Guernsey has long been recog­nised as a cell company leader and the past 12 months have only served to reinforce this position. The last year has seen two ground-breaking longevity swap struc­tures being established in Guernsey using a captive insurance company in place of insurance intermediaries, thereby cutting out intermediary fees and removing the need for price averaging.

Cell leader

The first of these saw the trustees of the BT Pension Scheme, Britain's largest corpo­rate pension fund, set up its own captive insurance company, and then reinsure its longevity risk with the US-based life insur­ance company, the Prudential Insurance Company of America. In the biggest deal of its kind, the arrangement covered 25% of the scheme's exposure to increased life expectancy and amounted to £16bn of the scheme's liabilities.

This was then followed by the Towers Watson 'Longevity Direct' structure which enables pension schemes to gain direct access to the reinsurance market in order to hedge longevity risk for their defined benefit liabilities. Through a form of 'rent-a-captive' the structure allows pension schemes to own a ready-made insurance cell that can write insurance and reinsur­ance contracts for longevity swap trans­actions, particularly for those liabilities between £1bn and £3bn. Both the BT and Towers Watson struc­tures utilised a Guernsey incorporated cell company (ICC) as the vehicle for their respective captive insurance companies, BTPS Insurance ICC Ltd and Towers Watson ICC Limited.

Guernsey-based Artex Risk Solutions provides the insurance management ser­vices for the administration of BTPS Insur­ance ICC. At the time of the deal, Artex's new business director Paul Eaton explained that the BT Pension Scheme trustees iden­tified Guernsey as the ideal jurisdiction to establish its insurer as a result of the island having both modern and well-regarded insurance legislation, combined with a mature financial services infrastructure and a well-reputed business-focused reg­ulatory regime.

In terms of Towers Watson ICC, it was announced at the start of this year that the Merchant Navy Officers Pension Fund (MNOPF) had utilised a cell within the struc­ture to hedge £1.5bn of its own longevity risk. The transaction saw MNOPF IC Limited reinsure the risk with Pacific Life Re. More recently, Artex has also joined forces with PricewaterhouseCoopers (PwC) to create a Guernsey-domiciled ICC called Iccaria. This not only offers pension funds the benefit of cost-effective risk transfer but also a flexible structure which enables pension funds to select the service providers they wish to use to administer the arrangements. It is anticipated that pension schemes with liabilities as low as £250m will be able to benefit by using the Iccaria facility. Providing access to the reinsurance mar­ket through these types of cell structures is making the hedging of pension risk more affordable for schemes, while also reduc­ing the complexity that is often associated with longevity hedging.


Of course, Guernsey's reputation in this area dates back to when it pioneered the cell company concept back in 1997 with the introduction of the protected cell company (PCC) for use in the captive insurance sector. The ICC followed soon after, with the success of these innova­tions illustrated by the fact that the cell company is now used across the financial services world as an alternative applica­tion for the structuring of many different types of products.

A PCC is a company made up of a core and individual cells. Each cell is distinct and therefore the assets and liabilities cannot be mixed. The legal segregation ensures that no claim against one cell will be cov­ered by the funds from another. The ICC, like the PCC, has cells but in this case they are separately incorporated and distinct legal entities. This offers the advantage of greater flexibility in terms of individual cells being able to migrate away from the main structure and also potentially amal­gamate or merge with other incorporated entities.

The fact that Guernsey pioneered the concept means that the island has devel­oped significant experience and expertise in using cell companies. For example:

  • Aon's White Rock Insurance Company PCC Limited was established in Guern­sey as the first PCC in the world. Since inception it has been used by more than 100 corporations as a cell captive facility and grown to be the largest structure of its kind globally.
  • White Rock Insurance (Guernsey) ICC Limited – also Aon owned – was the first ICC in the world to be insurance licensed.
  • Guernsey-based Heritage Insurance Management (now Artex International) achieved a worldwide first in 2010 by amalgamating two PCCs – with 17 cells between them – into one.

Figures from the Guernsey Financial Services Commission (GFSC) show that the number of international insurance entities domiciled in the island at the end of June this year stood at 816 – up 19 from the end of December 2014. The 816 entities comprised 244 limited companies, 67 PCCs, 393 PCC cells, 13 ICCs and 40 ICC cells and 59 life policy cells. In addition to pension longevity struc­tures, much of Guernsey's recent growth in PCCs, ICCs and associated cells has been in relation to insurance-linked securities (ILS), where the island's experience in both insurance and investment funds, including listings on international stock exchanges, means it is ideally positioned to provide bespoke solutions to meet client needs. In fact, GFSC figures to the end of 2014 showed that 45% of new insurance busi­ness coming to the island in that year was ILS-orientated. In light of the ILS market showing no signs of slowing down, we held our second ILS Masterclass this year. Our first event was held in Zurich in July last year, while the follow-up event in London took place in March.

'ILS Insight London' was attended by more than 140 delegates and brought together experts from across the ILS space for dialogue and debate surrounding the key industry issues. It underlined Guern­sey's position as a leading centre for ILS transactions and in particular, the island's innovative approach to a diverse range of transactions and risks.

In recent months the Guernsey Inter­national Insurance Association has also produced guidance notes on the forma­tion and management of insurance and reinsurance special purpose vehicles in Guernsey. Due to the growing frequency of enquiries, this guidance note has been pre­pared to explain the exercise by the GFSC of various discretions contained within the regulations and legislation in force in Guernsey. It also explains the application of these discretionary areas of the regula­tions to SPV insurers, in particular those conducting reinsurance, derivative swaps and ILS business or being utilised to trans­form capital market to insurance or rein­surance market risk or vice versa, whether long term or otherwise.

Regulatory change

Guernsey has long been committed to the International Association of Insurance Supervisors (IAIS), and this is further wit­nessed by our implementation of its revised core principles of insurance regulation that will be completed in the coming months.

This proportionate approach sends a strong message to the marketplace that the GFSC is pragmatic and flexible as a regula­tor without compromising the robustness of Guernsey's regulatory regime.


It is this union of an innovative industry and intelligent regulation that is underpin­ning the continued growth within Guern­sey's mature international insurance sec­tor and why we remain one of the leading insurance domiciles in the world. This is also in no small part due to our experience and expertise in using the cell company to provide solutions to the insurance sector and beyond.

For more information about Guernsey's finance industry please visit

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