Originally Published: Global Assets Online, July 2007
In 2007 Guernsey is a thriving captive insurance domicile. During the last century Guernsey’s captive insurance industry has expanded enormously to make the Island what it is today – the pre-eminent captive insurance domicile in Europe and amongst the leaders in the world.
There are challenges to be met, for example the Island is a mature captive insurance domicile, the nature of the industry is changing and there is increased competition from other jurisdictions.
However, Guernsey is well-placed to maintain its position at the head of the pack: the Island’s political, economic, geographical and cultural positioning remains attractive; its evolution into a leading captive insurance domicile proves that it is capable of adapting to changing circumstances; in doing so it has accumulated a wealth of expertise and a first class infrastructure; and it takes a progressive outlook and is therefore continually developing for the future.
Staying ahead of the game
Since the first captive to be established in Guernsey was formed in 1922, the Island has grown to become – with 624 captive entities at the end of 2006 – the number one captive insurance domicile in Europe and fourth in the world in terms of premium written, which stood at £3.2bn. at the end of 2005. Further investigation of these figures reveals how Guernsey’s captive insurance industry has been and continues to evolve.
The growth in Guernsey’s captive industry meant that by the end of 1998 the Island was playing host to 349 captives. By the end of last year though this had dropped to 312. Why?
Ten years ago, Guernsey – responding to the needs of the captive insurance industry – pioneered the Protected Cell Company (PCC) concept. By the end of that year there were six PCCs and 14 cells domiciled in the Island but by the end of 2006 this had risen to 68 PCCs and 243 cells. In addition, there had been the formation of the Island’s first insurance-writing Incorporated Cell Company (ICC) – an innovative concept that Guernsey introduced earlier last year. Therefore, overall, the total number of captive entities has risen from 399 in 1998 to 624 in 2006. Alongside this, the value of premium written has nearly doubled – from £1.7bn in 1998 to £3.2bn in 2005 (the latest available figure).
Of course, Guernsey does not exist in a vacuum: during the past decade there has been a slowdown in the growth of captive formations globally; and there has been significant merger and acquisition activity in the market. In addition, following Guernsey’s successful pioneering of the flexible PCC, we have seen significant uptake of the cell company around the world from both domiciles and clients.
Another global trend has been the increasing ‘internationalisation’ of captive insurance. A Marsh report from March 2007 shows that half of the captives established by UK companies are domiciled in Guernsey. However, while last year 51% of the captives licensed in Guernsey had UK parents, this is a smaller percentage than in the past; and with the remaining 49% of captives established by companies from across the world, including Europe, the USA, Hong Kong, Japan, the Cayman Islands, Saudi Arabia and South Africa.
Guernsey’s move into new markets has been precipitated by its position as a mature captive domicile – for example, approximately 40% of the leading 100 firms on the London Stock Exchange already have captives in Guernsey. Therefore, the Island is now engaging with the UK broker community to inform them on how the development of the cell company – with lower barriers to entry – means that the benefits of captive insurance are now more accessible to their clients of small to medium sized enterprises.
Indeed, GuernseyFinance – the promotional agency for the Island’s finance industry – has attended the last two annual conferences of British Insurance Brokers Association (BIBA), contributed articles and advertised in its in-house publication The Broker, and is working with its Executive Board and Regional Committees to arrange a series of initiatives, including presentations at a local level, to educate brokers in this regard. This is in addition to the agency’s work, together with the local industry association, to promote the captive sector more broadly through attendance at third-party events, such as AIRMIC, FERMA and RIMS, hosting its own events in London, and through publicity in the media.
As well as exploring the opportunities in new regions and markets, the Island is also continually looking at the development of new types of insurance vehicles that will prove particularly attractive as tools for providing risk management solutions, such as insurance securitisation vehicles, transformer cells and fronting cells to allow access to reinsurance markets.
