In brief, the SILIB is an investment concept which combines the protection of an insurance policy with wealth management and succession planning in accordance with the legal and tax rules applicable in the policyholder’s country of residence.
The introduction of SILIB is aligned with the vision of the Financial Services Commission (FSC) to be an internationally recognised financial supervisor committed to the sustained development of Mauritius as a sound and competitive financial services centre. In this regard, the FSC also issued the Insurance (Structured Investment Linked Insurance Business) Rules 2022 (Rules) which came into effect on 03 September 2022 to allow long term insurers to offer SILIB in Mauritius.
The SILIB ranks as a new fifth class of long-term insurance business under the Insurance Act. It is defined as the business of effecting and carrying out contracts of insurance under which the benefits are, wholly or partly, to be determined by reference with the value of, or the income from, a dedicated investment portfolio held separately for each policyholder with a custodian. It may include the assets and investments of the policyholder (both those in existence at inception and those which accrue in the future term of the policy) with a minimum subscription at inception in cash or assets to be specified by the FSC, whether in its rules or guidelines. Under the Rules, the FSC has set the minimum single premium amount in the order of USD 250,000 or its equivalent in any other currency. Furthermore, unless otherwise prescribed, the SILIB must continue to meet with the relevant provisions of the Insurance Act. Under the Insurance Act, it is a criminal offence for any person (other than a custodian) who holds the assets of a SILIB policy for safekeeping or any insurer to allow a person other than a custodian licensed to hold the assets of a SILIB policy for safekeeping. A conviction leads to a fine not exceeding MUR 1 million [± USD 22755] and to imprisonment for a term not exceeding 5 years.
It is worth noting that only a custodian (i.e., a person holding a custodian services (non-CIS) licence) licensed under the Financial Services Act 2007, or any other person duly licensed as a custodian in an equivalent foreign jurisdiction and approved by the FSC, is entitled to hold assets of a SILIB policy for safekeeping. For the purposes of custody and safekeeping of the assets, a long-term insurer carrying out SILIB activities is required to enter into a custodian agreement with respect to the appointment and functions of a custodian, to which the SILIB policyholder or the insurer and the custodian are parties.
It is important to highlight that the Insurance Regulations 2007 provide that an insurer must at all times keep invested in Mauritius
(i) an amount of at least 50% and,
(ii) may invest outside Mauritius an amount not exceeding 50% of its technical provisions in respect of insurance business in Mauritius.
However, this restriction of foreign investment to 50% of technical provisions of SILIB policies has been waived for SILIB in order that it attracts more foreign investors.
To better protect SILIB policyholders and the assets underlying the SILIB, the Insurance Act has created an obligation on a long-term insurer which manages assets in the SILIB to keep separate accounts and records for each portfolio. In addition, an insurer is under an additional obligation to provide a yearly report to a policyholder on the performance of the policyholder’s investment under the SILIB policy. Furthermore, the Rules also specify certain requirements to which a long-term insurer carrying out SILIB must comply with. Some of the salient provisions are as follows:
- the insurer must seek the approval of the FSC before entering into a custodian agreement with a custodian;
- it must at all times hold at least 5% of the total assets under each SILIB policy or USD 20,000, whichever is lower, in cash or cash equivalents;
- it must adopt a robust AML/CFT framework and conduct independent customer due diligence;
- for each SILIB policy underwritten, in which there is a sum or interest guaranteed, it must maintain a reserve fund to pay for any shortfall in guarantee when the SILIB policy has reached maturity, or on the occurrence of a contingent event;
- it must not invest the assets of the SILIB policies in the securities of any related company of the insurer or asset manager nor lend monies belonging to the SILIB policies to related companies of the insurer or asset manager;
- it must conduct all transactions with or for a SILIB policy at arm’s length and must acquire investments and enter into transactions which are consistent with the investment objectives and approach of the SILIB policies; and
- it must prepare or cause to be prepared for each SILIB policy a statement to policyholders containing all policy information to be communicated to all SILIB policyholders within 30 days from the date of each SILIB policy anniversary or any other date specified in the product summary.
Clearly, in developing a new category of life insurance policy “wrapped” around the policyholder’s own investments and assets portfolio, the Government of Mauritius has provided a further boost to the insurance sector. Appleby welcomes this substantial addition to the offering of wealth management products within the insurance industry.