliance Officer must:

3.3.3.1 report directly to the permit holder’s Jersey management board or equivalent;

3.3.3.2 be qualified or properly trained in the responsibilities and duties of such a position;

3.3.3.3 have unfettered access to all business and support departments:

3.3.3.4 have appropriate independence and status within the permit holder’s organisation toensure that senior management reacts to and acts upon any recommendations made;and

3.3.3.5 have sufficient resources to properly discharge the responsibilities of the position.

Notes:

1. Where the permit holder has a limited or inexperienced compliance resource, or limited physical presence in Jersey, the Commission expects the permit holder to support this area of operation as necessary either by importing specialistskills or through the use of group resources or by outsourcing to a management company, if one has been retained.

2. Where the structure of a permit holder’s business is such that procedures do not require the Compliance Officer toreport directly to the local management in Jersey, but do require the Compliance Officer to report to another party,then the Commission will consider an application by the permit holder for exemption from the requirement to complywith section 3.3.3.1 above.

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3.3.4 A permit holder must appoint a Money-laundering Reporting Officer.

3.3.5 The permit holder must:

3.3.5.1 notify the Commission of the appointment, resignation or change of its Money-laundering Reporting Officer; and

3.3.5.2 submit to the Commission a completed Personal Questionnaire in respect of theappointed person.

Note: Upon receipt of a Personal Questionnaire, the Commission will make a number of enquiries. Permit holders may wishto await the Commission’s confirmation that it has no objection before confirming the appointment.

3.3.6 The Money-laundering Reporting Officer must:

3.3.6.1 report directly to the permit holder’s Jersey management board or equivalent;

3.3.6.2 be properly trained in the responsibilities and duties of such a position; and

3.3.6.3 have sufficient independence and resources to properly discharge the responsibilities ofthe position.

Notes:

1. Where a permit holder has limited employee resource in Jersey, application may be made to the Commission that theCompliance Officer and the Money-laundering Reporting Officer may be the same person.

2. Where a permit holder has limited physical presence in Jersey, the permit holder may support this area of operation asnecessary either by importing specialist skills or through the use of group resources or by outsourcing to a managementcompany, if one has been retained.

3. Where the structure of a permit holder’s business is such that procedures do not require the Money-launderingReporting Officer to report to local management in Jersey, but do require the Money-laundering Reporting Officer toreport to another party, then the Commission will consider an application by the permit holder for exemption from therequirement to comply with section 3.3.6.1 above.

3.4 - RECORD KEEPING ANDREPORTING

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3.4.1 A permit holder must:

3.4.1.1 maintain a policy and procedures manual that covers the management of the business;

3.4.1.2 keep proper records of policyholders’ affairs, including policyholders’ documentation;

3.4.1.3 keep adequate and orderly records, not only of business transacted but also of itsinternal organisation and risk management systems;

3.4.1.4 in the case of Category B permit holders, maintain its records at an appropriate locationin Jersey, and if kept otherwise than in legible form, maintain them so as to be readableat a computer terminal in Jersey so that they may be produced in legible form withoutdelay;

3.4.1.5 keep its records for such time as may be prescribed in the home jurisdiction (Category Apermit holders) or for at least ten years (Category B permit holders);

3.4.1.6 have a clearly documented policy regarding the retention of records.

Notes:

1. The Law is silent as to the form that records should take, so the Commission expects that permit holders will useavailable technology to retain and facilitate access to these records. Legal advice may need to be taken regarding thetypes of records that are admissible in a court of law.

2. The Commission reserves the right to waive the requirement for permit holders to maintain its records at anappropriate location in Jersey in special circumstances where compliance is clearly impractical.

3.4.2 Accounting and other records maintained by the permit holder must:

3.4.2.1 capture and record on a timely basis and in an orderly fashion every transaction andcommitment into which the permit holder has entered, with sufficient information to explain:

• the nature and purpose of the transaction or commitment;

• any asset or liability, actual or contingent, that arises or may arise;

• any income or expenditure, current or deferred, that arises or may arise.

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3.4.2.2 provide details, as appropriate, of each transaction and commitment, showing:

• the parties;

• the amount and currency, and the frequency of payment;

• the contract, value and maturity dates;

• the exchange rate of any foreign transaction or commitment;

• the contracted commission or fee payable or receivable;

• the nature and current value of any assets that specifically support any liability, the physical location of such assets and the appropriate documentation;

• in the case of any borrowing, whether it is subordinated, and the nature and value of any asset upon which the borrowing is secured.

