Guernsey: A Diverse Business - Guernsey's Insurance Sector

Guernsey's position as Europe's leading captive insurance domicile has made the jurisdiction renowned for insurance activity - a large proportion of which provides general insurance cover to UK parents, many of them listed companies. Indeed, approximately 40% of the leading companies on the London Stock Exchange and 95 of the global 500 companies have captives in Guernsey. However, Guernsey is also home to a number of insurers and reinsurers underwriting third party risks including life insurance/assurance as well as more exotic risks such as kidnap and ransom and "after the event" insurance.

Guernsey's long-established protected cell company ("PCC") as well as its younger offspring, the incorporated cell company ("ICC") are frequently used as incubators for small captive businesses and as special purpose vehicles for insurance linked securities and transformer structures which convert financial risk into insurance risk and vice versa. More information on insurance linked securities can be found here.

Clients come to Carey Olsen because of our extensive experience, industry know-how and proven track record in advising the insurance industry. We advise on general insurance and reinsurance in an offshore context. With years of experience in advising on protected and incorporated cell companies we are also the legal adviser of choice on complex risk transfer structures including transformer vehicles.

A number of our lawyers previously worked in the insurance and reinsurance departments of other international law firms and sit on the boards of locally-licensed insurance companies. This experience brings a practical, commercial dimension to the team's advice. Our clients include insurers, reinsurers, intermediaries, brokers and other financial services companies.

This article summarises the legal framework underpinning Guernsey's successful and diverse insurance sector. 

Insurers and reinsurers in Guernsey are governed by the Insurance Business (Bailiwick of Guernsey) Law, 2002 (the "Law"). The definition of insurance in the Law includes reinsurance and accordingly all references in this article to insurance or to insurers apply equally to reinsurance and to reinsurers. Under the Law, a person must not carry on or hold themselves out as carrying on insurance business in or from within the Bailiwick of Guernsey ("Guernsey") unless licensed to do so. 

The Law distinguishes general insurance and long-term (life) insurance business.  Other than in the case of a  PCC, a single company cannot be licensed to conduct both long-term and general insurance business. In addition, a distinction is drawn between domestic insurers who insure persons or property in Guernsey and international insurers who write business outside the islands.

A person wishing to establish a licensed insurer in Guernsey must satisfy the Guernsey regulator, the Guernsey Financial Services Commission (the "Commission"), that any person who is to be a director, partner, manager, controller or general representative of the insurer will meet the licensing criteria set out in Schedule 7.  Schedule 7 requires that the insurance business will be carried on with prudence, integrity, professional skill and in a manner which will not tend to bring Guernsey into disrepute as an international finance centre.  Each of the persons listed above must be fit and proper having regard to their probity, competence, experience, judgement, qualifications, knowledge and understanding of the legal and professional obligations to be assumed and policies, procedures and controls to be implemented.

The business of every licensed insurer must be directed by two individuals of appropriate standing and experience who are independent of each other.  Every licensed insurer must appoint at least one independent non-executive director (i.e. not connected to the insurer's shareholders or the appointed manager, if any) as well as a general representative who is authorised to accept service of official notices in Guernsey. 

To ensure that the mind, management and control of the insurer remains in Guernsey, locally licensed insurers usually appoint a majority of Guernsey residents to the board and board meetings are usually held in the islands.  Most Guernsey licensed insurers have no employees but appoint an entirely non-executive board of directors supported by a local licensed insurance manager.  Corporate directors may not be appointed to a Guernsey licensed insurer. 

Minimum Paid Up Capital

As one would expect, Guernsey licensed insurers are subject to statutory capital and solvency requirements.  The minimum paid up capital is £100,000 for a licensed general insurer, £250,000 for a licensed long-term insurer and £250,000 for a licensed insurer carrying on both long-term and general business. 

A general insurance company structured as a PCC would commonly issue £100,000 in core shares in order to meet this minimum capital requirement.  Although each cell of a PCC must meet the MCR and PCR (described below), because a PCC is a single legal entity each cell is not required to be separately capitalised.  However, because each incorporated cell of an ICC is a separate legal entity, each incorporated cell must be separately capitalised to meet the minimum paid up capital requirement.  Like cells of a PCC, each incorporated cell of an incorporated cell company must meet the MCR and PCR.

Minimum Shareholder Funds

Every insurer must maintain shareholders' funds (i.e. assets in excess of liabilities) of at least 75% of the minimum paid up capital.  