Expertise and infrastructure
Guernsey’s evolution into a leading captive insurance domicile illustrates how the Island is able to adapt to changing circumstances, particularly through innovation. It also sheds light on Guernsey’s heritage in the industry, for example the Island’s regulatory framework for captives was introduced 21 years ago. Indeed, during the course of Guernsey’s evolution as a captive insurance domicile it has accumulated a wealth of expertise and developed a first class infrastructure.
The Island now plays host to 27 captive managers, ranging from small boutique operations to large international players and independent captive managers through to broker-tied managers. Guernsey’s captive industry is renowned for its experience, expertise and professionalism and in addition, devotes significant resources to business development, enabling the identification and implementation of innovative and bespoke insurance solutions.
Guernsey is also renowned for the robust yet pragmatic regulatory environment that is provided by the Guernsey Financial Services Commission (GFSC). The Island is subjected to ongoing scrutiny (and has thus far been endorsed) by international bodies such as the International Monetary Fund and Financial Action Task Force. It is also at the forefront of regulatory developments, as demonstrated by the fact that Guernsey, through the GFSC, sits on the Executive Committee of the International Association of Insurance Supervisors (IAIS) and has been asked to Chair a sub-group that is producing a guidance paper on the supervision of captives as a way of informing and educating fellow IAIS members who are less familiar with the concept.
Still a natural attraction
Guernsey’s development into a leading captive insurance domicile has been founded on its political, economic, geographical and cultural positioning and this combination remains particularly attractive.
Guernsey, situated in the English Channel, 25 miles from France and 60 miles from England, is 24 square miles in size and has a population of 60,000. The Island is a British Crown Dependency, with over 800 years of self-government. It is legislatively and fiscally independent of the United Kingdom and has its own democratically elected parliament, the States of Guernsey. States members vote on matters as individuals, as there are no political parties, which means the Island is less prone to pendulum swings in regime or policy.
Guernsey also enjoys a special relationship with the European Union. Terms negotiated on the UK’s accession to the EEC mean that the Bailiwick is within the Common Customs Area and the Common External Tariff; essentially it enjoys access to EU countries for physical exports without tariff barriers. Other rules and directives – including those related to insurance – do not apply though, unless voluntarily accepted.
Conducting business is made easy because of the Island’s unique local characteristics. For example, in terms of its constitutional status (and associated political make-up):
- Legislative and fiscal independence means the Island can and does respond quickly to the needs of business;
- Continuity within the Island’s democratically elected parliament has and continues to deliver political and economic stability on which business can rely; and
- The unique relationship with the EU means that the Island has some of the advantages of being inside the confederation, without all the implications of operating in a jurisdiction that is a full member.
In addition, Guernsey offers the advantages of being English speaking; using the British pound (Sterling); in the same time zone as the UK, which means business can be conducted during the day with not just Europe but also both the Americas and the Middle East; situated in an area free from major natural disasters like hurricanes, earthquakes and flooding and with a temperate climate; and located close to both the UK and continental Europe – to where there are daily links by sea and air, including Paris and London, which is less than an hour away and adding this to the fact that all of the businesses are located in a relatively small area, means that a significant amount of business can be conducted during a day-trip.
Several hundred financial services businesses are now located in Guernsey, attracted by the unique local environment. Indeed, the Island is a leading international finance centre broadly comprising insurance (both captive and other types) together with banking, investment funds and fiduciary services (trust and company administration). There is positive collaboration and a team spirit among these key businesses. In addition, Guernsey’s finance industry is supported by a comprehensive network of complementary services, including legal, accounting, audit and tax advisers. There is also an independent stock exchange, the Channel Islands Stock Exchange (CISX); a bespoke training facility, the Guernsey Training Agency (GTA) which is now affiliated to the University of Bournemouth in the UK; and an active local branch of the Institute of Directors (IOD) that is committed to further improving the existing high standards of corporate governance.
The future is bright
Guernsey is thriving as a captive insurance domicile. There are challenges to be met but the Island is well-placed to maintain its position at the head of the pack. The future for Guernsey as a leading captive insurance domicile is very bright.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.