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Guernsey Announces New ILS Hybrid Vehicle

Guernsey
April 02, 2019

In an announcement, Guernsey Finance said the domicile now has the world's first hybrid vehicle for use in the insurance-linked securities (ILS) sector. The Guernsey hybrid is a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund. 

According to the statement, this means that ILS managers will no longer have to "rent" cells of protected cell or segregated account companies to act as special purpose insurers (SPIs), which are often established in a different jurisdiction and operating entirely separately from the ILS manager's fund.

"For the first time, the Guernsey hybrid provides managers with the opportunity to operate an investment fund and any number of subfunds and SPIs in one place, supervised by one regulator, governed by one board of directors with one set of service providers and one auditor. No other jurisdiction in the world offers such a unique combination," said Christopher Anderson, partner at Carey Olsen, the law firm that created the concept with support of the Guernsey Financial Services Commission.

Mr. Anderson continued, "Guernsey is a world leader in both the investment funds and insurance sectors, so the concept of fusing two regulated structures into one vehicle makes perfect sense and is a development that will generate significant cost savings and other efficiencies as well as greater control for ILS fund managers."

The Guernsey Financial website illustrates how the hybrid works in more detail and explains that the hybrid has the following.

  • Investment cells raise money from third-party investors through the offer of shares or other securities. The hybrid can raise funds through any number of investment cells. Each investment cell can issue its own offering document describing its own investment strategy.
  • Insurance cells write re/insurance contracts. The funds raised in the investment cells can be used to collateralize re/insurance written by the insurance cells through regulation 114A trusts, letters of credit, funds at Lloyds, etc. Each investment cell may collateralize any number of insurance transactions or cells.
  • A core houses the regulatory capital required of a licensed insurer.

The hybrid has a single board of directors with overall responsibility for the operation of the hybrid. Naturally, the board may appoint an external ILS fund manager or adviser, if desired.

According to Dominic Wheatley, Guernsey Finance chief executive, "Guernsey is one of two key players in the ILS transformation market, and as the asset class grows, we see Guernsey's role growing too. Guernsey will continue to be at the forefront of innovation in ILS, and this is a perfect example of forward thinking."

He added, "This thinking builds on Guernsey's expertise in insurance and ILS and in funds, where we are global specialists in private equity, listed debt, and alternative assets, and should lead to Guernsey becoming a natural choice for ILS managers to establish a fund."

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