Dominic Wheatley, Chief Executive at Guernsey Finance,
explains how Guernsey's captive insurance expertise could allow
brokers to tap into an additional flow of income.
Brokers, like the rest of us, will be eager to tap into any
possible additional flows of income. They will be interested to
learn more about a potential new revenue stream for their business
offered by producer-owned (re)insurance companies.
Conventionally, brokers just earn commission for placing client
insurance policies with the commercial insurance market. The use of
a producer- or broker-owned (re)insurance vehicle, however, can
give brokers access to underwriting profits usually retained solely
by the insurer.
A broker can sponsor and establish its own (re)insurance company
where a proportion, or even all, of their client risks can be
insured. In certain circumstances, the company can be used to
insure on a direct basis or via quota share reinsurance
arrangements with the existing insurer. Protected cell companies
(PCCs) or incorporated cell companies can provide the optimal
structure to insure or reinsure the risks of several different
clients by underwriting their respective exposures into separate
cells. These structures offer the following advantages to
the potential to earn underwriting
revenue in addition to commission;
enhanced risk management
the ability to identify, and
therefore benefit from, good quality business with a low claims
a hedge against hardening market
rates and reduced commissions;
pricing and cover flexibility;
access to reinsurance markets;
they enable the broker to provide an
enhanced service, generating even more value from existing
So where can brokers access this?
The Guernsey difference
Guernsey is a jurisdiction that offers an experienced,
innovative and professional risk management sector specialising in
captive insurance, reinsurance and insurance linked securities,
part of a broad based and internationally focused insurance
The island is home to multinational risk management companies as
well as independent captive insurance managers who together service
more than 800 licensed international insurance entities. Guernsey
is the largest captive insurance domicile in Europe and fourth
globally. This strength is underlined by the fact that about 40% of
the leading 100 companies on the London Stock Exchange have
captives domiciled in Guernsey.
Indeed, a significant majority of the international insurers
licensed in Guernsey have their parent company located in the
UK. The island's insurance sector is truly international,
however. Firms from across Europe, the US, South Africa, Australia,
Asia, the Middle East and the Caribbean have all established
captives on the island.
A major draw is the cell company concept that Guernsey pioneered
in 1997 when it introduced the PCC. This means that the island has
unrivalled experience and expertise in cell company structuring.
For example, Aon's White Rock
Insurance Company PCC Ltd was established in Guernsey as the
world's first PCC and has been used by more than 50
corporations as a cell captive facility. And Guernsey-based
Heritage Insurance Management achieved a worldwide first in 2010 by
amalgamating two PCCs – with 17 cells between them –
Outside Solvency II
Guernsey is not within the European Union and therefore is not
required to implement its directives, including Solvency II. So it
is not seeking Solvency II equivalence as its requirements are not
proportionate to the risk levels within many of our insurance and
But Guernsey continues to adhere to the insurance core
principles of the International Association of Insurance
Supervisors (IAIS), which provides proportionate regulation to the
specialist insurance market.
A new revenue stream Guernsey offers an ideal environment for
brokers establishing a producer-owned (re)insurance company.
Compared with simply using the commercial insurance market, these
structures potentially offer significant advantages, not least the
prospect of a new additional revenue stream. We would encourage
brokers to learn more by speaking with us or our colleagues at risk
management providers in Guernsey.
An original version of this article was published by Insurance Times, December
Hiscox Syndicate 33 recently became the first Lloyd’s syndicate to enter into a sidecar transaction. This highlights the growing prominence of the sidecar as a capital-raising vehicle for property catastrophe risks.
Growth in the captive insurance market will be driven by intermediaries and brokers establishing vehicles to aggregate the risks of their individual customers, it has been claimed by a panellist at the Guernsey Insurance Forum.
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