Insurers in Guernsey are regulated under the Insurance Business (Bailiwick of Guernsey) Law, 2002, as amended, as well as being governed by the Companies (Guernsey) Law, 2008.
Insurance managers, managing general agents and insurance intermediaries in Guernsey are regulated under the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002, as amended, as well as being governed by the Companies Law.
Both the Insurance Law and the Insurance Intermediaries Law are due to be revised under Guernsey’s Revision of Regulatory Laws project with effect from 1 November 2021, in order to reflect the latest international standards.
Guernsey insurers are also subject to the Income Tax (Substance Requirements) (Implementation) Regulations, 2018, as amended, which require that every Guernsey tax resident insurer:
- is directed and managed in Guernsey;
- conducts its core income-generating activities in Guernsey; and
- has adequate people, premises and expenditure in Guernsey.
As a non-EU jurisdiction, Guernsey is not subject to Solvency II and instead observes the International Association of Insurance Supervisors (IAIS) Core Principles – the global standard for international insurance supervision. This enables Guernsey to have greater flexibility and responsiveness than Solvency II or Solvency II equivalent regimes, while being ideally located in the European time zone.
Notable international cooperation agreements in the insurance sector include those with China: since March 2017 there have been agreements in place between the Guernsey Financial Services Commission and the China Banking and Insurance Regulatory Commission, and between Guernsey Finance and key business hub the Beijing Airport Economic Core Zone. In 2016, the Guernsey International Insurance Association signed an insurance industry memorandum of understanding with the Chinese city of Kashgar and the China Captive Alliance.
The Guernsey Financial Services Commission (GFSC) is the regulatory body for the financial services sector in the Bailiwick of Guernsey. The GFSC supervises and regulates over 2,000 licensees from within the banking, fiduciary, insurance and investment sectors, in accordance with standards set by international bodies such as the Basel Committee for Banking Supervisors, the IAIS, the International Organisation of Securities Commissions and the Financial Action Task Force on Money Laundering
As with licensees in other industry sectors, the GFSC uses a risk-based approach to the supervision of licensees which is underpinned by a system known as PRISM (Probability Risk and Impact System). This is a structured system which enables the GFSC to focus its supervisory resources on high-value, forward-looking supervisory activity with a strong emphasis on the business models and governance of licensees in order to mitigate unacceptable risks – prudential, financial crime or conduct-related.
The GFSC also categorises insurers by risk under the Insurance Business (Solvency) Rules 2015, as amended – from Category 1 commercial life insurers (highest risk) to Category 6 (lowest risk) fully funded special purpose vehicles (eg, insurance-linked securities cells – see question 4.1).
Guernsey is home to a specialist insurance sector, providing alternative risk transfer solutions to sophisticated clients such as corporations, investment managers and pension schemes.
The origins of Guernsey’s insurance industry date back to the 18th century. The first captive insurance company was incorporated in 1922 and since then, Guernsey has become the world’s leading centre for non-US international captive insurance. Guernsey is also increasingly recognised as a centre for reinsurance and insurance-linked securities, with special purpose insurers used for catastrophe bonds, side-cars and life-based securitisation, as well as longevity risk transfer transactions for UK pension schemes.
The Insurance Law regulates the carrying on of insurance business in or from within the Bailiwick of Guernsey. ‘Insurance business’ means the business of accepting risks by effecting or carrying out contracts of insurance, whether directly or through an agent. ‘Contract of insurance’ includes any contract the effecting or carrying out of which constitutes the carrying on of insurance business. The Guernsey courts will typically look to English case authority on what constitutes a contract of insurance, especially bearing in mind that the Insurance Law is modelled on English statutes.
As the majority of Guernsey insurance business is international in nature, insurance contracts typically are not governed by Guernsey law. Guernsey law does not prescribe specific terms which must be included in insurance contracts issued by Guernsey insurers, but of course the contract must constitute insurance.
The formal and documentary requirements for conclusion of an insurance contract are governed by the governing law of the contract. As the majority of Guernsey insurance business is international in nature, insurance contracts typically are not governed by Guernsey law.
