Insurance linked securities
Insurance-linked securities (ILS) are financial instruments which are linked to insurance risks and whose value is influenced by an insured loss event which underlies the security. The term encompasses catastrophe ‘cat’ bonds for property risks such as earthquake and other forms of risk-linked securitisation including life insurance risks such as longevity.
ILS have become popular with both insurers and investors in recent years. They allow an insurer to purchase additional protection for low-frequency, high-severity losses such as those connected to natural catastrophes. Meanwhile, investors are attracted to ILS because returns are not correlated with the financial markets thereby enabling diversification within their portfolios. ILS also provide investors with an opportunity to invest in insurance and reinsurance markets other than by purchasing shares in insurance companies directly.
Guernsey is not just restricted to transactions involving catastrophe risks and has a diverse range of risks across its ILS sector including the reinsurance of satellites, football clubs and players, lottery risk and marine reinsurance.
“Guernsey can boast a diverse range of transactions and risks across its ILS sector, including the reinsurance of satellites, lottery risk, football clubs and players and marine reinsurance. The Island's focus does not just revolve around traditional catastrophe risks.” Dominic Wheatley, Chief Executive of Guernsey Finance
Guernsey's experience and expertise in both the investment funds and insurance sectors are combined in its ILS offering. Fund managers and promoters with capital to deploy are brought together with transformation managers who understand insurance risk.
A major differentiator of Guernsey is the ability to offer innovative cell structures which enable the legal segregation of assets and liabilities within each cell - a protected cell company (PCC), which is a single legal entity divided into the core and individual cells, and an incorporated cell company (ICC), in which each incorporated cell (IC) is a separate legal entity.
A recent development in 2019 is the world’s first mixed purpose PCC/ICC, which is both a licensed insurance company and an investment fund and brings a whole new level of simplicity and efficiency for ILS managers.
Access to capital markets
TISE is headquartered in Guernsey and provides a responsive and innovative listing and trading facility for companies to raise capital from global investors. Sensible rules, speedy turnaround times and a competitive fee regime, coupled with international recognitions which widen the investor base, have helped TISE to attract significant ILS business, including some highly innovative listings. This includes the first private catastrophe bond to be listed on any exchange worldwide and the first ever securitisation of takaful (Sharia compliant) insurance policies. ILS funds are also listed on TISE. In 2018, TISE became the venue for what is believed to be the first ever listing on a regulated exchange of notes digitised on a blockchain. Dom Re IC Limited, which is a cell of Solidum Re (Guernsey) ICC Limited, has issued notes digitised on a private blockchain; referred to as "ILS Blockchain" , the mechanism replaces the role of a traditional settlement system for the note issue.
Guernsey is the global leader for LSE listings of non-UK entities. At the end of April 2020 there were more than 108 Guernsey entities listed on the LSE, which puts the island well ahead of its competitors.