Guernsey launches hybrid vehicle for ILS sector

Guernsey has launched what it says is the world’s first hybrid vehicle for use in the insurance-linked securities (ILS) sector. According to Carey Olsen partner Christopher Anderson, who created the concept with the support of the Guernsey Financial Services Commission, the Guernsey hybrid is a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund. He explained that this means 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 operate entirely separately from the ILS manager's fund. The idea of fusing two regulated structures into one vehicle provides an opportunity for ILS fund managers to realise significant cost savings and other efficiencies, according to Mr Anderson. “For the first time, the Guernsey hybrid provides managers with the opportunity to operate an investment fund and any number of sub-funds 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,” he said. “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.” According to Mr Anderson, the Guernsey hybrid comprises: Investment cells that raise money from third-party investors through the offer of shares or other securities. The hybrid can fundraise through any number of investment cells, and each investment cell can issue its own offering document describing its own investment strategy. Insurance cells that write (re)insurance contracts. The funds raised in the investment cells can be used to collateralise (re)insurance written by the insurance cells through Regulation 114A trusts, letters of credit, funds at Lloyd’s, etc. Each investment cell may collateralise any number of insurance transactions or cells. A core that houses the regulatory capital required of a licensed insurer. He explained that as a licensed insurer, the hybrid must maintain minimum share capital – £100,000 for a general insurer, £250,000 for a long-term insurer. He pointed out that this can be achieved through the issue of shares in the core of the company; shares that could be held by the ILS manager itself or by investors. He also noted that if fully collateralised, the insurance cells will not be subject to any additional solvency or capital requirements. The hybrid will also be eligible to utilise the Guernsey SPI rules, which enable insurance cells to be licensed instantaneously. Guernsey Finance chief executive Dominic Wheatley welcomed the introduction of the new vehicle: “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. 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.”

Guernsey launches hybrid vehicle for ILS sector

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