1 Reprinted with permission CAPTIVE INSURANCE COMPANY REPORTS Learn How To Guernsey Builds on Its Captive Insurance Offering Dominic Wheatley Chief Executive of Guernsey Finance July 2015 Guernsey is well known as Europe’s largest captive insurance domicile and number 4 in the world. In the last year, it has seen the number of international insurance entities continue to grow to nearly 800 by the end of December 2014 (see chart on page 2). This has been spearheaded by increased diversification through the new engineering of longevity risk for pension funds, Insurance Linked Securities (ILS), and commercial reinsurance companies. Reinsurance Kelvin Re became the first Guernsey-based rated commercial reinsurer when it was announced at the end of last year that the privately owned startup company would be using management services provided by Aon Insurance Managers (Guernsey) Limited in a new partnership. What is extremely pleasing is that we understand a number of other commercial reinsurance companies are in discussions to follow in the footsteps of Kelvin Re. As Paul Sykes, Aon Guernsey’s Managing Director, declared at the time of the announcement, Kelvin Re’s launch is evidence of Guernsey’s ambition to become a reinsurance market alternative to Bermuda. Insurance Linked Securities (ILS) According to figures from the Guernsey Financial Services Commission (GFSC), 45 percent of new insurance business coming to the island in the last year was ILS-orientated. In light of the ILS market showing no signs of slowing down, we held our second ILS Masterclass this year. Our first event, held in Zurich in July last year, was so well received that we held a follow-up event in London in March. ”ILS Insight London” was attended by more than 140 delegates and brought together experts from across the ILS space for dialogue and debate surrounding the key industry issues. It underlined Guernsey’s position as a leading Editor’s Note: This article came from Dominic Wheatley, Chief Executive of Guernsey Finance—the promotional agency for the Island’s finance industry internationally. He can be reached at firstname.lastname@example.org. 2 centre for ILS transactions and in particular, the island’s innovative approach to a diverse range of transactions and risks. Pension Longevity Artex Risk Solutions, the captive management subsidiary of Arthur J Gallagher, completed its acquisition of Guernsey-based Heritage Insurance Management during last year, and the firm was selected to provide the insurance management services for the BT Pension Scheme’s new insurance company, BTPS Insurance ICC Ltd. The deal garnered further prominence when the Prudential Insurance Company of America completed what was believed to be the largest longevity risk transaction ever, after it entered into a reinsurance transaction with BTPS Insurance ICC and effected the transfer of a quarter of the scheme’s longevity exposure, thereby hedging around $16 billion of liabilities. Similarly, Towers Watson has announced that it will provide its pension clients with direct access to the reinsurance market through the use of an incorporated cell company (ICC), managed by Willis Guernsey. The product, Longevity Direct, is aimed at providing cover through the reinsurance market for liabilities between £1 billion and £3 billion. More recently, Artex has also joined forces with PricewaterhouseCoopers (PwC) to create a Guernsey-domiciled ICC called Iccaria. This not only offers pension funds the benefit of cost-effective risk transfer but also a flexible structure which enables pension funds to select the service providers they wish to use to administer the arrangements. It is anticipated that pension schemes with liabilities as low as £250 million will now be able to benefit by using the Iccaria facility. Regulatory Change Guernsey has long been committed to the International Association of Insurance Supervisors (IAIS), and this is further witnessed by our implementation of its revised core principles of insurance regulation that will be completed in the coming months. This proportionate approach sends a strong message to the marketplace that the GFSC is pragmatic and flexible as a regulator without compromising the robustness of Guernsey’s regulatory regime. Conclusion It is this consolidation of an innovative industry and intelligent regulation that is underpinning the continued growth within Guernsey’s mature international insurance sector. There is a world-leading captive insurance industry which looks after captives, from the very big, such as BP and BHP Billiton, down to the very small, single-transaction cell structures. There is also a wide range of commercial insurance covering a wide range of specialist lines, such as fine art, directors and officers, bloodstock, expat employee benefits, and kidnap and ransom. Numbers of International Insurers Type Dec. 31, 2013 Additions Surrenders Net Change Dec. 31, 2014 Companies 242 8 8 0 242 PCCs 69 3 5 -2 67 PCC Cells 414 54 32 22 436 ICCs 7 5 0 5 12 ICC Cells 26 15 1 14 40 Totals 758 85 46 39 797 Data Source: Guernsey Financial Services Commission (GFSC) 3 This diversity is further enhanced through the new engineering of longevity risk for pension funds, the fast growing business of ILS and attracting more commercial reinsurance companies. All of this, in addition to Guernsey’s own vibrant domestic insurance market, creates a very diverse and exciting insurance environment. Reproduced from the July 2015 issue of Captive Insurance Company Reports. Opinions expressed in this article are those of the author and are not necessarily held by the author’s employer or IRMI. This content does not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with an attorney, accountant, or other qualified adviser.