3.4.2.3 be maintained in such a manner that financial and business information can beextracted promptly to enable management to:

• identify, measure, monitor and control the quality of the permit holder’s assets and safeguard them;

• identify, measure, monitor and control its liabilities to policyholders;

• identify, measure, monitor and control its exposure to liquidity, foreign exchange, timing differences and other market risks;

• monitor its solvency and its reserves;

• monitor the performance of all aspects of its business on an up-to-date basis;

• make timely and informed decisions.

3.4.3 A permit holder must prepare information for directors and management so that theycan monitor, assess and control the performance of the business, the state of its affairsand the risks to which it is exposed. Information must be prepared on an individualbusiness basis and where appropriate on a consolidated basis.

3.4.4 Management information must be prepared:

3.4.4.1 To show the state of affairs of the insurance company;

3.4.4.2 To show the overall solvency of the insurance company;

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3.4.4.3 To show the operational results of the business both on a cumulative basis and bydiscrete period, and to give a comparison with budgets and relevant previous periods;

3.4.4.4 To provide an analysis of assets and liabilities, showing how they have been valued;

3.4.4.5 To provide an analysis of any off-balance sheet positions, showing how they have beenvalued;

3.4.4.6 To provide an analysis of income and expenditure, showing how the income andexpenditure relates to the different categories of asset and liability and to policyholders’and shareholders’ funds;

3.4.4.7 To show the insurance company’s exposure to each type of risk, compared to therelevant limits set by management.

3.5 - DERIVATIVES AND OTHER OFF-BALANCE SHEET ITEMS

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3.5.1 Derivatives and other off-balance sheet items are not approved assets under theprovisions of the Insurance Business (Solvency Margin) (Jersey) Order 1996, but theiruse may be approved by the Commission in appropriate circumstances to an agreedextent on application by a Category B permit holder.

3.5.2 A Category B permit holder must have comprehensive systems in place, forming part ofits wider investment risk management systems, for the identification,measurement, control and reporting of derivatives and other assets and/or liabilities thatthe permit holder is required to publicly disclose.

3.5.3 A Category B permit holder must have in place an appropriate policy for the use ofderivatives, formulated, approved and regularly reviewed for adequacy by the directors.The policy must be consistent with the permit holder’s activities, its overall strategicinvestment policy, its asset/liability management strategy and its risk tolerance.

3.5.4 The policy must address:

• the purposes for which derivatives may be used;

• the establishment of appropriately structured exposure limits, taking into account theuncertainty caused by market, credit, liquidity, operational and legal risk;

• the extent to which the holding of some types of derivative is restricted, for example where the potential exposure cannot be reliably measured, where independent verification of pricing is not available or where the product may not easily be marketable (as may be the case with over-the-counter instruments);

• the responsibilities of the directors and management with regard to the use of derivatives, and the necessary qualifications and experience required of those directors and staff managing and dealing with such transactions;

• a framework of accountability for derivatives functions, so that such activities are properly overseen and regularly reviewed by the board and by internal and external audit.

• the appropriate segregation of duties between those staff who initiate derivative transactions and those who measure, monitor and settle them. Pricing must follow market conventions, and be independently verified where the use of “over the counter” derivatives in permitted.

3.5.5 A Category B permit holder must have systems in place that:

• analyse and monitor derivatives individually and in aggregate, enabling exposures and associated risks to be regularly assessed; and

• enable the permit holder to provide, on an accurate and timely basis, the informationrequired by the Commission as a condition of its consent for the use of derivatives.

3.6 - COMPLAINTS

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3.6.1 A permit holder must establish and maintain an effective complaints-handling systemand procedure. Such system and procedure must:

3.6.1.1 maintain adequate records of complaints against the permit holder, including a centralregister that contains details of any compensation that may be agreed;

3.6.1.2 inform policyholders of how complaints may be made and the internal procedures fordealing with them;

3.6.1.3 handle complaints transparently, fairly and independently;

3.6.1.4 provide an acknowledgement and initial response, in writing unless agreed to thecontrary with the policyholder;

3.6.1.5 notify the Commission promptly if:

• a complaint is not satisfactorily resolved within three months;

• the permit holder considers it to be in the best interests of the complainant or the general public;

• a complaint progresses to litigation and/or a settlement is imposed by a Court;

• a complaint results in the payment of a claim under the permit holder’s professional indemnity insurance policy;

• a complaint or series of complaints suggests that the permit holder is failing to meet the requirements of these Codes.

