Guernsey: A Leader In Regulation

Last Updated: 24 November 2009
Article by Michael Poulding

Most Read Contributor in Guernsey, September 2018

Originally published in Captive Review, Guernsey Report, 2009-10, October 2009

Michael Poulding of the Guernsey Financial Services Commission believes both the insurance and reinsurance industry in Guernsey can benefit from Solvency II

Guernsey is a British Crown Dependency situated 50 kilometres from the French Coast in the bay of St Malo. It is fiscally independent from the UK and is responsible for setting its own legislation, including financial services legislation. It is not a member of the European Union (EU).

The insurance market in Guernsey consists of over 700 individual insurance entities including captive insurance companies, reinsurance companies, protected cell companies and their cells. Captive insurance companies and cells account for approximately 60% of the market. The total gross premium income in 2008 was £3.3bn while total assets at 31 December 2008 amounted to £21bn, an increase of 13% over the previous year. Currently the areas of greatest growth are protected and incorporated cell companies and this trend is expected to continue.

Captives licensed in Guernsey often utilise the services of commercial insurance companies, to front certain classes of risk, normally to comply with legislation in some jurisdictions that require certain classes of business such as employers' or motor liability to be insured either by locally licensed companies or by companies licensed in an EU member state. In these circumstances, the captive acts as a reinsurer of the fronting company and as a consequence, the fronting company has to consider the admissibility of the reinsurance in its own solvency calculations.

Under the Solvency II regime, EU insurance or reinsurance companies ceding reinsurance to a company situated in a third country outside the EU will not be able to take credit for the ceded reinsurance unless the third country regulatory and supervisory regime can be considered equivalent to Solvency II. Criteria for assessing equivalence are expected to be established by Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) by July 2010.

The Guernsey system of regulation

The current solvency capital requirements for Guernsey insurers, including captives, are based on a percentage of premium income or total claims provisions. In practice companies are required to hold solvency capital equal to at least 150% of the MCR (minimum capital requirement). The supervisor is able to impose higher capital requirements if justified by the nature of the business.

The approach adopted for simple captive insurance companies where account cannot be taken of diversification or pooling of risk is to consider the 'risk gap', in other words the difference between the maximum total claim amount in any one year and the expected premium income. The risk gap should be more than covered by available capital.

In 2008, Guernsey introduced a requirement for all companies, including captives, to produce an 'OSCA', in other words, an 'Own Solvency Capital Assessment'. A guidance paper was issued detailing the risk factors that should be taken into account. The introduction of the OSCA was intended to ensure that the boards of insurers considered their own specific risk profile in determining the appropriate level of capital to be held in excess of the statutory minimum requirement. An analysis of the first OSCA reports has shown that considerable thought has been given by insurance managers and boards to the specific risks applicable to each company which provided valuable confirmation of the adequacy of the capital position.

Guernsey is an active member of the International Association of Insurance Supervisors (IAIS) and sits on most of the IAIS committees and subcommittees including the key Solvency Subcommittee. Guernsey represents the Offshore Region of Insurance Supervisors on the IAIS Executive Committee. The Guernsey system of regulation is based on the IAIS Insurance Core Principles together with the associated standards and guidance. This includes the IAIS guidance paper on captive insurers which was prepared by a group of both captive and non-captive supervisors chaired by Guernsey.

The insurance laws and regulations in Guernsey are regularly reviewed in line with changes to the IAIS standards and in particular, changes will be made to ensure that solvency requirements are consistent with developing requirements.

Solvency II equivalence

Since Guernsey is outside the EU, it is not required to adopt EU Directives and is therefore not required to implement the Solvency II regime. It will, however, take account of Solvency II when developing its own solvency and other regulatory and supervisory requirements in line with international standards, particularly as the Solvency II regime is likely to be considered as a benchmark for evolving international best practice.

In order to achieve equivalence under the Solvency II Directive, Guernsey will, under the expected equivalence criteria, have to be able to demonstrate that its regime is compatible with the Solvency II requirements, although the full extent of the compatibility requirements will only be known when the equivalence criteria are finalised.

Under Solvency II, supervisors will be able to approve the use of internal models by insurers to establish their solvency capital requirements as an alternative to the standard methodology specified by the Qualitative Impact Studies. The use of internal models is expected to be limited to certain larger life insurance companies and reinsurers although it may also be an option for the larger captive insurers. Regulatory guidance will be developed to cover the appropriate use of internal models.

An important component of the Solvency II regime will be the application of the principle of proportionality. In view of the nature of the Guernsey market, which has a number of small commercial insurers and in particular captive insurers, many of which insure a single type of risk, the ability to apply proportionality principles realistically in determining the methodology for determining solvency requirements is a particularly significant aspect of the regime.

As the largest captive domicile in the European geographical region, Guernsey is particularly well placed to focus on the application of Solvency II to captives. We are in active discussion with both insurance supervisors and insurance management companies in the EU captive domiciles of Dublin, Luxembourg and Malta to establish the impact of Solvency II on the European captive insurance industry. We are also holding discussions with bodies representing captive owners such as the Association of Insurance and Risk Managers (AIRMIC) in the UK and the European Captive Insurance and Reinsurance Owners Association (ECIROA) in Europe.

A number of insurance entities in both Guernsey and the EU are established as protected cell companies or incorporated cell companies. Consideration needs to be given to the application of the Solvency II requirements to protected cell companies and in particular to situations where cells each have recourse to core capital for solvency purposes.

Impact of Solvency II on Guernsey

Guernsey currently has a major captive insurance sector as well as an international life insurance sector. It is also home to an increasing number of both life and general reinsurance companies.

The impact of Solvency II on the Guernsey market depends on the achievement of equivalence under the Solvency II Directive.

If equivalence is achieved, Guernsey captive insurance companies will still be able to utilise the services of EU fronting companies at an economic cost and the reinsurance sector is expected to expand as it will be able to accept ceded reinsurance from EU insurance and reinsurance companies. If the achievement of equivalence is not achieved or is delayed, there is a risk that the attraction of Guernsey as a captive insurance centre will diminish as the cost of fronting will increase and EU captive owners will increasingly look towards EU domiciles to establish their captives. The expansion of the reinsurance sector would also be adversely impacted by the reduced attractiveness to EU companies of ceding reinsurance to Guernsey reinsurers.

Companies in the international life insurance sector would be less impacted if equivalence is not achieved as they are less reliant on ceded reinsurance, although there could be an adverse impact where they participate in a pooling arrangement for mortality or morbidity risks that includes EU life insurance companies.

Guernsey is well placed to benefit from the introduction of the Solvency II regime in Europe, provided it can achieve equivalence status under the Directive. This will benefit both the captive insurance and the reinsurance sectors.

Achieving the equivalence status will involve further development of the Guernsey regulatory and supervisory regime in line with the latest international standards while ensuring compatibility with the requirements of Solvency II. An important consideration will be the application the requirements of the Directive to smaller insurers and captives of the IAIS and the Offshore Group.

For more information about Guernsey's finance industry please visit

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

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

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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