Minimum Capital Requirement

A general insurer must maintain a minimum capital requirement ("MCR") of the higher of:

(a) 12% of gross written premiums during the previous financial year;

(b)12% of the value of claims; and

(c)the Capital Floor.

The Capital Floor of a licensed insurer is the same as the minimum paid up share capital described above.   

Long-term (life) insurers must maintain a MCR of the higher of:

2.5% of total reserves, net of reinsurance; or

the Capital Floor.

The minimum capital requirement does not apply to insurers categorised as special purpose entities (category 6).  That is, insurers whose underwriting and counterparty credit risk are effectively eliminated because they are fully collateralised or otherwise funded.  Further information on the special regulatory regime applicable to special purpose entities can be found [here – http://www.gfsc.gg/Insurance/News/Documents/Guernsey%20Insurance%20SPV%20Guidance.pdf].  

Prescribed Capital Requirement

All Guernsey licensed insurers, other than category 6 insurers, are subject to a prescribed capital requirement ("PCR").  The PCR is calculated by applying a set formula contained in a spreadsheet created by the GFSC (available [here]).  The formula assesses the risks to which the company is subject including market, counterparty, premium and reserve risk and allows certain adjustments for diversification of business and regulatory adjustments.  Depending upon the category of insurer, the PCR is set at different confidence levels as follows:

Category 1 – commercial life insurer – 99.5% confidence level

Category 2 – commercial life reinsurers – 97.5% confidence level

Category 3 – commercial general insurers – 99.5% confidence level

Category 4 – commercial general reinsurers – 97.5% confidence level

Category 5 – captive (re)insurers  -  90% confidence level

Category 6 – special purpose entities - exempt from the PCR.

OSCA

Since 2008, all Guernsey licensed insurers have been required to calculate an own solvency capital assessment ("OSCA") considering the particular risks written by that insurer. That assessment involves the board of directors (or their equivalent) conducting a subjective analysis of the business written by the insurer and determining the appropriate level of capital that should be maintained.  The OSCA may be and often is higher than the MCR and PCR requirements described above.  The OSCA calculation must be lodged with the Commission annually.  The OSCA does not apply to category 6 insurers.  

In addition to the OSCA calculation, every Guernsey licensed insurer must lodge an annual return with the Commission together with its audited accounts.  The annual return must include an up to date business plan including financial projections, a statutory solvency calculation, a copy of the auditors' management letter, a summary of the extent of adherence to the corporate governance principles applicable to licensed insurers and a note on how insurance reserves are calculated.  Consistent with Guernsey Companies law, every licensed insurer which is a company must be audited annually.  It is worth noting that category 5 (re)insurers (captives) may obtain a derogation from preparing audited financial statements which comply with all of the requirements of UK GAAP FRS103.

Every licensed long-term insurer must appoint an actuary to prepare an annual report including a valuation of the liabilities of the insurer and an assessment of the surplus or deficit (as appropriate) on the statutory fund.  The statutory fund is an account which every long-term insurer is required to maintain in respect of receipts from long-term business conducted by it.  The Commission has a discretion to waive this requirement and will generally do so in respect of fully funded insurers.

Long-term insurers must also appoint a Guernsey based trustee to hold in trust assets representing at least 90% of policyholder liabilities.  The Commission has a discretion to waive this requirement and will generally do so in respect of life reinsurers.

Strict controls are imposed on the shareholders and key officers of Guernsey licensed insurers.  A person acquiring an interest in excess of 5% of the equity share capital (directly or indirectly) of a licensed insurer must notify the Commission.  A person proposing to obtain an equity interest of 15% or more in a company or 50% or more in a cell of a PCC must obtain the consent of the Commission before doing so.  In addition, the Commission must approve any proposed change in the directors or officers of a licensed insurer which is a company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
17 Oct 2018, Other, St Peter Port, Guernsey

To showcase and celebrate the best of tech whilst providing networking, learning, business and social opportunities, Digital Jersey is once again hosting Jersey TechWeek.

24 Oct 2018, Conference, St Peter Port, Guernsey

The Fund Finance Association is a non-profit industry association in the fund finance market that aims to educate members, legislators, regulators and other constituencies about the fund finance market.

13 Nov 2018, Conference, St Peter Port, Guernsey

SuperInvestor is part of the SuperReturn Series - the world's leading private equity events.

Similar Articles
Relevancy Powered by MondaqAI
GuernseyFinance
GuernseyFinance
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
GuernseyFinance
GuernseyFinance
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions