Guernsey demonstrates agility and innovation in ILS market
Insurance-linked securities (ILS) is a relatively young industry, where ideas are emerging and developing at speed. At its heart is the serious business of helping to rebuild shattered lives and communities after catastrophic trauma.
Through ILS, insurers are playing a vital role in response and recovery. Nowadays, when even a “normal” year involves mass destruction and fatalities, the new normal presents a challenging picture.
That market overview requires agility and innovation alongside professionalism, regulation and governance - qualities which lie at the heart of Guernsey as an international finance centre.
Guernsey’s insurance industry has built a strong position in the global ILS market and particularly thrives on its long-held reputation for agility and innovation.
In the past 12 months Guernsey has made a number of developments in this area and again has proved it is well set to thrive, with further growth forecast for the ILS and reinsurance markets in 2020.
The most significant innovation in the past year in Guernsey involved the island’s confirming its position to allow rollover provisions for reinsurance contracts, with regulator the Guernsey Financial Services Commission (GFSC) allowing a 30-day period for collateral rollover.
This followed constructive discussions between the local insurance industry and the GFSC to agree this assistance for collateral management. It has been described as a “very good solution”—allowing a latitude of 30 days’ grace, subject to careful risk constraints and management and with the understanding of all sides.
Rollover
The rollover move - now being mirrored by other jurisdictions and a source of considerable interest in industry discussions with potential clients - was announced shortly before the release of the world’s first hybrid vehicle for use in the ILS sector.
Christopher Anderson, Guernsey-based partner of offshore law firm Carey Olsen, came up with the concept of a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund. He said it would reduce the regulatory and governance burden for ILS managers, and would boost Guernsey’s prospects, as a large alternative investment fund jurisdiction, of hosting more ILS funds. Significant interest has been shown, although the product has not yet been used.
This summer’s activity in Guernsey’s ILS sector has included confirmation about the island’s position with regard to the use of reinsurance from a third country outside the EU - such as Guernsey - for a European-domiciled entity.
Speaking at our ILS Insight event in Zurich [in 2019], Jason Noronha, head of actuarial and analytics at Aon, said that full credit would be given for Guernsey reinsurance assets within Solvency II calculations of EU ceding companies, where they are collateralised or appropriately rated.
This was welcome confirmation of the island’s position with regard to Solvency II and reinsurance. Common misunderstanding of this point has constrained the development of our sector, and I look forward to this message becoming much better known.
Guernsey’s advantages
