The Guernsey Advantage For New SP Collateralised Reinsurers

Walkers partner Kate Storey is one of the leading insurance lawyers in Guernsey. Kate is a Guernsey Advocate with more than a decade's experience offshore, specialising in insurance and investment fund matters. In this piece she explores the benefits of Guernsey's SPI regime for international clients.

It often surprises me when talking to new clients on domicile choice how relatively little known the advantages of the Guernsey Special Purpose Insurer regime are. Whilst last year Bermuda introduced a new class of collateralised reinsurer to meet demand for a more flexible approach to capital requirements, type of cedant and product type than offered by the Bermuda SPI or Class 3 insurer, Guernsey has already had a regime in place (since 2017) which caters for those requirements and in fact has greater flexibility and lesser capital requirements. Plus Guernsey's regime still facilitates capital relief for Solvency II cedants to the extent of the collateralisation – the SPI does not need to be rated.

Examples of this greater flexibility include:

1. Transactions can be 100% collateralised by contingent capital, including letter of credit, reinsurance, partly paid share capital, and other forms of contingent capital approved by the Guernsey regulator. Alternatively the capital can be fully paid in in the usual way, or there can be a combination of paid in and contingent capital.
2. There is no risk based regulatory capital requirement for Guernsey SPIs, either at cell or core/general account level – the SPI must simply be “fully funded” (collateralised) at all times and able to pay its liabilities as they fall due.
3. There are no prescriptive requirements on the investments that can be made by the SPI, provided that in practice the above solvency requirements can be met at all times.
4. There is a 30 day collateral rollover relief whereby there is a 30 day grace period following renewal to comply with the fully funded requirement.
5. It is possible for a Guernsey SPI collateralised reinsurer to get a dual licence to do long term/life as well as general business (in different cells of the cell company).
6. There is a variety of structures capable of being licensed by the Guernsey regulator, including protected cell companies, incorporated cell companies, GP/LP structures and hybrid investment/insurance cell companies, including cell companies comprising investment fund cells and SPI cells within the same legal entity. There is a fast track licensing regime available whereby cells can be licensed post-deal provided the notification application is made to the Guernsey regulator within 7 days after the effective date of the insurance.

So for clients who want to do multiple transactions with multiple unrestricted cedants and multiple investors, in complex ILS deals, Guernsey offers the ideal flexible solution in terms of product ambit, variety of cedant and capital, in an EU and OECD “white listed” jurisdiction.

Walkers offers Guernsey law advice on the full scope of insurance matters, from formation and licensing to ongoing regulatory compliance and corporate and transactional matters, for all types of insurers, insurance managers, agents and brokers. Walkers has advised on the majority of ILS special purpose insurers incorporated in Guernsey under the SPI Rules 2016.

Originally published 01 July, 2020

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.