Guernsey commercial insurers issuing policies to retail customers are subject to the Licensed Insurer’s (Conduct of Business) Rules, 2018 (‘COB Rules’), which require the provision of timely, clear and adequate pre-contractual and contractual information to customers, to enable them to understand the characteristics of the product they are buying and help them understand whether and why it may meet their requirements. This should include information on key features of the product, examples of which are given in the COB Rules. A commercial insurer conducting long-term business must provide a cancellation notice to long-term policyholders offering them an appropriate cooling-off period.
These will be governed by the governing law of the insurance contract. Under Guernsey law, there must be offer and acceptance to form a contract.
These will be governed by the terms of the insurance contract and the legal framework under the governing law of the insurance contract.
As regards commercial insurance policies issued to retail customers, the COB Rules require certain disclosures by the insurer in relation to policies on concluding the contract and on an ongoing basis. The COB Rules also require the insurer to gather sufficient information so that adequate disclosure or, where appropriate, a fair presentation of risk can be made by the customer to the insurer.
These will be governed by the terms of the insurance contract and the legal framework under the governing law of the insurance contract. Guernsey law does not impose specific formal and documentary requirements for making a claim.
These will be governed by the terms of the insurance contract and the legal framework under the governing law of the insurance contract. Guernsey law does not impose specific procedural requirements for making a claim.
This will be governed by the terms of the insurance contract and the legal framework under the governing law of the insurance contract.
This will be governed by the terms of the insurance contract and the legal framework under the governing law of the insurance contract. Guernsey law has the concept of privity of contract and does not have the equivalent of the English Contracts (Rights of Third Parties) Act 1999.
The majority of licensed insurers in Guernsey carry on international insurance business (whether general or long-term business), rather than domestic business. Separate licences are required to conduct international or domestic business, long-term and general business.
Each insurance licensee in Guernsey falls under one of the following categories:
- Category 1 – commercial life insurers: Long-term insurers with any element of unrelated party business;
- Category 2 – commercial life reinsurers: Long-term reinsurers with any element of unrelated party business;
- Category 3 – commercial general insurers: General insurers with an element of unrelated party business;
- Category 4 – commercial general reinsurers: General reinsurers that provide reinsurance to commercial insurers, whether or not part of the same group, and with no direct business;
- Category 5 – captive (re)insurers: Life or general insurance or reinsurance entities created and owned, directly or indirectly, by one or more industrial, commercial or financial entities or associations, the purpose of which is to provide insurance or reinsurance cover for risks (other than commercial insurance risks) of the entity or entities to which it belongs, or for entities connected to those entities;
- Category 6 – special purpose entities:
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- Special purpose insurers as defined under the Insurance Business (Special Purpose Insurer) Rules 2016; or
- entities that the Guernsey Financial Services Commission (GFSC) agrees in writing may fall into this category – these include longevity risk transfer cell captives of pension schemes.
- Category 6 is primarily intended for insurers whose underwriting and counterparty credit risk are effectively eliminated. Examples include transformer cells, fully collateralised catastrophe cells, insurance-linked securities (ILS) cells and fully funded entities.
Cell companies can be composite insurers – that is, writing long-term and general business out of different cells.
Insurers in Guernsey are typically structured as:
- non-cellular companies limited by shares;
- protected cell companies limited by shares; or
- incorporated cell companies limited by shares.
A Guernsey insurer can also be structured as a limited partnership.
Guernsey pioneered the concept of the protected cell company in 1997 and since then it has been copied around the world, including, 20 years later, by the United Kingdom. A protected cell company has a ‘core’ and any number of protected cells, all within the same legal entity. The assets and liabilities of each cell and the core are statutorily segregated under the provisions of the Companies Law, so each cell and the core are bankruptcy remote from each other. Each cell and the core can be owned by different owners to facilitate a multi-owner structure or ‘rent-a-cell’ structure, which affords greater cost efficiencies and speed of set-up compared to establishing a standalone company. This structure is used across the different categories of re/insurers, but particularly for captives and special purpose entities.
