Insurance-linked securities driving cell company formation in Guernsey

The growth and expansion of the insurance-linked securities market for risk transfer and reinsurance-linked investments is driving an increase in the formation of protected and incorporated cells in the domicile of Guernsey. In the first-half of 2013 the Guernsey Financial Services Commission (GFSC) has licensed 46 international insurance entities.

Figures from the Guernsey regulator of financial services show 766 international insurers licensed in Guernsey at the end of June 2013, a figure made up of 241 limited companies, 70 Protected Cell Companies (PCCs), 428 PCC cells, 5 Incorporated Cell Companies (ICCs) and 22 ICC cells. There were 737 international insurers licensed at the end of 2012 which means there has been net growth of 29 entities.

Fiona Le Poidevin, Chief Executive of Guernsey Finance, commented; “These figures show that the first half of this year has been very successful for Guernsey as an international insurance centre. The numbers are particularly impressive considering that they follow a very strong performance during the past couple of years. This continued growth during the first half of the year shows the ongoing attraction of Guernsey as a domicile that can provide solutions to meet a range of different risk management needs.”

Insurance-linked securities and reinsurance-linked investments are a factor which has been driving the growth in protected and incorporated cells in Guernsey. The island has long been host to protected cells used for transforming risks into investable forms or for pure risk transfer and it is seeing growth in this area as the ILS market grows in profile and size.

Le Poidevin stated; “Guernsey Finance is working with GIIA to help promote Guernsey as a centre for ILS in recognition of the fact that the Island is an emerging centre of excellence for this business. The cost efficiency of our structures and the speed to market which we offer mean that we compare very favourably with other domiciles. These factors, coupled with the on-Island collaboration between our experienced insurance and funds sectors, make Guernsey a logical choice for ILS and related business.”

Practitioners on the island bear witness to the growing popularity of Guernsey as a base for ILS vehicles. Nick Wild, Executive Chairman – Global (Ex-Americas) at JLT Insurance Management in Guernsey, said that his firm was seeing an increasing number of inquiries from those looking to manage risk through alternative risk transfer. He cited an example of pension funds looking to use transformer vehicles for transferring longevity risks to a rated reinsurer.

Paul Sykes, Managing Director of Aon in Guernsey and Chairman of the Guernsey International Insurance Association (GIIA), said; “We have seen an uptick in Insurance Linked Securities (ILS) cells being launched. 1 January, 1 April and 1 June are notable dates in the reinsurance calendar for business being conducted and this June saw funds investing into catastrophe risks establishing a number of new cells to issue reinsurance contracts to the markets.”

Sykes said that ILS business has been the driving force behind growth in the rate of cell creation in Guernsey recently. This shows the island is diversifying away from the base for Captives, that it was once seen as, helping its proposition as an international insurance centre and base for ILS transactions.

Le Poidevin added; “These comments from local practitioners, coupled with the statistics from the GFSC, show that Guernsey remains attractive for traditional captive insurance but that we are also diversifying our service base, in terms of the type of risk management and the geographical origin of this business.”

Guernsey is pushing to secure a place for itself in the insurance-linked securities market. It’s growing stature as a domicile for insurance, reinsurance and ILS risk transfer business will increase the choice available to companies looking to engage in activities in the ILS space, both on the risk transfer and investment sides of the market. One day we may even see a catastrophe bond issuance vehicle domiciled on the island.