Guernsey's strength as a captive domicile has been
decades in the making, with the country's first captive being
established in the 1920s.
It stands as the number one captive jurisdiction in Europe and
the fourth worldwide, licensing 99 new captives in the year ending
March 2014 alone. Despite this established industry, Guernsey is
still driven by looking for solutions to what clients require.
Kate Storey, counsel in the corporate and commercial department
at Appleby, comments: "Guernsey pioneered the protected cell
company (PCC), in which the assets and liabilities of each cell
within the company are segregated by law, and this structure has
been widely used with great success in the insurance sector. We are
now seeing a trend towards Guernsey's incorporated cell company
(ICC), as the legal segregation offered by each cell being a
separate company is perhaps more easily understandable for clients
from some jurisdictions."
Guernsey's ICC is also proving increasingly popular for a
range of insurance structures, including captives, rent-a-captives,
transformers and insurance-linked securities (ILS). Storey states
that, in the last 12 months, there has been a massive increase in
enquiries regarding ILS structures. Although these vehicles have
traditionally been done out of Bermuda, there has been a shift
emanating from London law firms and sponsor insurers to begin
focusing on Guernsey as the jurisdiction of choice for ILS.
Under Guernsey law, there is no risk of insolvency for ILS, as
the loss cannot exceed the level of exposure, so the regulator is
informed and the collateral is secure. There has been interest in
recent months from Europe and worldwide, and the recent Guernsey
Finance-fronted ILS conference in Zurich was also "well
received by major investment and insurance players", according
Further clout has been put behind this push through the
establishment of dedicated departments. Compliance director for
Heritage, Martin Le Pelley, says: "The Guernsey International
Insurance Association (GIIA) and Guernsey Investment Fund
Association (GIFA) have teamed up to put together an ILS sub-group
designed to explore the broader opportunities for Guernsey from a
two pronged attack—the insurance market and selling it to
Although others such as Malta and Gibraltar have been jumping on
the ILS bandwagon, compared with the likes of Bermuda and Guernsey,
the EU domiciles could be at a disadvantage due to the impending
implementation of the Solvency II.
Storey continues: "We worked on a major marine reinsurance
ILS structure at the end of 2013, where we acted for the fronting
insurer. That involved use of a Guernsey special-purpose vehicle
(SPV) to act as reinsurer, with capital markets investors investing
into and funding the structure. We have also recently dealt with an
ILS structure for insuring lotteries risk."
Referrals to Guernsey are common from London law firms, but
sponsor insurers or companies that have captive requirements have
recently been coming from Spain, the US, France and the Middle
East. Appleby also recently had an enquiry from a Singapore-based
captive insurer that was keen to employ ILS through Guernsey. While
the Internal Revenue Service (IRS) in the US is pursuing a
crackdown on captives—Guernsey has no such worries.
The UK's revised controlled foreign company rules now allow
a Guernsey-based company to make £500,000 per year in profit
in a cell without having to pay tax until it is distributed. Le
Pelley explains: "The US IRS is scrutinising captives because
they are so popular. I've often said any company that manages
its risks better can make more profits, which themselves are
taxable, rather than taking big risks and incurring either big
profits or big losses. This makes captives more stable, if
anything, from a tax revenue generating perspective."
An original version of this excerpt appeared as part of
wider roundtable which was first published inCaptive Insurance Times, October
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