Growth through diversity for Guernsey

25 February 2015

Written by Dominic Wheatley

Guernsey is well known as Europe’s largest captive insurance domicile and number four in the world. In the last year we have seen the number of international insurance entities continue to grow to nearly 800 by the end of December 2014.

This has been spearheaded by increased diversification through the new engineering of longevity risk for pension funds, insurance linked securities (ILS) and commercial reinsurance companies.

Reinsurance

Kelvin Re became the first Guernsey-based rated commercial reinsurer when it was announced at the end of last year that the privately owned start-up company would be using management services provided by Aon Insurance Managers (Guernsey) Limited in a new partnership.

Providing short-tail property and specialty lines reinsurance, the company plans to build a $100m book of business in its first year of which around two-thirds will be non-proportional catastrophe risks. What is extremely pleasing is that we understand a number of other commercial reinsurance companies are in discussions to follow in the footsteps of Kelvin Re.

As Paul Sykes, Aon Guernsey’s Managing Director, declared at the time of the announcement, Kelvin Re’s launch is evidence of Guernsey’s ambition to become a reinsurance market alternative to Bermuda – something I fully believe to be the case too.

Insurance linked securities

According to figures from the Guernsey Financial Services Commission (GFSC), 45% of new insurance business coming to the Island in the last year was ILS-orientated. In light of the ILS market showing no signs of slowing down we will be holding our second ILS Masterclass this year. Our first event, held in Zurich in July last year, was so well received that we are hosting a follow-up event in London on Wednesday 18 March at the British Museum. ILS Insight London will bring together experts from across the ILS space for dialogue and debate surrounding the key industry issues. The first panel session will cover structuring innovation and the critical factors both enabling and restricting new solutions, while the second will examine the range and depth of Guernsey as an ILS jurisdiction.

Pension longevity

Artex Risk Solutions, the captive management subsidiary of Arthur J Gallagher, completed its acquisition of Guernsey-based Heritage Insurance Management during last year and the firm was selected to provide the insurance management services for the BT Pension Scheme’s new insurance company, BTPS Insurance ICC Ltd.

The deal garnered further prominence when the Prudential Insurance Company of America completed what was believed to be the largest longevity risk transaction ever, after it entered into a reinsurance transaction with BTPS Insurance ICC and effected the transfer of a quarter of the scheme’s longevity exposure thereby hedging around $16 billion of liabilities.

Similarly, Towers Watson has recently announced that it will provide its pension clients with direct access to the reinsurance market through the use of an Incorporated Cell Company (ICC), managed by Willis Guernsey. The product, Longevity Direct, is aimed at providing cover through the reinsurance market for liabilities between £1bn and £3bn. The Merchant Navy Officers Pension Fund (MNOPF) is the first scheme to utilise this facility. The MNOPF has worked with Towers Watson to complete the transaction which used MNOPF IC Limited – a cell within Towers Watson ICC – to facilitate reinsurance of the risk with Pacific Life Re.

Regulatory change

William Mason, Director General of the GFSC, was also elected to the International Association of Insurance Supervisors (IAIS) Executive Committee at the end of last year.

Our commitment to the IAIS is further witnessed by the implementation of its revised core principles of insurance regulation that will be completed in the coming months. These changes will set the bar for proportionate interpretation of the revised principles and provide a strong basis for the regulation of Guernsey insurance for the future. It also sends a strong message to the marketplace that the GFSC is pragmatic and flexible as a regulator without compromising the robustness of Guernsey’s regulatory regime.

Conclusion

It is this consolidation of an innovative industry and intelligent regulation that is underpinning the continued growth within Guernsey’s mature international insurance sector. There is a world-leading captive insurance industry which looks after captives from the very big such as BP and BHP Billiton down to the very small single transaction cell structures. There is also a wide range of commercial insurance covering a wide range of specialist lines such as fine art, directors and officers, bloodstock, expat employee benefits, and kidnap and ransom.

This diversity is further enhanced through the new engineering of longevity risk for pension funds, the fast growing business of Insurance Linked Securities (ILS) and attracting more commercial reinsurance companies. All of this, in addition to Guernsey’s own vibrant domestic insurance market, creates a very diverse and exciting insurance environment.

An original version of this article appeared was first published in Reactions ’ special domiciles feature ‘Location, location, location’, January 2015.

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