New ILS structure to combine fund, insurance element
A new single structure for conducting both the fund and insurance element of insurance-linked securities business is being devised in Guernsey.
Developments will lead to “true convergence” in the ILS space, where “capital markets and insurance markets meet”, insurance lawyer Mark Helyar said while speaking at the ILS Insight event organised by Guernsey Finance in Zurich.
“My job is to put together structures to help them to invest in each other,” Helyar explained.
“The collateralised re market has become so big in recent years. With cat bonds you’ve got risk looking for capital, and with collateralised re you have capital looking for risk.
“As the market has grown the need for more structures, and more efficiency, has become more of a pressure. There is evolution – things are changing all the time, and new structures are appearing regularly as we are always trying to think of new ways to do things more efficiently,” Helyar noted.
Helyar is involved in the development of what he calls the “Fund of One”, where the investor would set themselves up with an unregulated investment fund and their own transformer cell, thereby running a private fund within a regulated structure.
“This is the way I think investors want to see the direction of travel – more control, reduced costs, both vehicles in the same jurisdiction, variable capital commitments brought in and out, and you can see exactly what you are doing,” Helyar said.
He noted that this model removed the challenges of frequently operating in different jurisdictions, regulation, time zones, accounting rules, audit, and extra layers of administration costs.
“There is a big circle and everyone in that circle is taking a cut. Investors have difficulty understanding where the value is in the chain, it is difficult to understand the process, and particularly when you get a year of natural disasters like last year, people start to ask questions. It occurred to us and to clients that this kind of approach doesn’t suit them. They want to clearly control the deals they are doing.”
Helyar added that he expects the structure to become popular for large investors who did not want to be treated like a private investor, offering full transparency, a significant reduction in duplicated costs, and the chance to work with their choice of co-investors.
“I am quite excited by this – in talking to regulators we are doing two things here which are usually done in silos – investment and insurance divisions often take a different approach to risks,” he said.
“We have one of these on the starting blocks at the moment – a transformer and fund in the same vehicle. I’d like to see people considering this type structure in the future, it is an excellent vehicle to demonstrate transparency for investors, and good thing for Guernsey.”
Guernsey, located in the Channel Islands between the UK and France, is an independent dependency of the UK Crown. It is outside of the EU but is granted access to European markets through demonstrated regulatory compliance.
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