45% of business from new re/insurers in Guernsey was ILS in 2014

Of 85 insurance and reinsurance vehicles licensed in Guernsey during 2014, 45% of the business underwritten during the year was insurance-linked securities (ILS) related, demonstrating the domiciles attractiveness for ILS transactions.

The 85 new international insurance and reinsurance entities licensed in 2014 by the Guernsey Financial Services Commission (GFSC) consists of eight limited companies, three Protected Cell Companies (PCCs), 54 PCC cells, five Incorporated Cell Companies (ICCs) and 15 ICC cells.

The range of business underwritten over the 12 months of 2014 is broken down by the GFSC as Insurance Linked Securities (ILS) (45%) and re/insurance lines covering property (13%), life/health (8%), and After the Event (ATE) legal expense (7%).

Dominic Wheatley, Chief Executive of Guernsey Finance, commented; “These figures show that last year was very successful for Guernsey as an international insurance centre. We continue to see growth in new entities related to ILS transactions but also a steady stream of more conventional captive insurance vehicles.”

The addition of 85 new re/insurance entities takes the total licensed in Guernsey to 797 at the end of 2014. This total breaks down as 242 limited companies, 67 PCCs, 436 PCC cells, 12 ICCs and 40 ICC cells. This compares to 758 international insurers being licensed by the GFSC at the end of December 2013, representing net growth of 39 entities during 2014.

Guernsey has been an attractive ILS domicile for managers looking to transact collateralized reinsurance in protected cells, or to transform risks, and this activity has increased over the last year. However the island is also attracting other types of re/insurance business, some of which is alternative or third-party capital related as well.

These transactions include Credit Suisse Asset Management’s Kelvin Re vehicle, Guernsey’s first rated commercial reinsurer which takes a third-party capital funding approach, with a more active perhaps hedge fund like investment strategy, while also offering a leveraged platform to ILS manager CSAM.

Other transactions of note in 2014 include the BT Pension Scheme’s longevity risk vehicle BTPS Insurance ICC being established and their first transaction with Prudential becoming the largest longevity risk transaction ever, hedging £16 billion of liabilities.

Also in 2014 Towers Watson established its ICC, Longevity Direct. Longevity Direct enables pension funds to directly access reinsurance capacity by providing a cell which can act as an insurer for the transaction, thus reducing frictional costs of longevity swap deals.

While Guernsey continues to attract increasing amounts of ILS business and also now interesting transactions such as Kelvin Re and the longevity swap business, it seems set to continue growing its usefulness to third-party reinsurance capital managers and the ILS market.

“Pension longevity risk has become a key strength for our insurance sector towards the end of 2014 and we expect that to continue into 2015. Likewise, we understand that a number of other commercial reinsurance companies are in discussions to follow in the footsteps of Kelvin Re, which is extremely pleasing,” commented Mr Wheatley.