Guernsey, a leader in captives and protected cells, targets insurance-linked securities

Guernsey, one of the Channel Islands which sits in the English Channel south of the UK and close to France, is one of the world’s leading locations for licensing and domicile of international insurance entities. It has long been home to captive insurers, protected cell companies (PCCs)and incorporated cell companies and is now home to 344 of them as well as another 395 PCC cells. The island is seeing strong growth in those numbers and has identified an opportunity to grow further with insurance-linked securities.

We’ve written before about Guernseys activities within the ILS and catastrophe bond sector and its aspirations to grow the islands involvement in the collateralized reinsurance space and to become a home to catastrophe bond issuing SPV’s. We first wrote about this back in November 2010 when the islands financial market expressed a desire to get more involved in the space. More recently we’ve written about Guernsey as a home for private ILS deals, here as domicile for a life securitization and here as domicile for private cat bond deals, and finally in May we covered one firms use of protected cell companies for ILS funds to transform reinsurance and issue securities. So Guernsey itself is quietly active in the ILS and cat bond space but it doesn’t receive the headlines that Bermuda and the Cayman Islands achieve as domiciles for 144a cat bond and ILS transactions.

Guernsey has been accelerating their push to attract new licenses to the island and have successfully grown the number of registered entities domiciled on the island by 52 in the first five months of 2012. Fiona Le Poidevin, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry, said; “Figures from the GFSC (Guersney Financial Services Commission) showed that the number of new licences being issued really accelerated as we moved through last year and I am delighted to see that this trend has continued during the early months of 2012.”

And it’s not just the more traditional captive insurers being licensed, Guernsey is seeing growth in their protected cell company formations, Guernsey was the first domicile to offer these types of cell companies back in 1997. Le Poidevin said; “We are seeing new licences issued across the different types of structures available but there has been especially strong growth in the number of cell companies being formed.”

These cell companies allow for various ILS and cat bond related activity to be undertaken as well as the more traditional captive type use. From using a cell as a transformer vehicle to allowing issuance of securities within a cell, they offer potentially simpler entities to ILS funds and those seeking to enter the space more efficiently or on a smaller scale.

Le Poidevin added; “Indeed, what I am hearing from industry is that there is a real focus on making use of the structure to provide some innovative solutions, for example in the form of Insurance-Linked Securities (ILS) where Guernsey’s experience and expertise across both the insurance and investment sectors make the Island an ideal home for such structures.”

So Guernsey seems set to continue its novel use of protected cells for insurance-linked securities and catastrophe bond activities. Beyond that Guernsey certainly has everything it needs to operate as an issuing domicile for cat bonds and ILS. It wouldn’t surprise us to see them enact a special purpose insurer registration process to compete with Bermuda and the Cayman Islands on ILS and cat bonds. Guernsey is in an enviable position of being able to watch what the other ILS focused domiciles do and try to compete based on innovation and their already established insurance management infrastructure.