Dominic Wheatley, chief executive of Guernsey Finance, spoke to Captive Review about the island's emerging opportunities.
Having taken over the reins at Guernsey Finance at the beginning of December 2013, I have been extremely busy getting up to speed with the various facets of the financial services industry the organisation represents in the island. Of course, one area where I require less assistance is that of insurance.
From my time with the Willis Global Captive Practice I am well versed in the strengths of the insurance market locally, particularly in the area of captive insurance. As Europe's number one captive insurance domicile, the island plays host to a large number of subsidiaries of global names such as AIG, Aon, Artex, Barbican, Catlin, Generali, Hiscox, Jardine Lloyd Thompson, Marsh, Old Mutual, Royal & Sun Alliance, SCOR and Willis, as well as independent, boutique operators such as Alternative Risk Management (ARM) and Kane.
The excellence of Guernsey as a captive insurance domicile is underlined by the fact that approximately 40% of the leading 100 companies on the London Stock Exchange with captives have them domiciled in the island. However, while a significant majority of the international insurers licensed in Guernsey have their parent company located in the UK, the island's insurance sector is truly international. Firms from across Europe, the US, South Africa, Australia, Asia, the Middle East and the Caribbean have all established captives in the island. And the industry looks after captives from the very big, such as BP and BHP Billiton, down to the very small single transaction cell structures.
It also covers organisations from across the private, public and third sectors, and provides insurance for the full range of corporate risks. Let us not forget also the wide range of commercial international insurance covering a wide range of specialist lines such as fine art, directors and officers, bloodstock, expat employee benefits, and kidnap and ransom. All of this, in addition to Guernsey's own vibrant domestic insurance market, creates a very diverse and exciting insurance environment.
It is fair to say that I am particularly excited by the emerging opportunities in the insurance sector. Most notably, this includes our fast-moving insurance-linked securities (ILS) business, new engineering of longevity risk for pension funds, and our developing attraction as a jurisdiction for new commercial reinsurance companies. Kelvin Re became the first Guernsey-based rated commercial insurer when it was announced at the end of last year that the privately owned start-up company would be using management services provided by Aon Insurance Managers (Guernsey) Limited in a new partnership.
Providing short-tail property and specialty lines reinsurance, the company plans to build a $100m book of business in its first year of which around two-thirds will be non-proportional catastrophe risks.
What is extremely pleasing is that we understand a number of other commercial reinsurance companies are in discussions to follow in the footsteps of Kelvin Re, which was itself vindication of a number of years of activity aimed at attracting reinsurers to Guernsey. As Paul Sykes, Aon Guernsey's managing director, declared at the time of the announcement: 'Kelvin Re's launch is evidence of Guernsey's ambition to become a reinsurance market alternative to Bermuda – something I fully believe to be the case too.'
William Mason, director general of the Guernsey Financial Services Commission (GFSC), was also elected to the International Association of Insurance Supervisors (IAIS) Executive Committee at the end of last year. Established in 1994, the IAIS represents insurance regulators and supervisors from more than 200 jurisdictions in nearly 140 countries, constituting 97% of the world's insurance premiums.
William's appointment therefore reflects well upon Guernsey and our standing in the international insurance community. Our commitment to the IAIS is further witnessed by the implementation of its revised core principles of insurance regulation that should be completed in 2015, keeping the island in line with good international practice.
This follows extensive dialogue between representatives of Guernsey's insurance industry and the GFSC. These changes will set the bar for proportionate interpretation of the revised principles and provide a strong basis for the regulation of Guernsey's insurance market for the future. It also sends a strong message to the market that the GFSC is pragmatic, flexible and approachable as a regulator without compromising the robustness of Guernsey's regulatory regime. Once again Guernsey is leading the captive world in setting new standards for the future.
From an international insurance perspective, 2014 was yet another productive and busy year for the Guernsey market. Figures to the end of October 2014 show that there were 808 licensed international insurers in Guernsey – a net growth of 23 international insurers over the previous 12 months. Artex Risk Solutions, the captive management subsidiary of Arthur J. Gallagher, also became a new name on the local captive insurance scene last year. Not only did it complete its acquisition of Heritage Insurance Management, the captive arm of Guernsey-headquartered Heritage Group, in the middle of last year, it was also selected to provide the insurance management services for the BT Pension Scheme's new insurance company, BTPS Insurance ICC Ltd.
The deal garnered further prominence when the Prudential Insurance Company of America completed what was believed to be the largest longevity risk transaction ever, after it entered into a reinsurance transaction with BTPS Insurance ICC and effected the transfer of a quarter of the scheme's exposure to increased longevity and so hedged around $16bn of liabilities.
Similarly, Towers Watson has recently announced that it will provide its pension clients with direct access to the reinsurance market through the use of an ICC, managed by Willis Guernsey. The product, Longevity Direct, is aimed at providing cover through the reinsurance market for liabilities between £1bn and £3bn. It is another encouraging development for Guernsey's captive insurance sector as we are enabling access to the reinsurance market that has become increasingly expensive and inefficient in recent years.
What the Towers Watson and BT announcements demonstrate is that there is definitely an appetite from defined benefit pension schemes to hedge their longevity risk going forward. It also removes the need for an intermediary insurer to write the transaction and means bigger transactions can be completed and the best reinsurance pricing can be accessed.
Guernsey has maintained its pre-eminent position as a jurisdiction of choice for ILS over the past 12 months, with much of the growth in the island's licensed international insurers coming from the ILS market. Figures released by the GFSC at a recent industry update suggest that approximately 40% of new business in the 12 months to the end of September 2014, was ILS-orientated.
To build on this, the Guernsey International Insurance Association (GIIA) and Guernsey Investment Fund Association (GIFA) have teamed up to form an ILS sub-group designed to explore the broader opportunities for Guernsey from both angles – the insurance market and selling it to investment markets. In light of the ILS market showing no signs of slowing down we will also be holding our second ILS Masterclass this year. Our first event in Zurich, back in July, was so well received that we are hosting a follow-up event in London on Wednesday 18 March at the British Museum. ILS Insight London will bring together experts from across the ILS space for dialogue and debate surrounding the key industry issues. The first panel session will cover structuring innovation and the critical factors both enabling and restricting new solutions, while the second will examine the range and depth of Guernsey as an ILS jurisdiction.
What we can tell from recent developments in ILS and the reinsurance market is that Guernsey is clearly respected as a leader in the insurance field. The expertise honed in the captive insurance sector over the past two decades is paying dividends across the insurance landscape as we have been able to adapt and evolve our unique offering to best meet client needs in an ever-changing world.
An original version of this article was published Captive Review's 2015 Guernsey report, February 2015.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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