Guernsey pitches self as complementary ILS market to London

by Artemis on June 5, 2018

Guernsey Finance believes the islands insurance-linked securities (ILS) sector can work closely with the recently established London marketplace ILS regulations, describing their respective ILS regimes as complementary to one another.

After establishing itself as a new ILS domicile in 2017, London’s ILS business is now up and running, underlined by SCOR switching the preference of its ILS domicile to the UK for its first catastrophe bond in more than two years, being Atlas Capital UK 2018 PLC (Series 2018 ISPV 1).

Furthermore, the first ILS authorisation was agreed within two weeks of the UK ILS legislation being passed into law, with the UK government saying at the time that other ILS vehicles were in the pipeline.

However, in a recent announcement Guernsey Finance notes, that after discussions with lawyers and ILS sector representatives in both London and Zurich earlier this year as part of a roadshow, to date, London’s ILS business has got off to a slow start.

Peter Child, Managing Director of Artex Risk Solutions in Guernsey, Chairman of the Guernsey International Insurance Association’s Market Development Committee, and who was part of the roadshow, commented: “We gained the view from those that we spoke to is that London could be seen as complementary to Guernsey’s ILS sector.

“While there is demonstrable political will to see the London ILS offering thrive, maintaining its insurance sector’s reputation as a full-service centre capable of delivering a full range of insurance and reinsurance services, it is clear that the ILS sector is developing fairly slowly.

“We believe that Guernsey still holds a number of advantages – the responsiveness of our regulator, our experience in the sector, the breadth of our offering in the funds and insurance space, and our status outside of Solvency II.”

While the UK’s ILS business might be viewed to be taking off slowly, it’s encouraging that such a prolific reinsurer like SCOR chose the UK’s ILS framework for its most recent transaction, something that is likely to give other sponsors considering the UK as an ILS domicile more confidence and comfort doing business in the region.

“Although London is nominally a competitor, if London can make a contribution to drive forward the growth of the ILS market, we think that should be good for all involved,” said Child.

Clearly, the UK will want to establish itself as a competitive ILS domicile, just like other hubs around the world, such as Guernsey and Bermuda. However, and as noted previously, it will likely be beneficial to the broader ILS community for domiciles like the UK and Guernsey to work closely together where they can, ultimately complementing one another for the good of the industry and to support future growth.

Chief Executive Officer (CEO) of Guernsey Finance, Dominic Wheatley, who also took part in the roadshow, said: “Nowhere else can match Guernsey’s unique combination of funds, trust and insurance management expertise, and its ability to deliver bespoke complex products with consistent high quality.

“Following the claims of 2017 the market is strengthening and we are seeing real signs of the permanence of ILS as a key part of the reinsurance market.  We are also seeing new capital coming to the market and hearing about innovative structures and business models that are innovating all aspects of the ILS value chain.”

Traction has been slow for the UK ILS regulatory regime, but now with one sidecar type collateralised reinsurance transaction from Neon, as well as the first UK domiciled catastrophe bond from SCOR, the regime is now showing it could become an attractive option for sponsors.

Guernsey is largely a domicile for private collateralised reinsurance transactions at the moment, using its protected cell structures. It will be interesting to see whether the UK can generate some traction in this area of ILS as well, given the regulations allow for it.

As we’ve said before though, choice is important for sponsors and investors, so having multiple locations where ILS can be transacted is key to the future, sustainable growth of the capital markets in reinsurance.

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