Guernsey: Guernsey Hopes For Captive Boost Through Solvency II Opt-Out

Last Updated: 23 March 2011
Article by Adrian Ladbury

Most Read Contributor in Guernsey, September 2018

Originally published in Commercial Risk Europe, March 2011

Captive mangers around Europe are busy trying to work out how to cope with Europe's planned new solvency rules that do not look particularly captive friendly as they stand. Guernsey thinks it's better off outside on the sidelines. Adrian Ladbury, Editor, Commercial Risk Europe reports.

Guernsey believes that its decision not to seek equivalence with Solvency II could help spark a migration of captives from 'onshore' EU domiciles such as Dublin and Luxembourg. This is because costs should still be lower for captive owners on the island despite the likely rise in fronting costs for those that write EU business.

The island's captive community is convinced that the higher costs that Solvency II will bring for captives are wholly unnecessary. There is no point in imposing such costs on Guernsey captives that under current rules are already prohibited from writing business directly into the European Union without using a fronting insurer, they say.

Guernsey finance leaders are convinced that the island's decision to opt out of Solvency II and rely instead on its Own Solvency Capital Assessment (OSCA) regime and standards, based on those issued by the International Association of Insurance Supervisors (IAIS) with which it is a signatory to the Multilateral Memorandum of Understanding (MMoU), will do it no harm with captive owners. Indeed, they report that captive managers on the island have already received queries from captive owners in EU domiciles that are interested in setting up reinsurance vehicles in Guernsey.

"Solvency II has been designed to address issues mainly relating to systemic and group risks within commercial insurance markets. These are risks not generally faced by Guernsey-based international insurance companies, where there are a large proportion of captives. Under the current proposals, Solvency II is set to impose a blanket set of capital requirements and therefore equivalence would burden Guernsey insurers with unnecessary additional costs and render currently effective captive business plans uneconomic. As such, there would be no significant new sources of business attracted to the island by equivalence and indeed, the opposite may prove to be the case," Peter Niven, Chief Executive of Guernsey Finance, the promotional agency for the island's finance industry, told Commercial Risk Europe.

Leading Light

Guernsey has made its name as the leading captive insurance domicile in Europe by being independent and as such, being able to offer something different to the commercial insurance markets. Not seeking equivalence ensures that this will continue. Guernsey was one of the first jurisdictions to introduce a risk-based approach to regulation and in recent years this has developed with the introduction of the Own Solvency Capital Assessment (OSCA) regime. We will continue to meet the standards of the International Association of Insurance Supervisors (IAIS) but the principles of proportionality mean we will provide a more attractive environment for captive owners and other niche insurers," continued Mr Niven.

Mr Niven pointed out that Guernsey is not a member of the EU and so captive insurance companies domiciled there cannot currently write business directly into the EU. The decision not to seek equivalence means that position is not effectively changed and any Guernsey captive that wants to write European business will have to continue to use a fronting insurance company that meets the Solvency II requirements.

The fronting insurers will incur extra costs because of Solvency II and some of this will be passed on to customers. But Mr Niven said that the Guernsey market does not think that this will be a big problem, particularly when stacked up against the benefits of being able to offer a more proportional regime than that which the EC appears to be currently planning to introduce under Solvency II.

"This may mean that the costs are passed on but we do not see this as wholly different to what happens currently and therefore it will not be a major problem. In fact, we believe that offering a regime which is more proportional to the business models of captive owners and other niche insurers 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. I have also heard that some service providers are already receiving a number of inquiries from firms looking to establish reinsurance vehicles on the island," said Mr Niven.

Bermuda and Switzerland were keen to jump on the Solvency II bandwagon and have been accepted as candidates for the first wave by the EC. But Mr Niven said that this has been done primarily to protect their international commercial reinsurance industries and not their captives.

"In each case they may be looking to mitigate the effect of additional regulatory burden involved through the exclusion of captives specifically or the application of so-called proportionality principles that the European Captive Insurance and Reinsurance Owners Association (ECIROA) and others are looking to have included within Solvency II. The progress of all of this debate will be followed with great interest," he said.

The number of insurance licenses issued in Guernsey last year rose marginally from 2009, which was up 25% on 2008. The Guernsey Financial Services Commission (GFSC) reported that there were 47 insurance licenses issued during 2010, compared to 46 in 2009 and 37 in 2008.

Twelve new international insurers were set up on the island last year. These comprised of 4 new 'pure' captives, 4 new Protected Cell Companies (PCCs), 2 new Incorporated Cell Companies (ICCs) and 2 new ICC cells. There were also 35 new PCC cells made up of 23 conventional PCC cells and 12 life policy cells, stated the GFSC.

The new additions mean that Guernsey is now host to a total of 675 international insurance entities. This includes 341 international insurers made up of 265 pure captives, 63 PCCs, 5 ICCs and 8 ICC cells. There are also 334 PCC cells, split between 252 conventional PCC cells and 82 cells writing life insurance.

One notable recent addition to the island's captive community was brought by JLT Insurance Management (Guernsey) Limited, which has been appointed insurance manager for the City of London Corporation's newly formed reinsurance company, City Re Limited. This adds to the number of UK government-owned insurance entities such as Network Rail, Transport for London and the Royal Mail that are based on the island.

Strong Growth

The island's insurance sector has seen the value of business increase strongly over the last decade. In 2003 the industry had gross assets of £10.8bn, a net worth of £4.4bn and premiums of £2.1bn. In 2009, these had risen to gross assets of £23.4bn, a net worth of £8.1bn and premium written of £3.4bn.

Nr Niven remains in bullish mood despite the obvious challenges posted by the new regulations and the stubbornly soft commercial insurance market, which traditionally deters risk managers form setting up new captives as they can find the cover so cheaply on the open market.

"It is very positive that we are attracting this new insurance business to the island and thereby retaining our position as the leading captive insurance domicile in Europe and number four in the world. What we are seeing is that business introducers are continuing to recognise Guernsey as a captive domicile offering real quality in terms of service providers and professional advisers as well as robust yet pragmatic regulation and international standards of corporate governance. The figures also demonstrate Guernsey's strong reputation for its innovation of the cell company concept and expertise in using them creatively to provide risk management solutions," he said.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
GuernseyFinance
GuernseyFinance
GuernseyFinance
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
GuernseyFinance
GuernseyFinance
GuernseyFinance
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions