Guernsey: Reasons To Be Cheerful – Guernsey’s Captive Insurance Market In 2014

Last Updated: 19 March 2014
Article by Jonathan Pope

Most Read Contributor in Guernsey, September 2018

Jonathan Pope of RLAM Channel Islands takes a look at the UK's economic themes for 2014 which will set the investment scene for Guernsey's captive market this year.

In late 2012 many City of London analysts were predicting a 'triple dip' recession, voicing fears that 2013 would be another grim year for UK PLC. While economic activity in 2013 didn't shoot out the lights, estimated consecutive quarterly growth of 0.3%, 0.6% and 0.8% for the first three quarters illustrates that the UK economy fared a lot better than many predicted and that activity accelerated as the year progressed.

The Bank of England predicts that Q4 GDP growth will be 0.9% and, while the finalised total 2013 GDP figure will not be known for another 18 months or so, if the current estimates had been offered to the Chancellor a year ago I think that most bookmakers would have offered short odds that would have been gratefully accepted. 2014 appears to start from a much better position, although the problem is of course that the starting point a year ago was so lowthat almost any positive news was treated as a surprise. Perhaps the issue now will be that, while the recovery will continue to gather pace, the momentum may cool as quarterly GDP figures in 2014 do not match those of late 2013, although the overall growth rate for 2014 should exceed 2013.

Assuming that the Bank of England is correct and the recovery has "finally taken hold", the other issue to be grappled with in the coming year or two will be how Central Banks can "normalise" their monetary operations, which will obviously mean higher interest rates at some point or other and will involve balancing the threat of stifling the recovery with preventing another build up of cheap credit.

First of all, let's continue the positive theme with some more upbeat economic statistics. Aside from the continuing encouraging economic indicators, there have been several recent positive surveys which are worth highlighting.

122 CFOs were recently asked about prospects for 2014, and nine out of 10 reported that they expected revenues to improve and also anticipated increasing investment and hiring in the year ahead. Separately, another survey reported that the willingness of companies to invest is currently at a 19-year high with higher optimism than at any other point since 2007. The main reasons given for this optimism are improved access to funding and greater confidence in the Bank of England's policies.

Our internal base forecast (i.e. the scenario to which we attach the highest probability) for UK GDP growth for 2014 is 2.7%, which is very slightly ahead of the 2.5% forecast by the MPC. Our base case continues to assume no disorderly euro break up and is cautious on global growth relative to pre-crisis conditions. Our base forecast for inflation has been reduced slightly over the last few months to2.0%; the reason for this is due in part to the likely impact of the recent rise in sterling. We expect oil prices over the next year to remain broadly stable with the potential increase in demand caused by growth in the world's largest economies being matched by an increase

in supply. Inflation has been trending downward over the last few quarters and, while it is still above the 2.0% target, the margin of overshoot has reduced dramatically since the days in 2011 when CPI stood at over 5.0%.

This reduction in inflation together with a more robust economic outlook might offer the beginnings of an answer to the "cost of living crisis" – the fact that wage increases have not kept pace with inflation. While the Office of National

Statistics' monthly figures are reporting that pay increases were on average 1.1% over the last year, there is some hope that the gap with inflation will narrow further and may even close completely assuming inflation remains closer to target and the confidence of the various CFOs reported above is not completely misplaced. Of course, although this development would be welcomed, the actual improvement in real wages (i.e. inflation adjusted) is

not likely to be anywhere close to the 2% per annum which used to be considered normal and so households are not likely to feel very much better off in the near term, and then of course the cost of servicing debt will rise at some point. Looking further ahead into 2014 there is growing optimism that another milestone in the UK's economic recovery will be reached.

In December 2013 the British Chambers of Commerce announced its latest forecasts, which suggested that in the third quarter of 2014 the overall size of the UK economy will finally return to positive territory. In other words the economy will surpass its previous peak which was reached in the first quarter of 2008. While much has changed in the intervening period, the resumption of fresh growth will be welcomed by all.

As previously mentioned, the challenge for central banks is to remove stimulus without derailing recoveries. To that extent, the Bank of England has tried to provide some clarity with the new 'Conditional Forward Guidance' (CFG) policy, which was unveiled in August 2013 and stated that the MPC would not even consider raising interest rates until unemployment was below 7.00%. At the time this announcement was made, the MPC was forecasting that this rate was unlikely to be reached until 2016. However, the stronger economic data has meant that unemployment has fallen far faster than was expected and when the next round of MPC forecasts were published in November 2013, the Bank of England attached a reasonable possibility of the 7.00% target being reached in the last quarter of 2014. This of course poses a problem for the MPC; it appears that the introduction of CFG was designed to delay market expectations of a UK interest rate rise in 2015 until 2016.

However, the stronger than expected data threatens to do exactly the opposite and stoke expectations of an earlier rise. MPC reaction has been to state repeatedly that the 7.00% threshold is only the point at which they will start to assess whether a rate rise is necessary and they continue to reiterate that they are unlikely to sanction a rate rise for considerable period of time after this point has been reached. Some commentators think that the Bank may underline this message further by amending the unemployment threshold to a lower figure; 6.5% has been mentioned by some. This course of action would buy the MPC more time but it may cost them a loss of credibility. On balance then, it is likely that rates will remain on hold in 2014, although a move in 2015 is becoming more likely.

Of course, this is when official interest rates will rise; we would expect longer term market rates to rise in advance of this and so are hopeful that the sterling yield curve will steepen as 2014 progresses, which should provide opportunities to begin to improve returns for actively managed cash portfolios. Finally, lest this article should be considered too optimistic, we have to consider what may go wrong in 2014. Starting from a macro picture, the eurozone must still feature towards the top of most people's list of potential problems. While conditions have definitely improved and there are even tentative signs of improvement in the peripheral economies, there are still problems which could yet cause further disruption. The ECB cut interest rates in late 2013 over deflationary fears and the French economy is perhaps giving the most cause for concern at present. However, given how important France is to the EU it would be assumed that should support be required it would be given quickly.

Back in the UK it is possible that economic data will start to disappoint which will cause this fragile sense of optimism to evaporate. On the other side of the coin, there is a danger that interest rates will rise more quickly than the MPC ideally want them to; if perhaps fears grew of a house price bubble coupled with an early rate rise in the U.S. In this scenario, the fear would be that the pace of interest rate rises was being dictated by forces other than the strength of the UK recovery. In conclusion and to return to the slightly hackneyed theme of economic forecasts and bookmakers, on current estimations, the outlook for 2014 and 2015 would again have been gratefully accepted by the powers that be if offered a year ago.

An original version of this article was published in Captive Review's Guernsey Report 2014.

For more information about Guernsey's finance industry please visit

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

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

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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