Guernsey’s new ILS hybrid: even closer to the risk
The best ideas are often the simplest, and that is reassuringly accurate for the introduction of the world’s first hybrid vehicle for use in the insurance-linked securities (ILS) sector.
The ability to use an all-in-one structure that can act as both re/insurer and ILS fund has existed in Guernsey’s regulatory framework for some time, but the concept had never been fleshed out in practice.
That all changed at the beginning of April when the Guernsey regulator, the Guernsey Financial Services Commission (GFSC), confirmed that it was happy to receive applications from mixed-purpose protected cell companies containing both investment and insurance cells. This enabled the creation of an ILS fund hybrid, something no other jurisdiction in the world can currently match.
The Guernsey hybrid is a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund.
In the absence of the Guernsey hybrid, managers ‘rent’ cells of protected cell or segregated account companies as special purpose insurers (SPIs) to acts as ILS transformation vehicles. Those SPIs usually operate with a different board of directors, different service providers and a different auditor from the fund and may even be in a different time zone.
