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
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
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
byInsurance Day, March 2014.
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