Originally published as the welcome note to the Captive Review, Guernsey Report, October 2008
Richard Le Tocq, chairman of the Guernsey Insurance Company Management Association (GICMA), discusses the number of challenges Guernsey faced in 2008, and how it turned change to its advantage
This year sees the Guernsey Insurance Company Management Association celebrate its 25th anniversary; having been formed three years before The Insurance Business (Guernsey) Law, 1986 was introduced.
It is both an honour and a pleasure to be added to the illustrious list of chairs. Of course, my mentor Nick Wild and his mentor John Parkinson having served 10 and 20 years earlier respectively would argue that recent chairs have it easy only having to serve one year.
Guernsey's pool of talented non-executive directors, serving on the boards of captives and commercial insurers, is now benefiting from the experience of a number of past chairs. It is this expertise and a solid infrastructure of service providers that makes Guernsey a premier international insurance centre.
The Guernsey Insurance Forum
Peter Niven and his team at Guernsey Finance have provided valuable support to GICMA in organising this year's Guernsey Insurance Forum (the Forum). Sir James Goldsmith's quote: "The ultimate risk is not taking a risk", is the inspirational theme for 2008.
This event has now been running for over a decade; originally in Guernsey, before moving to London in 2004. The change of venue was very well received by all attendees.
The Forum provides delegates and exhibitors with; the opportunity to buy and sell, valuable updates on key issues facing the industry, networking and educational sessions – all essential for continued professional development.
The last decade or so has provided an interesting number of challenges for the Guernsey captive sector and 2008 has been no different. As has been successfully demonstrated in history, Guernsey's captive insurance industry has been resilient, responsive and innovative, and has turned change to its advantage.
Impressively, the following list of such changes is not exhaustive:
- A new zero-rated tax regime for licensed insurers;
- Modernised Company Law and the creation of an enviable online company registry;
- Updated Corporate Governance Code;
- Incorporated Cell Companies (ICC's) added to the island's already successful Protected Cell Company (PCC) legislation;
- Introduction of Own Solvency Capital Assessment (OSCA) to support Guernsey's risk-based approach to regulation.
Recent years have seen soft insurance markets and a slowdown in the rate of growth in the formation of new captives. However, the attractive flexibility of cells coupled with over a decade of experience in their structuring has seen new cell creation continue to rise, with over 350 cells in existence in Guernsey at 31 July 2008. Representatives from Willis, RSA and Peter Berring from De La Rue PLC will, in fact, be engaging in a healthy debate on managing risk in a soft market from a broker, insurer and captive owner perspective at this year's forum.
During 2008, Guernsey Finance has rebranded and promoted the original capabilities paper Guernsey – Where European Reinsurance and Capital Markets Converge commissioned by Nick Wild of JLT Insurance Management and Mark Helyar of Bedell Cristin, and incorporating contributions from many of the key players in the Guernsey insurance industry and service providers. Guernsey has a lot to offer reinsurers and investors (funds) seeking exposure to insurance risk via insurance-linked securities. The legal and regulatory environment on the island provides support to these transactions.
Guernsey has seen increased interest from reinsurers seeking to establish in/ relocate to the island and also from Lloyds syndicates. The Guernsey Financial Services Commission (GFSC) has approved and licensed Barbican Reinsurance Company Limited part of the Barbican Insurance Group, which trades as Syndicate 1955 at Lloyds. This year's forum will see David Reeves of Barbican and Mel Carvill of Generali exploring how and why Guernsey has gained its reputation for being a cut above the competition in meeting the ever-evolving needs of clients by providing innovative risk management solutions.
The insurance market will be watching with anticipation the impact of the global turmoil in the financial markets. Convergence of insurance markets and capital markets means that insurance capacity and pricing will undoubtedly be affected by the collapse of a number of high profile financial institutions. AIG's exposure to credit default swaps and sub-prime debt led to the downgrading by rating agencies. AIG has a significant involvement in many captive insurance programmes not only as a reinsurer but as a fronter too.
Prepared for change
Securing the fronting services of European licensed insurers will also provide an interesting challenge as we head towards the implementation of Solvency II. Will the number of insurers prepared to front decrease? How will the price of fronting be affected? And what about collateral requirements? Clearly, with the current cautious approach to counterparty exposure and increasing demands for effective capital utilisation, requests for increased collateral to support letters of credit, security interest agreements and insurance trusts will add to the demands on captives and their parents. The industry waits with interest to see how AIRMIC's Solvency II position paper is met.
IFRS 4 Insurance Contacts is expected in late 2009 for implementation in 2010/11. This could have a significant impact on how the results of insurance contracts are presented. Accounting is also witnessing convergence with UK GAAP and US GAAP moving towards international standards. PricewaterhouseCoopers will be providing a valuable update on this and other key accounting issues at this year's forum, which will close with a 'Captive Clinic' giving delegates a chance to pose questions to a professional panel on topics that may not have been covered during the day.
The UK and global economy have changed significantly over recent months, which leads us to conclude with some food for thought. To quote management guru Peter Drucker: "We know only two things about the future: It cannot be known, and it will be different from what exists now and from what we now expect." As the proactive and innovative nature of the Guernsey captive industry has proved, the challenge of an uncertain future is one that can be met with relish.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com
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