Guernsey: Innovation And Opportunity In Guernsey's Insurance Sector

Last Updated: 15 November 2016
Article by Becky Butcher

Most Read Contributor in Guernsey, November 2018

Attendees at this year's Guernsey Insurance Forum heard how Guernsey is positioning itself as a 'significant player' in the international insurance community, reports Becky Butcher of Captive Insurance Times.

After taking a break from hosting its annual insurance event, Guernsey Finance came back to the marketplace in style, hosting a fast-moving and informative event in London. The event, moderated by ITV presenter Alistair Stewart, consisted of two panel discussions focusing on the latest market trends, developments and growth potentials in the captive insurance and captive reinsurance market in Guernsey.

In his opening speech, Dominic Wheatley, CEO of Guernsey Finance, spoke of "innovation" and "two new phenomena" that have started gathering momentum in Guernsey's captive market. Wheatley revealed the new trends that come from the roots of the reinsurance market, are insurance-linked securities (ILS) and collateralised reinsurance.

"To see all areas of our industry in such robust form demonstrates not only its quality and substance, but also emphasises that Guernsey is a player of significance in the international insurance community," Wheatley said.

Market trends and developments

Steve Britton, managing director of Aon's global ILS management and panellist at the forum, revealed that the worldwide ILS market doubled between 2010 and 2015, growing at a rate of 25 to 35 percent each year. He noted, however that, as of June this year, the rate of growth did dip to 10 percent.

Britton referred to a Goldman Sachs article from 2013, The 8 Extraordinary Technologies Forcing Businesses To Adapt Or Die, which noted that collateralised reinsurance was listed as the fourth largest growing trend. Now in 2016, Britton described the ILS market as a "big baby" and emphasises the fact that the market is only going to get bigger. He noted that in the next five years the ILS market could represent $1 in every $5.

He said: "Growth will be driven by demand. There is already plenty of supply, there is just not enough demand for it yet. If there is demand, investors will put money into this market."

The slow market is because of the current soft market, according to Britton. He suggested when a 'big event' happens, more money from investors will appear in the market. He reassured attendees that although this year saw a dip in ILS growth, by next year rates should increase back to 15 to 20 percent. Stewart asked panellists what is driving that demand in the industry, questioning whether the industry was reacting to growing demand or whether it was the industry creating demand.

To this, Britton suggested that the answer is both. He said: "If you talk to the bankers, who structure these transactions, they suggest there is still not enough demand. Collateralised reinsurance is just another form of offsetting capacity."

According to Britton, considering the largest economic losses occurring in the world, there are still countries not purchasing insurance. John Rowson, CEO of Kelvin Re, added that, while capacity is available, the industry should be making sure that insurance is being purchased in countries that currently do not buy it.

After Wheatley referred to Guernsey's "innovation" in his opening speech, Mark Helyar, counsel of Bedell Cristin, revealed that Guernsey has drafted a set of rules to provide "extensive guidance" for its special purpose insurers (SPIs), set to go live before the end of 2016. The panel discussed Guernsey building an SPI structure. Helyar, who helped to draft the new rules, explained that the draft has now been completed and is with the Guernsey Financial Services Commission (GFSC) for a final review.

He explained that the rules are "pretty much signed off" and "are expected to be in place by the end of the year". Before the new rules go live, a consultation paper will be sent out to the marketplace for comment. Guernsey was also named as the domicile for other insurance captives, longevity swap transactions and various other reinsurance vehicles and arrangements.

These SPI rules already exist in Bermuda, making it possible for somebody looking from the outside to understand the jurisdiction's approach to SPIs in terms of solvency and capitalization. Heylar explained: "The work is already happening, the business is already being conducted in Guernsey, there was just no where to go to see what the rules were."

"These new rules will be codifying digressions that the commission are passing different types of applications and it will be extensive guidance on the types of collateral available." With Guernsey also introducing the new rules, Helyar suggested that this would bring them "on to a level playing field" with Bermuda and other ILS domiciles.

Mark Cook, director at Willis Towers Watson, also drew attention back to innovation in Guernsey, discussing the rise of captives with employee benefit risk. Cook noted that there are now approximately 100 captives funding employee benefit risk, with most of those launching over the last five years.

He said: "It is not just traditional risk products and health products we are talking about, stop-loss products, medical programmes and so on." Cook revealed that another trend he is seeing in the industry is a rise in longevity swaps. He used the British Telecom Pensions Scheme (BTPS) as an example. BTPS was a £16 billion transaction, completed in July 2014, to transfer a quarter of its longevity risk to the Prudential Insurance Company of America.

