Richard Le Tocq explains the reasons for Guernsey’s success

Guernsey is a leading international insurance centre with a reputation for innovation and professionalism in providing a range of risk management solutions. In particular it is renowned for its experience and expertise in captives.

As outlined by Peter Niven in his foreword to this report, the advance towards a hardening commercial insurance market is combining with a changing perception of the risks associated with conventional coverage to increase the attractiveness of alternative solutions such as captives. In utilising captive insurance the choice of domicile is just one factor among many that have to be considered. Nevertheless, it remains an extremely important decision.

A history of growth

The insurance industry in Guernsey has its origins in the 18th century and captive insurance companies have been incorporated in the island since 1922. Guernsey has grown to become one of the world’s most popular domiciles for captive business and is home to more captives than any other jurisdiction in Europe.

During the past decade, the island’s international insurance industry has seen sustained growth. This continued during 2008 despite the industry’s maturity, increased competition and difficult market conditions.

Figures from the Guernsey Financial Services Commission (GFSC) show the number of international insurance entities reached 714, (370 international insurers and 344 PCC cells) at the end of December 2008 – up from 708 at the end of 2007. Guernsey retained its place as Europe’s leading captive insurance domicile by number of entities and is fourth in the world in terms of premiums written. This, at £3bn, is double that of 10 years ago.

The island’s pre-eminence is reflected in the fact that approximately 40% of the UK FTSE 100 and 95 of the Global 1500 companies have captives in Guernsey. This status has been enhanced by Guernsey becoming home to Gold Coast City Council Insurance Company Limited – the world’s first local authority captive.

Guernsey plays host to subsidiaries of major companies such as AIG, Aon, Barbican, Catlin, Generali, Heath Lambert, Hiscox, Jardine Lloyd Thompson, Marsh, Old Mutual, Royal & SunAlliance, SCOR and Willis. Independent boutique operators such as Heritage Insurance Management and Alternative Risk Management (ARM) are also present, providing a holistic environment for insurance solutions.

The island’s providers are seeing increasing diversity both in terms of the risks being covered and the geographical origin of business. A report published by Marsh UK in 2007 showed that half of all captives established by UK companies are domiciled in Guernsey. However, in addition to UK companies, organisations from Europe, US, Middle East, Asia, South Africa, Australia and the Caribbean have established captives in Guernsey.

As a result, I believe that Guernsey has built a wealth of experience and expertise in providing management and administration services for captives. This reputation for quality of service is complemented by the island’s continued drive for innovation.

Drive for innovation

“The island’s providers are seeing increasing diversity both in terms of the risks being covered and the geographical origin of business.

In 1997 Guernsey pioneered the Protected Cell Company (PCC). The island has since introduced the innovative Incorporated Cell Company (ICC). There are now nearly 70 PCCs established in the island and the jurisdiction’s first insurance-writing incorporated cells have also come on stream. The island continues to highlight the potential benefits of cell company vehicles and particularly how the structure enhances the viability of self-insurance for small to medium sized enterprises (SMEs).

It is a tribute to Guernsey’s foresight that the concept, in various guises, has been replicated by more than 30 other jurisdictions around the world. However, the island is still recognised as being the pioneer. It has also made legislative advancements that have created a regulatory environment which allows for cell companies’ flexible use.

Latest developments

Guernsey continues to develop its infrastructure to ensure that it maintains its position as Europe’s leading domicile for captive insurance, while encouraging other types of business, such as reinsurance, to locate there. At the start of 2009 it issued a licence to Lloyd’s which permits its underwriters to write direct general insurance business (including domestic business) in or from within Guernsey. Barbican Reinsurance Company Limited has already become the first major commercial reinsurer in the domicile and will be writing reinsurance of a new Lloyd’s syndicate.

In addition, Guernsey has made several other moves in the last year which showcase its determination to retain existing business and attract new enterprises:

• a new zero-rated tax regime for licensed insurers

• modernised company law and the creation of an online company registry

• an updated corporate governance code

• introduction of ‘own solvency capital assessment’ (OSCA).

The introduction of OSCA supports Guernsey’s risk-based approach to regulation. This robust yet pragmatic and flexible approach to supervision has been a key ingredient in the growth of Guernsey’s international insurance industry since the establishment of the Guernsey Financial Services Commission (GFSC) just over two decades ago.