Guernsey wants to be at forefront of ILS innovation

The Channel Island of Guernsey continues to push innovation for the insurance-linked securities (ILS) sector, as it seeks to provide new options that meet the needs of those seeking risk transfer, those managing the risks and the end-investors, by the enactment of flexible legislation.

Case in point the 30-day ILS collateral rollover rule, which Guernsey introduced at the end of last year.

While new and relatively untested in the real-world so far as a result, the collateral rollover provision will offer ILS funds operating in Guernsey a level of flexibility around the end of contract period transfer of collateral from one trust account to another.

It means there is a 30-day grace period at the start of a transaction, where an ILS cell won’t be considered in breach of its fully-funded requirements if the collateral is not fully in-place.

Others are expected to copy this collateral rollover rule, as it makes sense for their to be a little more flexibility around this rule given the fully collateralised nature of ILS and reinsurance.

Hence, Guernsey can be considered an innovator with this kind of initiative, as a first to market provider of such collateral flexibility.

In addition, the hybrid insurance-linked securities (ILS) vehicle that provides an all-in-one structure able to act as both re/insurer and ILS fund, is seen as another example of innovation coming out of Guernsey.

Again, untested so far, but answering a need for certain types of operators in the ILS space, it remains to be seen whether there is significant uptake for this initiative.

But it demonstrates again that Guernsey is developing solutions that meet the needs of clients and that could provide mechanisms that support future ILS market growth in general.

Commenting on these activities, Dominic Wheatley, Chief Executive of Guernsey Finance, said, “Guernsey already has a number of advantages as a domicile for ILS, including the breadth of our funds and insurance knowledge, our status outside of Solvency II, our experience and the responsiveness of our regulator.

“The Guernsey Financial Services Commission (GFSC) is striving to achieve a balance between proper levels of security and the interests of investors, with a pragmatic, business-friendly approach that allows industry to get on with doing business, and seeks to provide a secure regulatory environment while preserving the essential business-friendly nature of Guernsey as an ILS centre.

“Guernsey is a key player in the ILS transformation market and as the asset class continues to grow Guernsey’s role in it will grow too, and I am sure we will continue to be at the forefront of innovation in the ILS sector.”

It seems to be paying off, as Guernsey experienced more activity in the ILS sector than other areas of insurance and reinsurance in 2018, as ILS structures formed the majority of licence applications in Guernsey last year.

While some of this is down to repeat business, of course, the regulator also said that it saw “good flows of new business into the sector.”

Guernsey Finance noted that the regulatory consent of the 30-day ILS cell funding rollover has “been widely welcomed and attracted considerable interest from the wider ILS industry.”

In addition, the all-in-one fund and reinsurer ILS hybrid structure has also helped to raise the profile of Guernsey’s ILS sector.

The proof will be in the use of these initiatives, not just in their delivery and marketing. But encouragingly both are being well-received and demonstrate a focus on the customer, which in the case of the financial market domicile is all-important.

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