Originally published in the Global Reinsurance Special
Offshore Domiciles Report, June 2009
With its proximity to the European insurance market, Guernsey is
positioning itself as an offshore solution for reinsurance and
insurance-linked securities, explains Peter
Guernsey offers a favourable environment to conduct reinsurance
business. The island's position as a principal international
finance centre with a very strong captive insurance sector not only
means that such diversification is a natural progression, but it
also provides the foundations for a very attractive
This includes a robust yet pragmatic and flexible approach to
regulation and the fact that the island can offer the full
complement of services required to undertake even the most complex
It is against this background that Guernsey is seeking to garner
interest from those organisations operating in reinsurance and
insurance linked securities, particularly given that there are new
sources of capital coming into these markets. This capital is being
deployed very quickly, often to write specific risks for a
relatively short duration. Such an operation lends itself to the
Guernsey business model and the island is experiencing an
increasing level of interest from the investor community keen to
access insurance risk.
WHY CHOOSE GUERNSEY?
So what sort of reinsurance business would be good business to
conduct from Guernsey? Non-US business is best placed for Guernsey,
whereas Bermuda and Cayman are closer to the US markets. Businesses
with low administrative workloads are also well suited to the
There are not large numbers of staff available to apply to a low
level administration business, although much of this work could be
outsourced from the island where processing is a requirement of the
Reinsurance businesses that locate in Guernsey can take
The island's zero tax regime;
The domicile's approach to regulatory requirements for
capital regarding Solvency Margin Requirements (SMR) and Own
Capital Risk Assessments;
Legislation that enables a single entity to enter into
insurance/reinsurance contracts and capital market derivative
contracts, such as ILS and international swaps and derivatives
association (ISDA) contracts from the same company; and
Securitisation of insurance portfolios, particularly for
Businesses may also complement the captive insurance business
that already exists on the island, as these captives are
collectively very substantial purchasers of reinsurance capacity.
UK groups may be further attracted to establish reinsurance
operations in Guernsey by proposed changes in UK taxation law.
It is planned that from 1 July 2009, UK companies with overseas
subsidiaries whose business is substantially third party
transactions – such as reinsurers – will become
exempt from paying UK tax on the dividend returned to the
This provides extra flexibility and enables decisions to be made
for purely business reasons. It is a benefit to UK groups with
subsidiaries, no matter where they are located. But it also makes
Guernsey attractive in comparison with some of its competitor
Provided the right conditions are satisfied, the absence of
taxation in the UK at parent level, combined with Guernsey's
zero rate of tax for insurance companies, means that a UK group
with a Guernsey reinsurance vehicle can ensure return on capital
deployed are maximised.
SETTING A TREND
Key players that have already established operations in Guernsey
include Barbican Re, Catlin, Conopious, Generali and Hiscox. The
announcement that a licence has been issued to Lloyd's, which
permits its underwriters to write direct general insurance business
(including domestic business) in or from within Guernsey, opens up
the potential for this to be significantly expanded.
In talking to a number of reinsurers we have found that there is
considerable pent-up demand in the capital markets for
insurance-linked investment opportunities. Furthermore, we have
found that many European-based organisations did not realise that
they could conduct this business in such a close location. We
firmly believe that the island has the expertise and resources to
provide a high quality service for these deals and the
organisations instigating them.
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