Introduction

1.  The Astana Financial Services Authority (AFSA) has issued this Consultation Paper to invite public comments on the proposed policy for captive insurance business.

2.  The proposals in this Consultation Paper will be of interest to current and potential AIFC participants who are interested in exercising business activities in or from the AIFC.

3.  All comments should be in writing and sent to the address or email specified below. If sending your comments by email, please use “Consultation Paper AFSA-P-CE-2020- 000X” in the subject line. You may, if relevant, identify the organisation you represent when providing your comments. The AFSA reserves the right to publish, including on its website, any comments you provide, unlessyou expressly requestotherwise. Comments supported by reasoning and evidence will be given more weight by the AFSA.

4.  The deadline for providing comments on the proposals is 25 November 2020. Once we receive your comments, we shall considerif any refinements are requiredto this proposal.

5.  Comments to be addressed by post: Policy and Strategy Division

Astana Financial Services Authority (AFSA) 55/17 Mangilik El, building C3.2, Kazakhstan or emailed to: consultation@afsa.kz

Tel: +8 7172 613781

6.The remainder of this Consultation Paper contains the following:

(a)Background to the proposal

(b)    Annex 1: Policy paper on Enhancing the Regulatory Framework on Captive Insurance Business

Background

1.A captive insurance is a risk management vehicle used by companies to cover risks that cannot be efficiently insured in the market or to manage risks in a more cost-effective manner. Captive insurersmainly underwrite risksrelated to or arising out of the business or operations of the group to which they belong or third-party risks arising in related businesses.

2.Captive insurance allows a company to insure its industry-specific risks which would otherwise be overpriced by commercial insurers. The cost savings would result not only from a more tailored risk assessment but also from avoidance of marketing and administration costs. In addition, captives are uniquely positioned to manage their own risks as they can make more precise forecasts based on their own historical data as opposed to commercial insurers who rely on industry averages.

3.The following summarizes the proposed amendments to the AIFC Insurance and Reinsurance Prudential Rules (PINS) that aim to provide a competitive and clear risk- based regulation for full-fledged and effective operation of captive insurers.

(1)Introduce three classes of captive insurersdifferentiating on the amount of third-party risk allowed to be written.

(2)Set prudential requirements for each class of captive insurers based on the level of risk the scope of their license assumes.

(3)Explicitly state that an AIFC captive insurer can be either self-managed or managed by an AIFC insured Insurance Manager

(4)Expand the functions of the AIFC Captive Insurance Managers.

(5)Provide AIFC Guidance on Captive InsuranceBusiness aimed at providing guidance to potential and licensedAIFC captive insurersand insurance managersand includes a generaloverview of captiveinsurance business, classesof captives, responsibilities and expectations to Insurance Managers or Captive Insurers (in case self-managed) for managing a captive insurance business. This Guidance will be designed to be read in conjunction with all other relevant AIFC rules.

4.As a result of introduction of these changes,AFSA aims to further developthe insurance market in the AIFC and Kazakhstan.

5.   The key objectives of the proposed amendments include:

-Make the AIFC jurisdiction suitable for different types of captive insurers;

-Increase the number of captive insurers and insurance managers in the AIFC;

-Alignment of captive insurance classification with international standards;

-Add clarification and precision to the requirements to captive insurance managers;

-Provide additional guidance document describing high level information for captive insurers and insurance managers.

6.Annex 1 includes the Policy paper on Enhancing the Regulatory Framework on Captive Insurance Business in the AIFC.

Annex 1