Stuart Tyler of Babbé explains to Captive Review the benefits of using a PCC and how Guernsey's regulation, specifically the fact it did not seek Solvency II equivalence, will be advantageous for the jurisdiction in the long run.
The first protected cell companies (PCCs) originated in Guernsey with the passing of the Protected Cell Companies Ordinance 1997. Ever since, these effective self-insurance vehicles have popped up in other offshore jurisdictions, including Cayman Islands, Bermuda and Mauritius. However, as the first domicile to establish PCCs, it can be said that Guernsey has a historical advantage over other offshore domiciles, with an experienced view of this sector. Captive Review talks to Stuart Tyler about the services offered on the island and why this solution should be at the top of companies' list of priorities.
Captive Review (CR): What are the advantages of using a PCC to cover ones' risk over other insurance vehicles?
Stuart Tyler (ST): The key advantage of using a PCC is that you have a single corporate entity; so effectively, the single expenses of management are hugely beneficial. You are not required to incorporate a new vehicle every time you want to establish a captive solution. It is a question of cost and efficiency.
CR: Seeing that PCCs were first established in Guernsey, what are the regulatory and infrastructure advantages the jurisdiction has to offer and how can organisations benefit from establishing such structures in the domicile?
ST: The main advantage is Guernsey's decision not to seek Solvency II equivalence. Looking at the figures and the new applicants this year, everyone is pointing to that being the major factor in the increasing number of Guernsey PCC applications. There has been a 50% increase in applications for Guernsey licences in the past 12 months. Solvency II is going to impose a series of capital requirements, many of which are not particularly relevant to the usages of captive insurance vehicles. Therefore, avoiding that regime means there will be quite a bit of flexibility in Guernsey with regards to the requirements imposed. At the same time, this does not mean that Guernsey is not a well-regulated jurisdiction; it just has a regulatory disagreement with the need to adopt this level of prescriptive rules. The market is very well developed here, and we have major managers who have been dealing with PCCs for a long time. There is also a geographical advantage to Guernsey, particularly for the European market, as the island is in roughly the same time zone as many European jurisdictions.
CR: The popularity of PCCs has grown – has this increase led to a new range of clients and respective risks being written through? Have strategies changed because of this?
ST: There is a large amount of usage of PCCs, in several areas of the financial services industry. It is not purely an insurance vehicle nowadays. There has been an influx of captives from people who haven't used Guernsey as a jurisdiction before, and the reason for this is that the island has a good reputation when it comes to legal services as well as management.
CR: The entire insurance industry is watching Solvency II. What are your feelings towards this forthcoming regulation and how will it impact PCC management and demand?
ST: Demand will certainly go up for Guernsey products, as the jurisdiction is not seeking to comply with Solvency II. People will find that a significant number of captives with capital injection requirements, or realignment to how they run their business will look to move to a regime similar to Guernsey's. Some of the Caribbean jurisdictions have applied for equivalence, so they will be caught by these rules and there is going to be a more onerous regime in these domiciles. We are seeing an increasing utilisation of trust structures to provide insurance products as well, but because of the way they are structured, they are not actually insurance vehicles in themselves. They allow someone to have an asset holding vehicle to which they have resources for the losses they would otherwise insure, but without the expense of actually being an insurance product. For me that will be the most interesting development in the jurisdiction in the immediate future.
CR: In what ways does Babbé provide assistance when it comes to establishing PCCs and incorporated cell companies (ICC) and howdoes Guernsey compare to other jurisdictions in terms of the quality of the financial services offered?
ST: We provide assistance with non-standard corporate governance issues that need to be dealt with. Once these vehicles are up and running they are not complicated and they don't require a large amount of legal intervention. Besides this, we effect introductions with the relevant providers for those who don't know the Guernsey market. Guernsey as a jurisdiction is on the higher level. For a long time, its goal has been to be a quality jurisdiction rather than one of higher volume. We have a significant regulator which is very hands on in what it does, but at the same time is able to make sensible competitive decisions where they are necessary – for instance, the decision on Solvency II. The regulator's role in the actual introduction of PCCs themselves is proof of its innovation and capability. ICCs were similarly introduced, although they don't seem to be as popular within the industry-but the regulator always provides a good assessment of what is required.
CR: What can you see the next 12 months holding for PCCs?
ST: PCCs are in a stable position, there are no real changes to legislation that can affect them. There will be some minor changes to the Companies (Guernsey) Law, but I do not think these will impact the insurance industry or the use of PCCs at all. In fact they are simplifications of the Law with certain clarifications here and there.
Originally published in the Captive Review, Cell Company Guide 2012
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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