3.7 - INTEGRITY AND COMPETENCE

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3.7.1 A permit holder must ensure that its directors, senior managers and all other employeesare fit and proper for their roles. The term “employees” includes not only staff directlyemployed by the permit holder, but also indirect staff such as temporary or contractedemployees and other contracted service providers.

3.7.2 The permit holder must:

3.7.2.1 operate robust arrangements for meeting the standards and requirements of theregulatory system;

3.7.2.2 establish effective complaints handling systems, adequate supervision of employees, andprocedures governing sole, dual or multiple authorisations for handling business assets;

3.7.2.3 guard against involvement in financial crime (including the detection and prevention ofmoney laundering), and ensure that all transactions and decisions are properlyauthorised by persons with the requisite knowledge and experience to effect suchtransactions or make such decisions;

3.7.3 A permit holder must vet and monitor the competence and probity of its directors,senior managers and other employees.

3.7.4 A permit holder must ensure that:

3.7.4.1 it has a clear, written policy regarding the identification, notification and handling of anyconflicts of interest that its directors and employees may encounter during the normalcourse of their employment in the permit holder’s business; and

3.7.4.2 it has a clear, written policy regarding private transactions, self-dealing, preferential treatment and other transactions of a non-arm’s length nature.

3.7.5 It is a matter for the permit holder to determine the appropriate levels of qualificationsand experience applicable to the various categories of its employees.

Notes:

1. Paragraph 3.7.1 above is subject to the restrictions imposed by the Rehabilitation of Offenders (Jersey) Law 2001. The exceptions in the Rehabilitation of Offenders (Exceptions) (Jersey) Regulations 2002 available to permit holders,applicants and those intending to apply for a permit under the provisions of the Insurance Business (Jersey) Law 1996must also be noted. Exceptions cover principal persons, shareholder controllers and defined categories of employees ofregulated financial services businesses.

2. As a consequence of Regulations 19, 20 and 21 of the Exceptions Regulations, the Rehabilitation of Offenders(Jersey) Law 2001 does not prohibit employers from asking principal persons and defined categories of employeesabout convictions for “relevant offences”, even though such convictions may have been obtained some time ago andwould otherwise be regarded as being “spent convictions” as defined by the Rehabilitation of Offenders (Jersey) Law2001. To be consistent with the Codes, it is necessary for employers to make use of such exceptions when screeningemployees who are subject to these exceptions.

3.8 - CONTINUING PROFESSIONAL DEVELOPMENT (“CPD”)

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3.8.1 The permit holder is responsible for ensuring that the opportunity is available to allemployees who are engaged in insurance-related activity to continue their professionaldevelopment as part of their normal working environment.

3.8.2 The permit holder is responsible for ensuring that the CPD is appropriate and relevantto such employees, taking into account their job descriptions, current duties and futuredevelopment needs.

3.8.3 For Category B permit holders that employ such staff in Jersey, the recommended CPD isthirty five hours per year, including technical and professional reading and research.Category A permit holders must ensure that the number of required hours is inaccordance with any regulations that may be laid down in their home jurisdiction.

3.8.4 The permit holder is required to maintain CPD records for all such employees (althoughit is permissible for the permit holder to require its employees to keep their ownindividual records and account to the permit holder on a regular basis).

Notes:

1. It is recognised that some employees may be members of professional bodies that have their own CPD requirements asa condition of continued membership. In these circumstances, it is a matter for the permit holder firstly to ensure thatthe necessary opportunity is given to such employees to enable them to comply with these professional requirements, and secondly to take a view on the extent to which such professional CPD is relevant to the permit holder’s businessand may therefore be counted towards the employees’ work-related CPD.

4 - BUSINESS ARRANGEMENTS

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4 A permit holder must be transparent in its business arrangements

4.1 A permit holder must inform its policyholders that it is regulated and authorised to carryon insurance business by the Regulatory Authority in its home jurisdiction. The name ofthe Regulatory Authority and the home jurisdiction must be specifically stated, which forCategory B permit holders will be the Jersey Financial Services Commission.

4.2 A permit holder must communicate information to policyholders in a way that isadequate, fair and not misleading. Advertising and promotional literature must be clear,fair and reasonable, and must not be deceptive or misleading. (Advertising guidelines arecontained in Section 7 of these Codes).

4.3 Where the permit holder is providing insurance directly to the general public or througha tied agent or direct sales force, it must state whether such insurance can only beprovided from a restricted range of products or product providers.

4.4 A permit holder must inform its policyholders of any policyholder protectionarrangements that are applicable to the policy, or the absence of any such arrangements.

4.5 A permit holder must provide confirmation, in legible form, of any contract ortransaction effected with its policyholders. This will usually take the form of a policydocument and, for policies with an investment element or benefits that vary over time, a regular statement.

4.6 A permit holder must provide to its policyholders, in writing, the terms and conditionsapplying to the insurance services provided by the permit holder. These terms andconditions must be:

4.6.1 distinguishable from marketing or promotional material;

4.6.2 consistent with these Codes;

4.6.3 clearly expressed in plain language that only uses technical or legal terms whereabsolutely necessary;

4.6.4 provided before the contract of insurance becomes legally binding on the parties, exceptwhen it is impractical to do so, in which case the terms and conditions shall be providedat the earliest opportunity.

4.7 In relation to long term insurance business, the permit holder must provide a “cooling-off” notice to a policyholder, explaining that the policyholder may cancel the policywithin at least fourteen days of the date of receipt of such notice if he/she has a changeof mind. This applies not only in relation to new policies, but also to existing policieswhere premium amounts are increased by more than 25% and the provisions for suchincrements are not included within the original insurance contract particulars.

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4.8 In relation to long term insurance business the permit holder must include thefollowing information in its terms and conditions, or in the policy information providedto policyholders, or by separate communication:

4.8.1 The nature and amount of all standard fees and charges associated with the policy;

4.8.2 The amount of any commission or other remuneration paid to a broker or intermediaryfor the introduction or arrangement of, or any other services in connection with, the policy;

4.8.3 The manner and notice period in which the policyholder will be informed of changes tothe terms and conditions of the policy and, where appropriate, any alterations to fees,charges and bonus rates;

4.8.4 The options currently available to policyholders upon the renewal or maturity date ofthe policy, and the consequences, financial and otherwise, of early termination;

4.8.5 The frequency with which policy statements will be provided;

4.8.6 Specific risks that may be associated with the type of policy provided.

4.9 A permit holder must, upon request, provide a policyholder with the information heldabout that policyholder to which the policyholder is legally entitled. The permit holdermay recover its reasonable costs of supplying such information to the customer.

4.10 A permit holder must inform policyholders, brokers and other intermediaries if it has apolicy of recording telephone conversations with them for monitoring or trainingpurposes. This may be achieved by including an appropriate statement in the permitholder’s terms of business, marketing and promotional material and regular statementsprovided to policyholders, or by advising callers at the start of any telephoneconversation.

4.11 A permit holder must only accept and act upon the instructions of a broker orintermediary in relation to a policyholder’s long term insurance where such insuranceincludes the management of a portfolio of investments, if it possesses writtenconfirmation signed by the policyholder that the broker or intermediary has beenformally authorised to act on the policyholder’s behalf in this regard.

Notes:

1. The requirements described in paragraphs 4.1, 4.4, 4.6 and 4.10 above will be satisfied by the inclusion of theinformation on the permit holder’s letterhead, or its marketing or advertising literature, or its policy documentation, as appropriate.

5 - CAPITAL RESERVES

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5 A permit holder must maintain and be able to demonstrate at all times the existenceof adequate capital resources to enable it to meet its insurance liabilities

Note: This section sets out the minimum required solvency margin and the types of invested asset that are admissible to coverinsurance liabilities. It is therefore only applicable to Jersey incorporated entities that hold a Category B InsuranceBusiness Permit. Holders of a Category A Insurance Business Permit will be subject to the equivalent requirements laiddown in their home jurisdiction.

5.1 A permit holder must maintain at all times a level of capital adequacy sufficient to meetits insurance liabilities (technical provisions) and the minimum solvency marginrequirement.

5.2 As a rule, the minimum amount of share capital required by an insurance businesspermit holder is £100,000 (one hundred thousand pounds), but the Commission hasthe ability to amend this, both upwards and downwards, should it feel that this amountis inappropriate in the circumstances of the permit holder’s business.

5.3 The required minimum solvency margins for long term and for general insurancebusiness are those prescribed in Article 4 of the Insurance Business (Solvency Margin)(Jersey) Order 1996, as amended from time to time.