An incorporated cell company works in a similar way to the protected cell company, except in this case each of the cells is incorporated and a separate company in its own right. This facilitates risk-sharing arrangements between cells or (as per the protected cell company model) a ‘rent-a-cell’ structure where each cell is separately owned. The incorporated cell company is primarily used for pension longevity risk transfer transactions, whereby a pension scheme owns an incorporated cell and uses it as its captive to insure the scheme’s longevity risk (ie, the risk of its pensioners living longer than expected). The cell then reinsures 100% of the risk to the commercial reinsurance market. This is a cost-effective way of directly accessing the reinsurance market by ‘disintermediation’. Guernsey was the first jurisdiction to provide this innovative captive solution for pension scheme longevity risk in 2014 when the United Kingdom’s BT pension scheme insured £16 billion of its longevity exposures through a Guernsey incorporated cell. Guernsey is the leading jurisdiction worldwide for longevity swaps using a captive solution.
Guernsey also has the most flexible regime for special purpose insurers, which can meet their ‘fully funded’ requirement through either paid-in collateral (from debt or share issuances) or contingent collateral, including a letter of credit, reinsurance, partly paid share capital or another financing mechanism approved by the GFSC; or there can be a combination of paid-in and contingent collateral. Guernsey also permits clawback and top-up of collateral and has a collateral placement grace period of 30 days for administrative delays in funding – for example, on renewals or top-up requests.
Guernsey was the first jurisdiction to introduce a hybrid investment fund and special purpose insurer structure, with investment fund cells and ILS cells within the same cell company.
No.
Separate licences from the Guernsey Financial Services Commission (GFSC) are required to conduct international or domestic business, long-term and general business in or from within the Bailiwick of Guernsey.
Overseas insurers included (specifically or by description) in a list of recognised insurers maintained and published by the GFSC are not required to be licensed by the GFSC in order to provide insurance services in the Bailiwick of Guernsey from their home jurisdiction (provided that they do not otherwise carry on business as an insurer in the bailiwick). Recognition is solely in respect of the classes of insurance business for which relevant authorisation is held with the overseas insurer’s home supervisory authority.
Specific authorisation from the GFSC is required for any recognised insurer wishing to provide compulsory Bailiwick of Guernsey risks, including third-party motor insurance to Bailiwick of Guernsey residents under the Road Traffic (Compulsory Third-Party Insurance) (Guernsey) Laws, 1936 to 1983 and the Road Traffic (Compulsory Third-Party Insurance) (Alderney) Law, 1950, as amended.
An application for a licence must be made to the GFSC using the appropriate application form and required supporting information and documentation, including the following:
- Solvency requirements: The applicant must be able to satisfy the applicable solvency requirements under the Solvency Rules for the category of insurer applied for (see question 6);
- General representative: All insurers must appoint a Bailiwick of Guernsey resident general representative;
- Beneficial owner evidence;
- Online personal questionnaire (OPQ) and online appointment form (OA): OPQs and/or OAs must be submitted through the Online PQ Portal for each natural person who is a beneficial owner, controller, partner, director, company secretary, money laundering reporting officer, money laundering compliance officer, compliance officer or manager of the applicant(s), including natural persons fulfilling the role of actuary or general representative;
- Resources and delegation: The applicant must have adequate resources of personnel, policy, procedures, premises and systems to conduct operations, including record-keeping, compliance, anti-money laundering measures, internal control and other systems. If the applicant proposes to delegate some responsibilities to other service providers, the arrangements must be acceptable to the GFSC and demonstrate that the delegate, including the general representative, has the necessary capability;
- A copy of the bank mandate with signing powers;
- A group structure chart and group audited accounts;
- A business plan with financial projections;
- A business risk assessment;
- Its risk mitigation policy, procedures and monitoring programme; and
- Draft contractual agreements.
All applicants must demonstrate that they meet the minimum criteria for licensing in the Insurance Business Law, including the following criteria:
- Ownership: A transparent ownership structure;
- Fitness and propriety: Of the controllers and principal officers of the entity;
- Capital adequacy: The ability to meet solvency requirements;
- Mind and management: A minimum of two directors, of appropriate standing and experience who are sufficiently independent from each other, including at least one local independent non-executive director;
- Selectivity: Suitable experience and a favourable track record in business equivalent to that to be conducted in Guernsey;
- Risk management: Internal controls to mitigate against the risks to which the business will be subject; and
- Resources: Experienced staff, premises and systems to match operational requirements.
