Peter Niven, Chief Executive of Guernsey Finance, analyses Guernsey's allure as Europe's chief reinsurance domicile.
Guernsey – A Premier League (H…
Guernsey offers a very favourable environment to conduct reinsurance business. The Island’s position as a leading international finance centre with a very strong captive insurance sector not only means that such diversification is a natural progression but it also provides the foundations for a very attractive proposition. This includes a robust yet pragmatic and flexible approach to regulation and the fact that the Island can offer the full complement of services required to undertake even the most complex of transactions.
It is against this background that Guernsey is seeking to garner interest from those organisations operating in reinsurance and insurance linked securities, particularly given that there are new sources of capital coming to these markets. This capital is being deployed very quickly, often to write specific risks for relatively short duration. Such an operation lends itself to the Guernsey business model and the Island is experiencing an increasing level of interest from the investor community keen to access insurance risk.
So what sort of reinsurance business would be good business to conduct from Guernsey? We have identified the following:
Non US business – Bermuda and Cayman are better placed to work with the US markets and this is not a focus for Guernsey
Business with generally low administrative work loads – there are not large numbers of staff available to apply to a low level administration business: although much of this work could be outsourced from the Island where processing is a requirement of the business plan
Business that can take advantage of the:
Zero tax regime on the Island
Island’s approach to regulatory requirements for capital regarding Solvency Margin Requirements (SMR) and Own Capital Risk Assessments
Legislation that enables a single entity to enter into insurance/reinsurance contracts and capital market derivative contracts, such as Insurance Linked Securities (ILS) and International Swaps and Derivatives Association (ISDA) contracts from the same company
Securitisation of insurance portfolios, particularly life
Business that may complement the captive insurance business that exists in the Island, as these captives are collectively very substantial purchasers of reinsurance capacity
The key players that have already established operations in Guernsey include Barbican Re, Catlin, Conopious, Generali and Hiscox.
The potential for this to be significantly expanded has been opened up by the announcement that a licence has been issued to Lloyd’s which permits its underwriters to write direct general insurance business (including domestic business) in or from within Guernsey.
In addition, UK groups may be further attracted to establish reinsurance operations in Guernsey by proposed changes in UK taxation law. It is planned that from 1 July 2009 UK companies with overseas subsidiaries whose business is substantially third party transactions – such as reinsurers – will become exempt from paying UK tax on the dividend returned to the parent.
This provides extra flexibility and enables decisions to be made for purely business reasons. It is benefit to UK groups with subsidiaries, no matter where they are located. However, the changes actually make Guernsey even more attractive in comparison with some of its competitor domiciles. Provided the right conditions are satisfied, the absence of taxation in the UK at parent level, combined with Guernsey’s zero rate of tax for insurance companies, means that a UK group with a Guernsey reinsurance vehicle can ensure return on capital deployed are maximised.
In talking to a number of key players in this field we have found that there is considerable pent up demand in the capital markets for insurance linked investment opportunities. Furthermore, we have found that many European based organisations did not realise that they could conduct this business in such a close location. We firmly believe that the Island has the expertise and resources to provide a very high quality service for these deals and the organisations instigating them.
About the Author
Peter Niven Peter Niven is the Chief Executive of Guernsey Finance, the promotional agency for the Guernsey’s finance industry internationally.
Previously Chief Executive of the Lloyds TSB Offshore Financial Services Group, he has over 35 years experience in the financial services market in both the UK and offshore.
Mr Niven is also a non-executive director of several Guernsey based fund and captive insurance companies.
He is also a Fellow of the Institute of Bankers and a Chartered Director.