Guernsey targets special purpose insurer (SPI) rules by year-end

Guernsey is seeking to build on its insurance-linked securities (ILS) and collateralised reinsurance activity by adding legislation to allow for special purpose insurance (SPI) vehicles, which could be catastrophe bond issuers, for the end of 2016.

Revealed at the Guernsey Insurance Forum 2016 event held in London yesterday, the domicile of Guernsey is now targeting a full special purpose insurer (or reinsurer) (SPI) structure, which will offer an option to catastrophe bond transactions to come to the island.

Guernsey already has a burgeoning business reputation as a home for collateralised reinsurance transactions, with its protected and incorporated cell company vehicles utilised by a number of ILS investment managers and funds.

Additionally Guernsey is a home to insurance captives, longevity swap transactions and a raft of other reinsurance vehicles and arrangements.

The SPI rules have now been drafted and are with the regulator, the Guernsey Financial Services Commission (GFSC) for final review, after which they will be released for feedback and comment from the market, before being ratified by the end of the year.

Mark Helyar, a lawyer of counsel with lawfirm Bedell Cristin and a specialist in Guernsey ILS structures, revealed the SPI work at yesterday’s event in London.

“Innovation is a key word” with respect to ILS in Guernsey, Helyar explained, hence the aim to add a special purpose insurance and reinsurance vehicle to the roster of structures Guernsey can support for the ILS market.

“In the last few days we’ve agreed special purpose insurer rules along with the Commission,” he continued. “I helped to draft those and the Commission reviewed them and we’ve pretty much signed them off.”

Helyar explained that the next step is for the Commissioners to approve them before the SPI rules will go out for consultation to the market.

“We’re expecting them to be in place before the end of the year,” Helyar said.

Once in place and on the statute books the SPI rules will level the playing field for Guernsey versus other ILS domiciles, Helyar stated.

Deputy Director for Insurance at the GFSC Caroline Bradley also confirmed to Artemis that the target is to have Guernsey ready to host SPI’s for ILS business by the end of 2016.

The process to draft the SPI regulations has involved feedback from the market, including insurance, reinsurance and ILS players, Artemis was informed yesterday.

Sensibly, Guernsey is not looking to reinvent the wheel, instead borrowing from ILS and cat bond market best practice to produce a set of rules identical to the main domiciles, as it seeks to complete the islands offerings for collateralised reinsurance practitioners and investors.

There are a number of domiciles which have legislation specifically aimed at enabling special purpose vehicles for the reinsurance industry to be domiciled there. Most prolific are of course Bermuda, which has taken the lead and dominated the SPI market for catastrophe bonds and ILS in recent years, as well as the  Cayman Islands and Ireland, with Gibraltar, Malta and the Isle of Man also seeking to start attracting this business.

Guernsey seeks to attract a share of this growing global market and its SPI rules should allow for catastrophe bond issuing vehicles or reinsurance sidecars (which also use the SPI structure at times) to be domiciled on the island, as well as other fully collateralised reinsurers for which an SPI is a suitable vehicle.

Of course there will be stiff competition for SPI business from other domiciles, but it is positive that Guernsey can offer a full range of ILS structures and as the ILS market continues to grow choice for both ceding companies and investors, in where to locate vehicles, is increasingly important.