5.4 The approved types of assets admissible for the purposes of assessing capital adequacyare listed in Article 2 of the Insurance Business (Solvency Margin) (Jersey) Order 1996,as amended. These assets are typically those applicable to a general insurance businessso, upon application by the permit holder, the Commission may approve additionaltypes of asset as admissible for capital adequacy purposes, either on an unrestricted basisor to a specified maximum amount, usually expressed as a percentage of the totalinvested assets.

5.5 The permit holder must ensure that quoted investments (be they government securitiesor equities) are quoted on one of the recognised international stock exchanges listed inArticle 1 of the Insurance Business (Solvency Margin) (Jersey) Order 1996, as amended.Upon application by the permit holder, the Commission may approve other exchangesas recognised for this purpose, but only where the use of such an exchange is considerednecessary for the proper performance of the permit holder’s business.

5.6 The permit holder must ensure that its insurance liabilities (technical provisions) arecalculated and monitored on a continuous basis. Such liabilities must be calculatedaccording to generally accepted insurance industry principles and accounting standards,and the calculations must be made available to the Commission for review uponrequest. In the case of long term insurance, the technical provisions must be calculatedand certified as correct by a qualified actuary. The Commission also encourages generalinsurance companies to use qualified actuaries for the purpose of calculating theirtechnical provisions.

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5.7 Details of any re-insurance arrangements made by the permit holder must be disclosedto the Commission. The Commission has the right to assess such arrangements, and torequire a permit holder to make alternative arrangements, or to limit the use of a specificre-insurer, should it feel that the conditions are not suitable with regard to the insuredrisks.

5.8 Taking into account the nature of the risks that have been re-insured, and the overallfinancial position of the re-insurance company, the Commission may determinewhether all or only a part of the amounts recoverable under re-insurance arrangementsmay be allowed as reductions of technical provisions.

5.9 Where re-insurance arrangements have been made, the amounts recoverable must bedisclosed in the financial statements of the permit holder by including amounts grossand net of re-insurance.

5.10 Although the permit holder is required to submit to the Commission at six monthlyintervals financial statements that show the company’s ability to meet its liabilities andits minimum solvency margin requirement, it is the responsibility of the permit holderto ensure that this position is maintained at all times. Should the permit holder becomeaware that it is unable to comply with this requirement, the Commission must beinformed at once. The permit holder will be required to produce a plan to theCommission for the restoration of solvency. Should the plan not be forthcoming, or bedeemed inadequate, the Commission may impose its own conditions, financial orotherwise, for the return of the business to acceptable solvency levels.

5.11 In order to properly control its assets, liabilities and its solvency position, a permitholder must:

5.11.1 have in place effective procedures for monitoring and managing the asset/liabilityposition, in order to ensure that investments (the types of asset, their currency andliquidity) are appropriate for the liability profiles;

5.11.2 ensure that the directors review the adequacy of the overall investment policy on aregular basis in the light of the company’s activities, its overall risk tolerance, its long-term requirements and its solvency position.

5.11.3 undertake regular resilience testing for a range of market scenarios and changinginvestment and operating conditions in order to assess the appropriateness of itsmanagement policies.

5.11.4 have in place contingency plans to mitigate against the effects of deteriorating businessconditions.

6 -RELATIONSHIP WITHCOMMISSION

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6 A permit holder is expected to deal with the Commission and other authorities inthe Bailiwick in an open and co-operative manner

6.1 There is a need for candour and co-operation in a permit holder’s relationship with theCommission. Permit holders are required to advise the Commission promptly of anymatter that might reasonably be expected to affect their authorisation to carry onbusiness in Jersey or might affect the interests of their policyholders. This principleextends to the provision of information and the notification of events concerning othermember companies of a corporate group.

6.2 Where a permit holder fails to comply with parts of these Codes, its observance or non-observance of this principle will be considered relevant to the question ofmitigation or aggravation.

6.3 A permit holder must allow, and shall procure, that any agent or subcontractor of thepermit holder also allows inspections by or on behalf of the Commission of any part ofits activities. The permit holder must provide all reasonable assistance in connectionwith any such inspection and shall procure that any such agents or subcontractors alsoprovide all reasonable assistance.

