Guernsey: The ILS Island?

Last Updated: 24 March 2014
Article by Fiona Le Poidevin

Most Read Contributor in Guernsey, September 2018

Guernsey's unique offerings have been attracting investors for many years, but as the ILS sector grows, four of the Island's experts tell Intelligent Insurer why Guernsey is a buzzing centre of excellence for investors in this market.

Are you seeing growth in the ILS sector in Guernsey?

Poulding: There has been significant growth in the ILS sector recently driven mainly by the use of cell companies to structure transactions.

Helyar: ILS is the fastest-growing part of the insurance sector in Guernsey with most of the new licences over the past 24 months being in the ILS sector.

Wallen: Yes, ILS business in Guernsey has been very much on the increase since I first started seeing transactions of this nature back in 2007. In terms of the number of new vehicles licensed by the Guernsey Financial Services Commission, ILS represented approximately 80 percent of the new business Robus established in Guernsey in 2013.

Rowson: Aon Guernsey has seen significant growth in Guernsey for the provision of collateralised reinsurance. From small beginnings in 2006, when Aon managed only one collateralised reinsurance deal, the sector's growth has been rampant. By 2012 we were managing 23 deals, and in 2013 we managed 52. 2014 looks set to be our busiest year yet. Most of the 52 deals from 2013 and earlier will renew, and in 2014 there have already been 25 new deals on our books, and it is highly probable that this figure will continue to increase, making 80 deals a conservative expectation for 2014.

Why do you think this is?

Poulding: This is mainly due to the existence of protected cell companies (PCC) and incorporated cell companies (ICC) legislation, the expertise of local insurance managers and legal advisers and quick response times by the regulator.

Helyar: Guernsey provides a more bespoke, specialist structuring option than other ILS markets such as Bermuda where large platforms churn out similarly structured cat bonds year on year. For example, we have done two deals in the past two years, for Solidum and FWU, which are world firsts in the ILS sector. Reputational concerns about Caribbean jurisdictions have also encouraged specialists to come to Guernsey. Overall there is more awareness of ILS as an investment opportunity and more capital becoming available, not all of which is purely a herd instinct. The investment selling point for ILS is not just about swift high risk returns but also about intelligent non-correlation with financial markets. Unlike some recent comments about ILS being compared to reinsurance as the difference between the longevity of a wife and a mistress, I don't think this applies to Guernsey, we have observed long and steady growth rather than a headlong rush. Our clients are focused, well informed and conservative, not poker players.

Wallen: The growth is partly a function of the large amount of capital that has been flowing into the ILS sector which needs to be put to work, and collateralised reinsurance is one way in which the ILS funds can access strong returns from insurance investments. Having spotted that trend back in late 2011 when ILS was a sector that Robus spent a lot of marketing time and resources on, we are now seeing the fruits of that labour. The Guernsey regulator has also been very supportive of ILS business and this assistance has been invaluable in establishing cell creation procedures that ensure deal completion times are competitive with those of the other ILS jurisdictions.

Rowson: Guernsey has a beneficial proximity to London, only a 45-minute flight, and ease of access to Zurich: another key centre of ILS funds. Guernsey has an abundance of insurance accounting professionals, who are suitably experienced to manage these transformers. The Guernsey Financial Services Commission (GFSC) has also grown in experience regulating these structures so that deals are appropriately regulated without inhibiting the deal flow.

Why is Guernsey attractive to investors?

Helyar: Guernsey currently has the highest approval rating in the world from the International Monetary Fund (IMF) for its compliance with international regulation in all sectors of financial services and in the combat of terrorist financing and money laundering. It has played a central and leading role in developing the International Association of Insurance Supervisors (IAIS) as a body governing global insurance regulation. It has just signed its 50th tax information exchange agreement, and even the UK's prime minister has stated in parliament that Guernsey should not be described as a tax haven, because it is simply not true. Guernsey has the highest regulatory standards, well beyond those of many onshore jurisdictions. It has no national debt, a high credit rating, a stable government and fiscal independence from the UK. It is also in the GMT time zone and has a mature and sophisticated blend of professional competences, with a history of punching well above its weight in financial services. It is generally a jurisdiction with a 'can do' attitude.

Wallen: There are a number of attractions including, but not limited to, having individuals like myself who specialise in this type of business, keeping the frictional costs of entering into such transactions as low as possible and having PCC and ICC legislation because using cell structures is a very efficient way of transacting ILS business. There are a number of major banks with branches/subsidiaries in Guernsey who are able to offer very competitively priced banking services such as letters of credit when deals are collateralised in this manner.

Rowson: Unlike a growing number of offshore jurisdictions, Guernsey has no debt, making it a very secure environment to invest in. Further, there is a wealth of recognised banks to support deal flow and we have a well-established judicial structure giving confidence to investors.

Are you expecting further growth in the sector?

Poulding: I expect that there will be significant further growth in this sector both generally and particularly in Guernsey.

Helyar: We fully expect that the next step will see further integration between the already sophisticated investment fund sector and the growing ILS sector, with more ILS funds being created in Guernsey to take advantage of the ability to structure deals here, and to take advantage of the choice of Alternative Investment Fund Managers Directive (AIFMD) or non-European compliant investment funds. We are already seeing this with developments such as the recent acquisition of part of Secquaero Advisers by Schroders, for example.

Wallen: Our Hexagon PCC Group has certainly experienced excellent growth in 2013 and this has continued during 2014.

Rowson: Looking at the number of funds that are currently setting up transformation platforms and the additional capital being invested in the funds we already work with, we are expecting significant growth in collateralised reinsurance locally. The future looks very bright.

Meet the panel:

All four are members of the Guernsey International Insurance Association GIIA ILS sub-committee which focuses on developing regulation, raising awareness and educating local service providers to support ILS funds.

  • Mike Poulding is a director of The Poulding Consultancy. He is also a non-executive director of a closed ended fund which invests in insurance linked securities.
  • Mark Helyar is a partner at Guernsey-based law firm Bedell Cristin.
  • Justin Wallen is the managing director at Robus Group's Hexagon PCC Group of Companies that concludes fully collateralised reinsurance contracts in protected cells owned by ILS funds.
  • John Rowson is executive director at Aon Risk Solutions. He is one of a three-person underwriting team that reviews documentation and also director of five transformation companies (one PCC and four ICCs).

An original version of this article was published in Intelligent Insurer, March 2014.

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.

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