Guernsey shows market lead with ILS collateral rollover clarification

26 March 2019

Guernsey’s confirmation of 30-day rollover for insurance-linked securities cells established in the island demonstrates Guernsey as an innovator in the ILS field and could lead to other ILS markets reviewing their approach, according to Mark Elliott, Director of ILS Management at Aon Insurance Managers.

Mr Elliott was speaking at an event hosted by Guernsey Finance as part of a two-day ILS roadshow conducted by Guernsey industry representatives in London.

The new 30-day rollover provisions – which mean that for a 30-day period at the start of a transaction, including a renewal, an ILS cell is not considered to breach its fully-funded requirements if collateral were not yet in place – were announced at the end of last year and were well received in the market, said Mr Elliott. The move has been seen as advantageous for ILS fund managers and cedants.

“This tidies up a headache and offers absolute clarity which is really helpful,” he said in London. “It has been well received in the market – there has been a sigh of relief that everyone can take clarity from what has been a difficult issue.

“It will be interesting to see if other domiciles follow suit or what the definition of fully-funded might be from other domiciles.”

Liam Cunningham, Deputy Director of the Banking and Insurance Division at the Guernsey Financial Services Commission, said that the Commission still sought to maintain levels of security over transaction and did not want the rollover provisions to be seen to reduce confidence in the Guernsey ILS product.

“What we have done is made our expectations very clear about what fully-funded means, how this can be used, and in what circumstances. While the Guernsey approach is responsive to industry needs, it is also subject to regulatory oversight which will serve to protect the interests of investors and cedants.”

Dominic Wheatley, Chief Executive of Guernsey Finance, said that the rollover move achieved a balance for all parties.

“This is a balance that the GFSC is striving to achieve between proper levels of security and the interests of investors with a pragmatic, business-friendly approach that allows industry to get on with doing business.

“Our regulation has a number of key differences designed to prevent failures. These include the requirement for external audit of special purpose vehicles and for third-party verification of claims reserves. We believe these provide a more secure regulatory environment while preserving the essential business-friendly nature of Guernsey as an ILS centre.”

“What we have done is made our expectations very clear about what fully-funded means, how this can be used, and in what circumstances. While the Guernsey approach is responsive to industry needs, it is also subject to regulatory oversight which will serve to protect the interests of investors and cedants.”
Liam Cunningham, Deputy Director of the Banking and Insurance Division, Guernsey Financial Services Commission

Mr Elliott said that Guernsey’s ILS offering continued to flourish in a “challenging and interesting time” for the market, with two years of claims following a decade of benign conditions.

“As an uncorrelated market ILS is still attractive to investors and the overall strategy holds true as a diversifier, we’ve just seen more discipline and rigour come into the market as a result of the losses incurred over the last two years.

“Guernsey is one of two real key players in the ILS transformation market, and as the asset class grows I see Guernsey’s role in it grow too. All market commentary points towards growth in this space and Guernsey will continue to be at the forefront of innovation in the ILS sector.”

“Guernsey is one of two real key players in the ILS transformation market, and as the asset class grows I see Guernsey’s role in it grow too. All market commentary points towards growth in this space and Guernsey will continue to be at the forefront of innovation in the ILS sector.”
Mark Elliott, Director of ILS Management, Aon Insurance Managers
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