Guernsey has the fastest available set-up of cell captives of all the captive domiciles in the world with its recently introduced pre-authorisation regime. Under this regime, a cell can be established and start writing business straight away, provided that it files the necessary licence documentation with the GFSC within 14 days of commencing business.
A similar fast-track pre-authorisation regime is available for special purpose insurer cells (primarily for insurance-linked securities business), provided that the necessary licence documentation is supplied to the GFSC within seven days of commencement of business.
For all other applications, the GFSC aims to provide an in principle decision to applicants within 28 calendar days of receipt of a fully completed application pack.
These are set out in the Solvency Rules as follows:
- General business: Capital floor of £100,000;
- Long-term business: Capital floor of £250,000; and
- Composite insurers (both long term and general business): Capital floor of £250,000.
There is a waiver of minimum capital requirements for Category 6 special purpose entities on the basis that they are ‘fully funded’.
Under the Solvency Rules, licensed insurers must maintain a prescribed capital requirement (PCR). The PCR is the capital required to ensure that the licensed insurer is able to meet its obligations over the next 12 months with a probability as defined by the following specified confidence levels:
- Category 1 – commercial life insurers: The PCR is determined at a 99.5% confidence level;
- Category 2 – commercial life reinsurers: The PCR is determined at a 97.5% confidence level;
- Category 3 – for commercial general insurers: The PCR is determined at a 99.5% confidence level;
- Category 4 – commercial general reinsurers: The PCR is determined at a 97.5% confidence level; and
- Category 5 – captive (re)insurers: The PCR is determined at a 90% confidence level.
There is no prescribed capital requirement for Category 6 special purpose entities, on the basis that they are ‘fully funded’.
Solvency II requirements do not apply in Guernsey. In its policy statement of May 2015, the Guernsey Financial Services Commission (GFSC) noted that Guernsey did not currently serve as the home jurisdiction for any insurance group and the GFSC did not intend to assume the role of group-wide supervisor for any insurance group, but this would be subject to review in the future.
The Insurance Business (Public Disclosure of Information) Rules, 2018 issued by the Guernsey Financial Services Commission (GFSC) apply to all Guernsey insurers other than Category 5 captives, Category 6 special purpose entities and protected cell companies.
Information to be disclosed under the rules includes the insurer’s annual audited financial statements and disclosures on:
- the profile of the insurer;
- corporate governance;
- technical reserves;
- insurance risk;
- financial performance;
- capital adequacy;
- financial instruments; and
- enterprise risk management and asset liability management.
Subject to certain exceptions, including for smaller insurers, disclosure must be made on the insurer’s website or the GFSC website. Where website disclosure is required under the Solvency Rules, it is for a minimum period of three years.
The rules permit, under certain specific circumstances, that a relevant licensed insurer may choose to withhold, redact or summarise the annual audited financial statements and other information.
All insurers to which the rules apply must make their annual audited financial statements available to persons with a valid interest, including current and prospective policyholders and professional advisers, and must also maintain a disclosure policy.
All licensed insurers must submit an annual return to the GFSC, comprising audited annual financial statements and the further information/documentation set out below, within four months of the close of the financial year to which the financial statements relate:
- up-to-date business plan;
- margin of solvency;
- declaration of reliance on reinsurers;
- auditor’s management letter/confirmation from general representative not required;
- summary of adherence to corporate governance principles;
- general representative’s declaration;
- explanatory note of insurance reserves;
- additional financial information (eg, management accounts for cells);
- actuary’s declaration to accompany annual return (for life insurers); and
- own solvency capital assessment – not required for Category 6 special purpose entities
Corporate governance requirements applicable to licensed insurers are set out in Appendix 3 to the Finance Sector Code of Corporate Governance issued by the GFSC. This was amended in June 2021 to add an additional principle that the board should consider the impact of climate change on the insurer’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures.
The GFSC expects that the mind and management of the insurer is in Guernsey. The Substance Regulations (discussed at question 1.1) also require that the insurer be directed and managed in Guernsey.
These largely surround solvency requirements under the Solvency Rules and, for long-term insurers, requirements under the GFSC Handbook on Countering Financial Crime and Terrorist Financing (see question 13). The Governance Code sets out principles of risk management that the board should keep in consideration.
