Guernsey targets all in one ILS vehicle, as activity ramps up

The island domicile of Guernsey has experienced higher insurance-linked securities (ILS) and collateralised reinsurance activity in 2018 so far, compared to the prior year, as use of its protected cell company (PCC) structure continued to increase and now aims to innovate to drive further market growth.

The island has experienced a positive start to the year in ILS, with activity continuing to increase aligned with market growth and the expanding use of collateralised protection in reinsurance.

Statistics for launches of new cells of protected cell companies (PCCs), which are one of the main vehicles for underwriting new ILS business, are now said to be well ahead of those seen in 2017, so far this year.

Market participants have said that business flows, both from established and new clients, remain positive and the Guernsey insurance and reinsurance industry saw overall net growth, including ILS, of 2.2% last year, while top line growth came in at 10%.

By the end of 2017 the number of international insurers in Guernsey stood at 853, of which 57% was represented by PCC cells.

Derek Maddison, Chairman of the Guernsey International Insurance Association, explained that this reflects Guernsey’s strong position in ILS.

He explained that the increasing number of natural catastrophes was helping to drive industry growth, as more companies seek coverage for their catastrophe and weather risks.

“Some of these risks can be difficult to place in conventional insurance markets,” Maddison explained. “There may not be enough capacity or the insureds may want a particular trigger to be used instead of proving an event in the conventional insurance sense. There is also a growing appetite among the institutional investors to diversify into such risks.”

The protected cell company (PCC) has helped to drive Guernsey’s ILS market activity, but the island is ready to launch another new innovation to help it deliver a fresh approach for ILS investment and underwriting activity.

But Guernsey wants to drive further growth of ILS growth and has been considering establishing a legal entity that could combine insurance and investment activity in one vehicle.

That could remove the need for multiple vehicles, often a cell, or reinsurer, as well as a fund structure, enabling ILS arrangements such as a sidecar to be have both risks and assets held in a single entity.

“Although this is at an early stage, this could present significant efficiencies for ILS fund managers,” explained Guernsey lawyer Christopher Anderson, Partner at Carey Olsen.

It will be interesting to see if this new approach can be delivered, as it would be an interesting option for ILS funds and also for re/insurers looking to bring third-party capital into their businesses.

Guernsey Finance Chief Executive Dominic Wheatley stated, “These are exciting times for ILS. With international fragility and uncertainty on the rise, and innovation in the market, the ILS sector is rapidly developing.”

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