6.4 In addition to the obligations under the Insurance Business (Jersey) Law 1996, as amended, and notwithstanding the generality of paragraph 6.1 above, certainnotifications will always be expected in writing from a permit holder. The obligationsunder the Insurance Business (Jersey) Law 1996 require Category B Insurance Businesspermit holders to obtain the prior approval of the Commission for the changes listedbelow in this section, except for the changes described in paragraph 6.4.3 that justrequire prior notification. Category A Insurance Business permit holders must notify theCommission of all changes listed in this section within twenty-eight days of the grantingof the necessary approval by the home regulator.

6.4.1 A change of name of the permit holder;

6.4.2 The adoption of, or a change in any business or trading name under which the permitholder carries on insurance business;

6.4.3 A change in the address of the registered office or the principal office of the permitholder, the permit holder’s nominated contact person or the associated telephone, fax and e-mail details;

6.4.4 A change of shareholder controller or beneficial owner of a permit holder;

6.4.5 A change in the permit holder’s activities. This includes the introduction of a newbusiness activity, closure to new business, the cessation of a business activity, whether temporarily or permanently, as well as the acquisition or disposal of asubsidiary, associated group company or branch office, wherever situated;

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6.4.6 A change of director and, where applicable, of the appointed actuary of the permitholder. This includes the resignation of a director or the actuary as well as theappointment of a director or the actuary.

6.5 A permit holder must notify the Commission immediately in writing of any of thefollowing events affecting either it or, except where specified otherwise, a companywhich is a subsidiary or holding company of the permit holder:

6.5.1 The presentation of any application to the court for desastre, or the winding up, or thesummoning of a meeting to consider a resolution to wind up;

6.5.2 The making of or any proposals for the making of a composition or arrangement withthe creditors;

6.5.3 The application by any person for the commencement of insolvency proceedings, the appointment of a receiver, administrator or liquidator under the law of anyjurisdiction;

6.5.4 The decision to voluntarily cease writing new insurance business before that decision isimplemented, including details of arrangements for the protection of policyholders;

6.5.5 The imposition of disciplinary measures or sanctions in relation to its insurance businessby any relevant regulatory authority;

6.5.6 A conviction for any offence under the legislation of any jurisdiction relating to theconduct of insurance or other financial services business, or for any offence involvingfraud or dishonesty, or for deliberate tax evasion, including such offences committed byany of its directors and officers;

6.5.7 Any actual or intended legal proceedings taken by the permit holder or a subsidiary oragainst them, where any amount claimed or disputed is likely to exceed 5% of thepermit holder’s admissible assets as applicable to the permit holder’s solvency margincalculation;

6.5.8 The granting or refusal of any application, or the revocation of authorisation, to carry oninsurance business in any jurisdiction outside the Bailiwick;

6.5.9 The refusal of any application for, or the revocation of, membership of any trade orprofessional body in any jurisdiction;

6.5.10 The appointment of inspectors (howsoever named) by a statutory or regulatory body;

6.5.11 Any matter that the permit holder considers to be material to the requirements placedon the permit holder or any of its employees to be fit and proper;

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6.5.12 Any event arising that makes it impractical for the permit holder to comply with anyConditions attaching to the insurance business permit or with one or more of theprovisions of these Codes. Such notification must specify the steps that the permitholder proposes to take to remedy the situation;

6.5.13 The breakdown of administrative or control procedures (including computer systemsand accounting records) relevant to any part of the business, resulting in the failure tomaintain proper records;

6.5.14 The failure to meet minimum solvency margin requirements;

6.5.15 Any other matter that would be material to the Commission’s supervision of the permitholder or any of its employees.

Notes:

1. The Commission may, upon the application of the permit holder, alter any requirements under section 6.4 above so asto adapt them to the specific circumstances of that permit holder or to the particular type of business that the permitholder carries on.

2. The Commission may exercise the power described in Note 1 above where it appears that compliance with therequirements in question will be unduly burdensome having regard to the benefit that compliance will confer.

3. The duty of disclosure in section 6.5 arises immediately the registered person knows, or has reasonable grounds forbelieving, that any of the above matters may have been or may be about to be committed, even where such matters areoutside the control of the registered person.

7 - ADVERTISING GUIDELINES

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7.1 A permit holder must ensure that its advertising and promotional literature is clear, fairand reasonable, and is free of deceptive or misleading statements. Words used inadvertisements must be chosen carefully, and certain words, such as “guarantee” and“assured”, must be treated with extreme caution.