BT established its own captive insurer, a Guernsey-based incorporated cell company (ICC), allowing it to access the reinsurance market directly without paying a bank or insurer to act as an intermediary.

"The reinsurance market is providing companies with a good deal compared to the traditional ones that banks are offering," said Cook.

Brexit

Stewart also questioned the panel on whether they thought Brexit was an opportunity, challenge or deadweight on the captive industry. Oliver Schofield, executive director of RKH Reinsurance, described Brexit as an "opportunity".

He said: "I don't think it is something that we, as an industry, should be overly scared about." Schofield showed confidence that Brexit will not affect the captive marketplace, he said:

"The insurance and reinsurance industry around the world has reacted well to times of uncertainty." When it was decided in June this year that the UK would leave the EU, there were concerns around passporting for captives. Schofield suggested that the industry should not be concerned about passporting issues in the captive market, but rather for other industries, as "there might be all kinds of issues".

Schofield said: "For the captive industry, I see it as a great opportunity for people who are current owners or potential owners of captives to be able to take a long look at the playing field that there is and decide what is going to be the best approach for them."

"I don't believe that there will end up a regime that will strangle the benefits of captives to their corporate sponsors."

Solvency II

With the uncertainty around Brexit, there are still a lot of questions around the UK and the Solvency II regime. Although legally the UK will not have to abide by the Solvency II initiative anymore, if it still wants to trade within the EU it will have to stick to the Solvency II legislation.

Schofield explained: "We also know that most insurers and reinsurers around the world, regardless of whether they are European headquartered or trading into Europe, regard Solvency II being the benchmark for superior finance management and I don't see that as being a threat, I see that as an opportunity."

On the flip side, Solvency II has the potential to push businesses away from the EU if they are against complying with Solvency II regulation. Cook explained that one of Willis Towers Watson's pension captive clients, based in the EU, is against complying with Solvency II for pension reserving. Because of this, the client is looking to move outside of the EU. Cook noted that this has been within the last six months.

IAIS insurance core principles

Stewart addressed Caroline Bradley, deputy director of the Guernsey Insurance Division and member of the International Association of Insurance Supervisors (IAIS) task force, to ask about any developments and how Guernsey stood within the latest IAIS meeting. Bradley said that, from the first meeting, she recognised that the current IAIS insurance core principles (ICPs) need to be updated. She explained that the current ICPs, relating to the supervision of reinsurance and reinsurers, would need to be updated because they reflect issues that were around at the time the standards were written.

Bradley recently attended a meeting, held in Bermuda with the newly set up IAIS task force, which was designed to review the ICPs. She said: "We feel that it is important for Guernsey to be involved in those types of forums with that kind of company so that we can then ensure that the regulations, as they develop, take account of jurisdictions like Guernsey in terms of entities and the types of regulatory framework that we have." Bradley noted that the ICPs currently deal with things such as contract certainty, finite reinsurance and issues that were hot topics with regulators a number of years ago but that are not such an issue now.

She said: "I think we are well-placed in Guernsey within regulatory framework to both influence the standards that have been developed but also to meet those standards because in Guernsey we have always regulated reinsurers, whereas other jurisdictions haven't so they are catching up with that."

"I do think it is important for Guernsey to be in the forum so we can influence those standards as they develop." Wheatley expressed his enthusiasm towards Bradley's work with the IAIS around global regulatory standards, and the possible creation of a level playing field. In his closing remarks, Wheatley explained that although the collateralised reinsurance sector has seen growth, he can see the market growth "accelerating".

According to Wheatley, there have long been rumours about the bottoming of the soft insurance market. He said: "I think ever since 2002, people have been telling me that it's going to bottom out any minute now."

"I take the suggestion that we might be seeing the bottoming of the market with a massive pinch of salt."

Wheatley suggested that, as a captive domicile, Guernsey remains at an advantage of being outside the EU and by being in an environment of "real substance" having not only a regulator by an industry of "true excellence" that all of those people who come to Guernsey for their captive business "appreciate greatly".

"The Guernsey Insurance Forum has demonstrated how the global insurance market is changing, through evolution in some areas and transformation in others, and how the Guernsey industry is responding to these demands and opportunities with intelligence and energy and playing a key role in the innovation required," added Wheatley.

An original version of this article was published by Captive Insurance Times, September 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.

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
 
In association with
Related Topics
 
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