Captive Review (CR): How is Guernsey, as a jurisdiction, maintaining its competitive edge and bringing in new businesses?
Clive James (CJ): The number of captives, cells and PCCs set up in Guernsey recently clearly demonstrates that it is growing its market position. Compared to other European domiciles, it is ahead in terms of new formations.
A key reason for this is the quality of the island’s infrastructure. Several major managers are located here and have been for a long time. It is a domicile which fosters innovation and the development of new products. It provides an efficient regulatory regime, with good communication lines between the regulators and the managers, as well as a well-established service network, including legal and accountancy firms. Guernsey’s proximity to London also opens the island up to a significant amount of ‘international’ business from the London insurance market.
From a European perspective, Guernsey’s approach to Solvency II offers managers on the island much greater flexibility. This, combined with the responsive approach of our regulators, means we can react quickly to market changes, compared to other jurisdictions where EU regulations can mean that something which would take a few weeks in Guernsey can take months elsewhere.
CR: Guernsey has seen significant growth in the set-up of new cell companies in the past few years. How are you seeing clients using cells in new and innovative ways?
CJ: Clients are using a number of innovative approaches to get the most from their cell strategy. This willingness to expand the cell remit is primarily down to new clients having a better understanding of the cell itself and what it can offer. We are seeing cells being used to access not only the reinsurance market, but also the capital markets through ILS structures. The increasing speed of set-up and highly efficient capital model that they offer is attracting new clients to the cell arena, such as entrepreneurs and small businesses who are using the cell structure to access the profits and cash flows of their own businesses. The appeal of the cell company is now being recognised by a much wider marketplace.
CR: Are you finding that these new cell owners are making the transition to full captives when their business grows?
CJ: At Kane, we often advise new entrants to start with a cell structure, but with the aim of moving on to a captive if it is successful. This evolution however does not happen as often as we might like it to. What is perhaps more interesting is that we are setting up new companies where our clients have their own PCCs and put their clients’ business through those cells. We are seeing more and more companies moving straight to fully fledged PCCs or ICCs – depending on what they are looking to achieve – rather than setting up new captives.
CR: The ILS sector has also witnessed significant growth in recent years. Can Guernsey compete in this market and how is it accommodating this growth?
CJ: Guernsey’s cell structures offer an ideal means of accessing capital markets in the form of an SPV. However, with ILS structures familiarity is key and for cells to become part and parcel of any ILS transaction it is essential that all parties to the structure must be comfortable with how they work and the regulatory framework which underpins them.
Bermuda and Cayman have each established a strong standing in the ILS arena and Kane has set up numerous structures in these domiciles. However, there is growing interest in building a strong ILS hub in Europe, and Guernsey has the potential to secure that position given the expertise and infrastructure available on the island. It is already achieving strong ILS growth, and given the attractiveness and flexibility of its regulatory environment and calibre of expertise on island, this growth looks set to continue at pace.
CR: Kane has a presence in several offshore jurisdictions, how important is Guernsey to its overall performance, particularly given its proximity to the UK market?
CJ: Guernsey is certainly a key domicile within Kane’s global network and our proximity to London, as I mentioned, is certainly an advantage given the business opportunities that we access through this market. However, one of Kane’s main strengths is its overall global standing and the domicile neutrality this provides – no one domicile is more important than any other. If we look, for example, at where the biggest growth areas were in 2014, the formation of ILS structures through cells within a PCC or ICC was certainly one. Kane has established an extensive, global ILS framework, which means that we are able to offer our international client-base access to the capital markets, whether that be through our operations in Guernsey, Cayman, Bermuda, and more recently Malta. This global platform acts as the foundation for Kane’s success.
CR: What features of Guernsey’s regulatory framework make it so efficient?
CJ: Guernsey is outside of the Solvency II, which makes a big difference. From a regulatory standpoint, its insurance legislation has been in place since 1986, and “A key stage in our evolution was the establishment of our PCC on the island a number of years ago – this has helped us to generate significant opportunities for developing new business”has evolved with the changing demands of the marketplace. Furthermore, the responsiveness of our regulators has ensured that AML practices, corporate governance requirements and compliance demands have all been effectively embedded into the regulatory structure. This has a lot to do with the strength of the relationship which exists between managers and regulators, a relationship which has helped the jurisdiction maintain its attractiveness to newcomers.
CR: As a long-standing practitioner on the island, how would you say that Kane has carved out its position in Guernsey’s business landscape?
CJ: We started from a very small base in Guernsey and have grown significantly from there. A key stage in our evolution was the establishment of our PCC on the island a number of years ago – this has helped us to generate significant opportunities for developing new business. In fact, the vast majority of our business in the last two years has come through cell companies.
We also work very closely with independent players in the market. This means that our marketplace and the distribution channels which we offer our clients are quite different from those of other major broking operations who own managers on the island. Our aim is to provide innovative, bespoke products and solutions to a broad spectrum of international clients, ranging from brokers and insurers, to Lloyd’s syndicates and MGAs, through our cell structure.
CR: What developments does Kane have planned for 2015 and beyond?
CJ: One area in which we have achieved significant success in recent years is in our ability to combine the range of services we offer into a single, allencompassing solution. We have seen a number of opportunities where we have been able to bring together our ILS administration, fund management and insurance management capabilities to meet the requirements of a particular client – providing front-end SPV insurance management operations supported by back-end fund administration delivered across a global platform. Our ability to provide this joined-up service offering we feel will become increasingly important in 2015 and beyond.
Clive James, COO of Kane, talks to Captive Review about the expansion of Guernsey’s ILS and cell company markets