7.2 Where tables are used within literature to indicate the performance of a long-term fund,or the possible investment return from such a fund, the tables must be clearly annotatedto explain that past experience is no guarantee of the level of future returns and that thevalue of investments may go down as well as up. They must also show the notionalannual rates of return that have been used as examples, highlighting that these aremerely examples, not the returns that the policyholder can necessarily expect.

7.3 A Category A permit holder must comply with such advertising guidelines as may existin its home jurisdiction. It should, however, make reference to its home regulatoryauthority, and to the classes of insurance business for which such authorisation has beengranted, in the product-related documentary marketing and sales material that itpublishes or causes to be published.

7.4 A Category B permit holder must make reference to its authorisation by theCommission, and to the classes of insurance business for which such authorisation hasbeen granted, in the product-related documentary marketing and sales material that itpublishes or causes to be published. The preferred wording is “….. regulated by theJersey Financial Services Commission to carry on [long term] [general] insurancebusiness under the provisions of the Insurance Business (Jersey) Law 1996”.

7.5 A Category B permit holder must notify the Commission on each occasion that itintends to issue new or amended product-related advertising or promotional literature.The Commission may wish to review and approve such advertising and promotionalliterature to be issued by Category B permit holders.

7.6 An advertisement must not contain:

7.6.1 a statement, promise or forecast which is untrue or misleading;

7.6.2 a statement of fact that a permit holder does not have reasonable grounds, supported bydocumentary evidence, for believing to be true at the time when the advertisement isissued;

7.6.3 a statement of opinion by any person that the permit holder does not have reasonablegrounds, supported by documentary evidence, for believing to be the honestly heldopinion of that person at the time when the advertisement is issued;

7.6.4 a statement of fact which the permit holder does not, at the time the advertisement isissued, have reasonable grounds for believing will continue to be true for so long as theadvertisement continues to be issued in current publications;

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7.6.5 a misleading statement about the activities of, or the scale of the activities of, or theresources of or available to, the permit holder or its group or affiliates;

7.6.6 a statement relating to taxation benefits unless it is properly qualified to show what itmeans in practice and to whom such benefits apply;

7.6.7 a statement relating to client confidentiality unless it is properly qualified to show thelimits of any confidentiality assurance made;

7.6.8 a comparison with other entities that carry on insurance business unless the basis ofcomparison is clearly stated, and the comparison is fair;

7.6.9 a statement implying that the product or service involved is only available for a limitedperiod or in limited form, if such is not the case.

7.7 The content and format of any financial service advertisement must not:

7.7.1 be so designed as to be likely to be misunderstood;

7.7.2 be so designed as to disguise the significance of any warning, statement or informationthat is required to be included under these Codes;

7.7.3 be presented in such a way that it is not clearly identifiable as an advertisement;

7.7.4 signify in any way that the advertisement has been approved by the Commission (thisrule applies even if the Commission has been consulted with regard to the specificadvertisement).

7.8 An advertisement may include a quotation from a statement made by any personcommending any product or service of the permit holder provided that:

7.8.1 where the person is an employee or associate of the permit holder, that fact is disclosedin the advertisement;

7.8.2 the quotation is included with that person’s written consent;

7.8.3 the statement is relevant to the product or service that is the subject of the advertisement;

7.8.4 where the whole of the statement is not quoted, what is quoted fairly represents themessage contained in the whole of the statement; and

7.8.5 the statement has not become inaccurate or misleading since it was originally made,because of the passage of time.

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7.9 An advertisement that only specifies some of the terms and conditions that attach to aproduct or service, but excludes others, must indicate this fact. Where those terms andconditions that are specified give only a partial indication of the nature of the product orservice being offered, the advertisement must refer to how all the terms and conditionsmay be obtained. Where no details of terms and conditions are given, the insuranceadvertisement must contain information as to how all such terms and conditions maybe obtained.

7.10 An advertisement must disclose all specific areas of risk that may relate to the product orservice advertised. It may not be possible to list within the advertisement all the risksthat might apply, but the objective of the Code is to ensure that prospectivepolicyholders are fully appraised of the key risks associated with the product or serviceprior to a commitment being given in order that they can make informed decisions. The need for such risk warnings will be dependent upon the nature of the products andservices being advertised.

Notes:

1. These advertising guidelines are intended for the use of all Category B permit holders who make insurance productsavailable to the general public. In the case of those Category A permit holders who offer their insurance products toJersey residents, these guidelines are intended to apply where they do not conflict with any regulatory requirements inthe home jurisdiction of those permit holders.