Dominic Wheatley, Chief Executive of Guernsey
Finance, explores how producer owned (re)insurance companies from
Guernsey offer a new revenue stream for brokers.
I am sure that brokers, like the rest of us, are eager to tap
into any possible additional flows of income. Those that are, will
be very interested to learn more about a potential new revenue
stream for their business offered by producer owned (re)insurance
Conventionally brokers just earn commission for placing client
insurance policies with the commercial insurance market. However,
the use of a producer or broker owned insurance or reinsurance
vehicle can allow brokers to participate in the underwriting
profits usually retained solely by the insurer.
Producer owned (re)insurance companies
A broker, as a producer of business, can sponsor and establish
their 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.
Either of these options offers the following advantages to
The potential to earn underwriting
revenue in addition to commission
Enhanced risk management control
The ability to identify and therefore
benefit from good quality business with a low claims ratio
Provide a hedge against hardening
market rates and reduced commissions
Pricing and cover flexibility
Access to reinsurance markets
Enables the broker to provide an
enhanced service to their clients which generates even more value
from existing profitable business
These can be established through the use of Protected Cell
Companies (PCCs) or Incorporated Cell Companies (ICCs), which
provide the optimal structure to insure or reinsure the risks of
several different clients by underwriting their respective
exposures into separate cells. PCCs and ICCs are easy to setup and
there is flexibility in being able to add cells, which are also
particularly cost effective.
So, where can brokers access this offering?
The Guernsey difference
Brokers need look no further than Guernsey where there is an
experienced, innovative and professional risk management sector
specialising in captive insurance, reinsurance and Insurance Linked
Securities (ILS), part of a broad based and internationally focused
The Island is home to the major multinational risk management
companies as well as independent captive insurance managers who
together service more than 800 licensed international insurance
Guernsey is the largest captive insurance domicile in Europe and
number four globally. This strength is underlined by the fact that
approximately 40% of the leading 100 companies on the London Stock
Exchange with captives have them domiciled in Guernsey.
Indeed, a significant majority of the international insurers
licensed in Guernsey have their parent company located in the UK.
However, the Island's insurance sector is truly international.
Firms from across Europe, the US, South Africa, Australia, Asia,
the Middle East and the Caribbean have all established captives in
A major draw is the fact that Guernsey pioneered the cell
company concept back in 1997 when it introduced the PCC. This means
that the Island has unrivalled experience and expertise in cell
For example, Aon's White Rock Insurance Company PCC Limited
was established in Guernsey as the first PCC in the world and has
since been used by more than 50 corporations as a cell captive
facility; and Guernsey-based Heritage Insurance Management also
achieved a worldwide first in 2010 by amalgamating two PCCs –
with 17 cells between them – into one.
A new revenue stream
Guernsey offers an ideal environment for brokers establishing a
producer owned (re)insurance company. Compared to 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 some of the risk management
providers in Guernsey.
An original version of this article was first published
Broker, May 2015.
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