Guernsey: Captive Insurance – In Our Own League

Last Updated: 22 November 2016
Article by Peter Child

Most Read Contributor in Guernsey, July 2017

Peter Child, Chairman of the Guernsey International Insurance Association, speaks to Captive Review about the uniqueness of Guernsey.

Captive Review (CR): How does Guernsey differentiate from other jurisdictions? What are its main attractions and how does it stay ahead of the pack?

Peter Child (PC): In the current climate differentiation is more important than ever. Lots of jurisdictions are similar as we are all guilty to some extent of copying one another's legislation in order to stay in line with the latest innovations. This has always been the case in our market and shall continue.

Despite this, Guernsey has always gone that extra mile as our aim is to stay ahead of the pack, take our PCCs and ICCs for example. Importantly, one key area that has assisted Guernsey's variety is that we have always possessed the size and momentum of business to enable the employment of a large number of professionals within the captive management insurance sphere. This means that Guernsey has retained the highest quality of individuals at every firm on the island, from insurance managers, to accountants, company secretaries, actuaries and lawyers. These individuals are able to offer a myriad professional advice and services.

Within a European context, Guernsey can be found at the helm of the industry in regards to the its dynamic ILS and pension longevity structures, as well as arguably being the key pioneer in conversion of the alternative capital which is driving the ILS business into rated reinsurance vehicles.

The location of Guernsey is also second to none. Due to our close proximity to the UK and mainland Europe, we have excellent transport links to both London and major European cities, as well as being located in the same time zone as the UK.

Furthermore, not only are we ideally placed in a geographic sense, but also in terms of us not being a member of the EU. By maintaining a solvency regime that is fully compliant with the principles of the International Association of Insurance Supervisors, and that, though our own option, has not been subjected to a review of Solvency II equivalence by the EU, we are able to offer a differentiated product. Guernsey plays host to international insurers and reinsurers that write European risks either on a non-admitted basis where permissable, or via efficient fronting structures. Some of these choose to be 'equivalent' insurers under the Solvency II definition by dint of securing appropriate credit ratings, others choose to meet either internally calculated capital requirements or the island's mandatory minimum solvency standards. They key is that Guernsey provides the choice.

CR: Do you anticipate any future drawbacks that may impact Guernsey? What are they and how do you plan to combat them?

PC: One key drawback that has been felt across all offshore financial industries is that arising from the reputational issues surrounding perceived tax inequality. Due to events such as the release of the Panama Papers, many offshore jurisdictions have been painted with the same brush by the media. The world environment is changing and there is an agreement between the main economically developed countries, under the auspices of the OECD, that there is a requirement for an equitable tax-base for all of the world's multinational companies. Of course, this is absolutely fair and right. However, thereis, I believe considerable misunderstanding, based on a lack of education, about the differences between offshore jurisdictions, all of which tend to be morphed into the one undesirable whole. This often leads to Guernsey – which has always followed a policy of being 'whiter than white' and fully compliant with all international standards of best practice, as evidenced by the IMF and OECD alike – being incorrectly placed into the same bracket as other jurisdictions.

All that we can do to combat these misconceptions is to carry on as business as usual and try as often as possible to engage with as many bodies as possible: the OECD, IMF, FATF, captive owners, clients and prospective clients, UK government and tax authorities and other offshore governments to try to create a proper and nuanced understanding of the benefits and lack of threat that comes from a proper, well-regulated and transparent offshore jurisdiction.

CR: How dynamic is Guernsey?

PC: Our differentiated products are ever-evolving and growing, and, right now, we more dynamic than we have been for decades. Since the mid-70s and early 80s we have relied upon the growth of captives to develop our insurance management business. Current environmental considerations including: the continuing soft market, increasing challenges to the tax bases of captives, the cost of capital, and a weak investment environment which has drawn alternative capital into the reinsurance space have meant that maintaining and growing that captive base is difficult.

I believe that Guernsey has reacted very well to these environmental changes. We have actively developped alternative products which can be serviced by our core of professionally qualified, highly competent insurance management personnel. These include the ILS structures, rated reinsurance vehicles and pension longevity deals that I referred to earlier, as well as producer owned (re)insurance captives that enable interested parties to benefit from the underwriting profit of books of business where previously they might have received just a flat commission.

CR: Guernsey's reputation is both unblemished and rich, how important is maintaining that reputation for the success of the jurisdiction? How do you maintain it?

PC: It is paramount. Reputation is everything and the only way that we can maintain it effectively is by ensuring that everybody on the island upholds the highest possible standards. Not just in terms of insurance regulation, tax transparency and regulation, company legislation and compliance but also

Guernsey is particularly well trusted jurisdiction for secure data processing and storage, partially shielded as it is from international cyber threats due to its position as an island, and relative control over traffic that flows through a limited number of broadband providers..

Ultimately, we have to make sure that all of this is joined up because reputation is difficult to regain.

CR: What offering developments can we expect from Guernsey in the future?

PC: By the end of the year we expect that we will have further specific legislation around the ILS structures. Additionally, there is a focus on corporate structures and how they can be used within the insurance space. So, looking at things like the use of unlimited partnerships as insurance carriers, which is potentially expanding, will be an area of increasing importance.

CR: In short, why choose Guernsey?

PC: It's about people, physical location and the versatile and pragmatic regulator with fully compliant legislation to a worldwide standard. It is also about the availability of different and flexible company structures , and a realistic capital regime, especially when compared to SII. Adhering to the same principles from where SII comes but with a pragmatic application. In essence, it's about delivering the highest standard of service that cannot be replicated elsewhere.

An original version of this article was first published by Captive Review, October 2016.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

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.

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