The cell company, pioneered in Guernsey, is now used across the financial services world for the structuring of many different types of captive vehicles, including insurance-linked security structures.
Guernsey licensed 89 new international insurers during 2013, meaning the number licensed in the island at the end of last year stood at 758.
This end-of-year figure represented net growth of 21 entities since the beginning of 2013. What was perhaps most notable about this increase was that more than 40 of the new licences issued during last year were associated with structures relating to Insurance Linked Securities (ILS).
In 2013 Robus' Protected Cell Company (PCC), Hexagon PCC Group, established 22 ILS structures under the Hexagon PCC Group umbrella. These structures are being used to conclude fully collateralised reinsurance contracts (sometimes known as private trades) in the non-life space. These see each cell enter into an excess of loss/aggregate/quota share reinsurance policy for various covers such as property (natural and non-natural perils), marine, energy, crop, premium reinstatement or prize indemnity. The cell is then fully funded by the investing ILS fund up to the amount of its maximum obligation under the reinsurance contract.
Aon Captive and Insurance Managers (Guernsey) were also responsible for a number of the new ILS structures last year and have been involved with more than 80 ILS transactions since 2006 – with annual transactions increasing year on year. One of those is Solidum Re Eiger IC Limited, an insurance vehicle which listed bonds with a value of US$52,500,000 on the Channel Islands Securities Exchange (CISE). The transaction was a reinsurance placement accepted by an incorporated cell (IC) from a US cedent. The transaction utilised a dual listing on the CISE and the Vienna Stock Exchange.
ISDA contracts
Industry feedback also suggests that a number of collateralised ILS transactions were completed in 2013 which saw International Swaps and Derivatives Association (ISDA) contracts being used as an alternative to a reinsurance contract, demonstrating the breadth of the collateralised reinsurance and ILS business currently being undertaken in Guernsey.
Guernsey's international insurance expertise, our close proximity to both London and Zurich and our access to major global capital markets through our respected investment fund sector mean that we are increasingly viewed as a centre of choice for ILS.
Indeed, the fact that we pioneered the cell company concept back in 1997 with the introduction of the PCC for use in the captive insurance sector also adds to Guernsey's attractiveness. The subsequent success of this innovation is illustrated by our ranking as the number one captive insurance domicile in Europe and the fourth largest globally. The cell company is now used across the financial services world for the structuring of many different types of products, including ILS.
Our declaration at the beginning of 2011 that Guernsey was not seeking equivalence under Solvency II will also have aided the growth of ILS in Guernsey. The decision removed any uncertainty for current and potential clients, particularly as the exact treatment of the fully collateralised reassurance transactions required for ILS under Solvency II is still uncertain.
Islamic ILS finance deal
Another endorsement of our ILS expertise came at the Islamic Finance News Awards in January 2014 when the Bedell Cristin legal team in Guernsey, led by Partner Mark Helyar, was recognised for its role in an ILS structure judged to be the best in Europe and one of the Islamic finance deals of the year for 2013. Bedell Cristin was instrumental in devising the structure, the Salam III, Sukuk Wakalah Programme, on behalf of the European insurance group FWU AG. The deal was US$100 million in size and the first tranche of US$20 million closed in October 2013.
The award win signalled a great start to the year for our ILS and wider insurance market. Indeed, figures to the end of February 2014 from the Guernsey Financial Services Commission (GFSC) show that the number of international insurers licensed in Guernsey now stands at 784 – an increase of 26 since the end of 2013.
An original version of this article was published by Insurance Day, March 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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