In February 2021, the GFSC issued the Cyber Security Rules and Guidance, with which all licensees must comply. Technology risks including information security, cybersecurity and data privacy are all key considerations for licensees and, as with other material risks, all licensees must have robust policies, procedures and controls in place to identify, assess and manage cybersecurity risks on an ongoing basis consistent with the minimum licensing requirements.
There must be a minimum of two directors, of appropriate standing and experience who are sufficiently independent from each other, including at least one local independent non-executive director.
Directors are appointed by the board or the shareholders of the company. Their appointment must have the prior approval of the Guernsey Financial Services Commission (GFSC) and their suitability is assessed by reference to the minimum criteria for licensing in the Insurance Law – namely, that they are fit and proper to hold the position by reference to such factors as experience, qualifications, record of compliance and commission of offences.
These are outlined in Principle A:4 of the Governance Code. The individual members of an insurer’s board must:
- act in good faith, honestly and reasonably;
- exercise due care and diligence;
- act in the best interests of the insurer and policyholders, putting those interests of the insurer and policyholders ahead of his or her own interests;
- exercise independent judgement and objectivity in his or her decision making, taking due account of the interests of the insurer and policyholders; and
- not use his or her position to gain undue personal advantage or cause any detriment to the insurer.
Directors have a statutory duty under the Companies Law to disclose the nature and extent of personal interests in transactions by the insurance company.
Under Principle A:5 of the Governance Code, the insurer’s board must:
- adopt and oversee the effective implementation of a remuneration policy which:
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- does not induce excessive or inappropriate risk taking;
- is in line with the identified risk appetite and long-term interests of the insurer; and
- has proper regard to the interests of its stakeholders; and
- ensure that such a remuneration policy, at a minimum, covers those individuals who are members of the board, senior management, key persons in control functions and other employees whose actions may have a material impact on the risk exposure of the insurer.
This can be done in a variety of ways, such as:
- novation;
- a court order for the transfer of cellular assets of an insurance cell to a third party;
- a scheme of transfer/scheme of arrangement; or
- the amalgamation of companies.
Guernsey Financial Services Commission (GFSC) notification and approval will normally be required, as well as sanction of the Guernsey court in some cases.
Transfers of long-term business require the sanction of the Guernsey court under the provisions of the Insurance Law (as well as GFSC approval). A Guernsey scheme of arrangement or a cell transfer order under the Companies Law also requires Guernsey court approval (as well as GFSC approval).
There must be prior notification to, and notification of no objections from, the GFSC of any change of controller. For the purposes of the Insurance Law, ‘controller’ is defined as follows:
- a managing director or chief executive of that company or of any other company of which that company is a subsidiary;
- a shareholder controller or an indirect controller; or
- any person who has the power, alone or with another, to appoint or remove a director of a board or an executive committee.
A ‘shareholder controller’ is defined as follows:
- in relation to a company, a person who, alone or with associates, is entitled to exercise, or control the exercise of, 15% or more of the voting power in general meeting of that company or of any other company of which that company is a subsidiary; or
- in relation to a protected cell company, a person who, alone or with associates, beneficially owns 50% or more of the cell shares issued in respect of any cell of that company.
An ‘indirect controller’, in relation to a company, is a person in accordance with whose directions or instructions any director of that company or of any other company of which that company is a subsidiary, or any controller of that company, is accustomed to act.
The Licensed Insurer’s (Conduct of Business) Rules, 2018 set out requirements for Guernsey commercial insurers issuing policies to retail customers (see questions 2.3 and 2.5).
Insurers writing long-term business must put in place a policyholder protection regime that includes the appointment of an independent, Guernsey-based trustee with a duty to report directly to the Guernsey Financial Services Commission. The trustee must hold at least 90% of the insurer’s assets representing policyholder liabilities.
The Channel Islands Financial Ombudsman can adjudicate in disputes between customers and the providers of insurance products and services. If the ombudsman agrees with the claim made in a complaint, it will have the power to order the financial services business to compensate the complainant. This compensation could be for the loss that the complainant has suffered and any material distress or inconvenience suffered by the complainant.
The Data Protection (Bailiwick of Guernsey) Law, 2017 was drafted to reflect the European Union’s General Data Protection Regulation. This approach was designed to ensure that Bailiwick of Guernsey citizens have important rights in this digital era and to ensure the continued free flow of data to and from Guernsey, which is vital for the island’s economy.
