Originally published in Financial Centres International, September 2011.
Across the insurance industry there has been one issue in particular which has received more attention than any other in the last couple of years – Solvency II.
The EU's proposed regulatory regime for insurance and reinsurance business has been heavily debated and its introduction much anticipated. Solvency II was due to come into effect from 1 January 2013 but we are hearing is that this is now very likely to be delayed by a year to 1 January 2014. The uncertainty surrounding its introduction and also the implications in practice is causing some angst around Europe.
However, in Guernsey, we have opted for certainty. The Island is not part of the EU so we are not required to adopt Solvency II and our Government and the financial services regulator have issued a joint statement to say that currently the Island doesn't have any plans to seek equivalence under Solvency II.
Solvency II has been designed to address systemic and group risks within commercial insurance markets but these are risks not generally faced by Guernsey-based international insurance companies, where there are a large proportion of captive insurance companies. Under the current proposals, Solvency II is set to impose a blanket set of capital requirements and therefore equivalence would burden Guernsey insurers with additional costs and render currently effective captive business plans uneconomic.
Bermuda and Switzerland are adopting a different stance. They are in the first wave of equivalence applications but both are doing so primarily not for their captives but to protect their international commercial reinsurance industries. However, it appears they will be seeking to mitigate the effects on their captive insurance business and so we will be monitoring developments closely.
Making an announcement that we have no current plans to seek equivalence not only provides certainty to our clients and potential clients but ensures that we will be able to continue to offer a different set of products and services. Guernsey will continue to meet the standards of the International Association of Insurance Supervisors (IAIS) – the IMF has commended the Island for having high levels of compliance with the 28 insurance core principles of the IAIS – but its proportionality principles mean that we will provide a more attractive environment for captive owners and other niche insurers.
There has already been a very positive response from clients and potential clients. Indeed, our proposition may prove attractive for captive owners and their insurance vehicles currently based within EU domiciles, such as Dublin and Luxembourg – our two major competitors in Europe, and especially where they are writing business outside the EU. Certainly local managers are reporting an upswing in inquiries and this bodes well for further extending our leading position as the largest captive insurance domicile in Europe and the fourth largest globally. This strength is illustrated by the fact that 40% of the FTSE 100 companies with captives have them domiciled in Guernsey.
The Island continues to see a steady flow of new business and in particular through the use of cell companies, despite the maturity of our sector and the continuing hard market conditions. Now there are 678 international insurance entities in Guernsey, comprising 344 international insurers (pure captives, PCCs, ICCs and ICC cells) and 334 PCC cells with total gross assets of £23.4bn, a net worth of £8.1bn and premium written of £3.4bn.
In 2010, 70% of all new licence applications were from UK parent companies. The UK is clearly the largest single source of business however Guernsey is a truly international insurance centre with the spread of new business from Europe (Switzerland and Germany), Africa (South Africa), the US and the Asian markets (Japan and Australia).
Notable new business this year has included our captive insurance sector becoming home to the City of London Corporation's newly formed reinsurance company, City Re Limited and Swiss ILS managers Solidum Partners AG have used a Guernsey based incorporated cell structure, Solidum Re as a private transformer of catastrophe risks into $12.4m of securities.
This highlights the increasingly diverse business coming to Guernsey's sophisticated insurance sector. Our long-standing risk management heritage has grown an industry comprising a wide range of managers, from global names to local independent players, supported by the full range of professional services that together have significant experience, expertise and innovation in providing cutting edge insurance solutions to a worldwide client base.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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