There is a specific lawful processing condition for insurers which can be relied upon when processing health and criminal data where the processing is for the purposes of enabling or facilitating the person to carry on insurance business.
Please see question 8.4 in relation to the Cyber Security Rules and Guidance 2021.
The primary legislation is the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law,
1999, as amended, with rules and guidance contained in the Guernsey Financial Services Commission (GFSC) Handbook on Countering Financial Crime and Terrorist Financing. General insurers are not themselves subject to these requirements, although their insurance managers are. Long-term insurers are themselves subject to these requirements.
The Guernsey authorities, including the GFSC, are committed to meeting established international standards on anti-money laundering and combating the financing of terrorism (AML/CFT). In this respect the September 2015 report from MONEYVAL, and prior reports in October 2003 and January 2011 from the International Monetary Fund, on their evaluations of the AML/CFT framework of the Bailiwick of Guernsey concluded that the bailiwick has a high level of compliance with the standards set by the Financial Action Task Force.
There are no particular challenges, concerns or measures from a competition law perspective which are specific to the insurance sector in Guernsey. Mergers and acquisitions involving Guernsey insurance companies are subject to the general Guernsey competition regime of the Competition (Guernsey) Ordinance, 2012, under the remit of the Guernsey Competition & Regulatory Authority.
Parts XXI to XXIV of the Companies Law, along with Part IV of the Insurance Law, constitute Guernsey’s modern corporate insolvency law. In many respects, the Guernsey provisions are similar to the UK corporate insolvency regime. The Companies Law has two different forms of corporate insolvency procedures: administration and compulsory liquidation. There is also an antiquated procedure of ‘Désastre’ under Guernsey customary law.
Under the Insurance Law, the Guernsey court may order the winding up of an insurer on the application of:
- any 10% or more of the number of its policyholders, in a case where the insurer has more than 100 policyholders; or
- any 10 or more of its policyholders, in any other case.
There is also provision under the Insurance Law for the reduction of insurance contracts by the Guernsey court, in place of winding up.
The Insurance Law also contains special provisions on the winding up of long-term insurers, including provision for the liquidator to carry on the long-term business of the insurer with a view to its being transferred as a going concern to another body.
Guernsey’s insolvency law is due to be updated and brought further into line with the UK regime by the Companies (Guernsey) Law, 2008 (Insolvency) (Amendment) Ordinance, 2020. This ordinance is not yet in effect, but is anticipated to commence shortly.
There has been strong growth in the formation of new captives and commercial re/insurers in Guernsey due to the continuing hardened market and effects of the COVID-19 pandemic. Guernsey is the domicile of choice for these new formations due to:
- the time and cost efficiencies offered by its non-Solvency II regime;
- its innovative, flexible and well-respected regulatory framework;
- its wealth of service providers; and
- its geographical location.
There is an ever-increasing focus on green and environmental, social and governance (ESG) matters (see question 17 on Guernsey’s innovative new ESG framework). In 2021 Guernsey was chosen by the Danish Red Cross as the domicile for the world’s first humanitarian catastrophe bond covering pure volcanic eruption, which used a Guernsey insurance-linked securities (ILS) structure. We expect to see greater interplay between ILS and sustainable finance in the future.
As noted in question 1.1, the Insurance Law and Intermediaries Law are due to be replaced with revised laws with effect from 1 November 2021.
Guernsey has a world-leading insurance regime due to its long-established pedigree in the insurance sector, having the most flexible, cost-effective and fast-track regimes across a range of insurance products, including captives, insurance-linked securities and reinsurance and other alternative risk transfer, including longevity risk transfer for pension schemes. It is also the first jurisdiction in the world to introduce an environmental, social and governance (ESG) framework specifically for insurers, under which insurers can obtain an accredited ESG kite mark signifying that they demonstrate compliance with the framework and the United Nations Sustainable Development Goals on which it is based.
In terms of traps, non-local insurers offering insurance products into Guernsey should ensure that they are not carrying on activities in or from within Guernsey without a licence, unless they fall under the recognised insurer regime. However, there is no restriction on non-local insurers offering reinsurance to local licensed insurers.