GUERNSEY 2015 | BEDELL CRISTIN
50 SHADES OF
DEFINITION – IS
GUERNSEY ALL
ABOUT CAPTIVES?
Mark Helyar, a partner at Bedell Cristin, talks to Captive Review about Guernsey’s uniquely
undefined insurance market
I
don’t know if I share this in common with
readers, but I confess that I sometimes
find it difficult to explain to people what
I do for a living. That is not only because
I am a lawyer. Telling someone you are a
lawyer can of course result in some quite
extreme reactions depending on the audience and the circumstances, but happily
less so these days than explaining you are a
banker. However, if anyone has the stamina
to continue with such a conversation, the
minute I mention insurance, reinsurance,
captives, insurance-linked securities or
catastrophe (cat) bonds they glaze over as if
I had gained the powers of a stage hypnotist. This has led to a search to define what
it is that I (and we) spend much of my time
doing so that I can summarise it better.
Commercial lawyers spend much of their
time metaphorically beating one another
up over the definition of terms in commercial agreements, usually at other people’s
expense, for the purposes of achieving
certainty or at least clarity in contracts.
Classification of different types of business
has, like taxonomy in science, also become
vation or conversely lead to dangerous
blind spots in regulatory supervision.
Written by
Mark Helyar
Mark Helyar has a particular specialisation in the use
of protected cell companies (PCCs) for investment
funds and insurance purposes and assisted in drafting the 2006 Guernsey law relating to incorporated
cell companies. He has substantial expertise in corporate, commercial and investment fund practices.
a means of creating a shared vocabulary
across languages and continents, among
different classes of business, and to harness
industry groups beneath regulation or government policy. But language doesn’t stand
still, and nor does business, and sometimes
we simply define things wrongly because
we either don’t understand them, or they
change over time. This can become damaging when business or indeed regulators become confined or limited by their
own definitions or the scope of their own
responsibilities, because it can stifle inno-
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GUERNSEY 2015
Defining a market
It may just be a lawyer’s OCD approach
towards needing to define everyone and
everything but I often have a nagging discontent with Guernsey’s complex range of
insurance and reinsurance business being
colloquially referred to as ‘captives’ or the
‘captive market’. This is a simplistic term
to use for an industry with over £20bn in
assets and a very wide range of structures
and business; a place renowned for its
innovation, such as with the development
of the PCC. The reality today is that many
insurance and reinsurance vehicles, and
indeed most of the new ones, do not fit
into the classic definition of ‘captives’ or
‘captive insurance’. Similarly, what we do
in Guernsey in connection with ILS (insurance-linked securities) does not really
accord with how the same term is used
in the US or Bermuda, where it describes
large catastrophe bond series’ issued by
reinsurance companies to raise capital.
BEDELL CRISTIN | GUERNSEY 2015
Perhaps it is time we ought to be a little more creative in the way the Guernsey
insurance industry is defined and marketed, or indeed its statistics presented.
While we innovate extremely well as a
market, and obviously understand well
the many shades of different insurance/
reinsurance structures which exist, markets like simple headlines and our competitors are always keen to discriminate
against our capabilities by using our own
definitions and statistics against us. Many
times I hear competitors at international
conferences briefing against us on the
basis that Guernsey ‘isn’t a player’ or
‘doesn’t do ILS or reinsurance’, whether
because ILS means purely cat bonds to
those individuals, or because our own regulatory statistics support potentially misleading messages.
Sometimes we are also guilty of being
far too nice about our competing jurisdictions, but perhaps this is more a reflection that many providers have businesses
in more than one competing jurisdiction
and corporate policy requires them not to
campaign on a negative footing.
Guernsey’s sub-categories
There are many new sub-categories which
could be used to describe Guernsey insurance business for example:
• Captive insurance /reinsurance
• Reinsurance ‘proper’
• Collateralised reinsurance
• Insurance-linked funds
•Rental-ILS-transformers
•Quasi-captives
• Risk pools
• Longevity transformers
• Multi-user ILS platforms
• Cellular life transformers
• Takaful securitisation
However, the perennial problem with
this prescriptive approach to classification
of business, like drafting tax law, is that I
will almost certainly have left something
out which doesn’t quite fit within the
boxes.
Analysing growth
Analysis of the net statistics in 2014 to the
end of October, show there were 23 new
PCC cells, ICC’s and ICC cells in Guernsey,
bringing the gross total of licensed structures to 808 from 785 (up 3%). New ICC
VIDEO | BEDELL CRISTIN
“If Guernsey is creating new structures and winning
business without categorising itself accurately then
why bother seeking out a better definition of its
place in the market?”
MARK HELYAR - BEDELL CRISTIN
cells rose by 52% on the previous year and
overall net worth by 7%. I know because of
our involvement in many of these structures that the majority of new cells and
structures are ILS or reinsurance/transformer related and many of the relevant
cells write multiple, bespoke contracts.
Net cell growth observed externally is
not therefore a linear measure of current
growth in ILS activity in Guernsey. These
are certainly excellent growth figures in
what is otherwise a flat and highly competitive offshore market for insurance
administration business and a soft insurance and reinsurance market globally.
One thing we can be absolutely sure of
is that the majority of this growth was not
attributable to new captives, in the conventional sense of that definition. Nor was it
ILS, in the sense in which the word is often
used as a business definition on the other
side of the Atlantic. So, from the lawyer’s
perspective, we aren’t properly defined.
Doing different
However troubling this is, and however
many discussions we have, I keep returning to the conclusion ‘why worry’, if
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GUERNSEY 2015
Guernsey is creating new structures and
winning business without categorising
itself accurately then why bother seeking
out a better definition of its place in the
market? We are certainly looking at innovations for our clients which have never
been seen, such as partially listed captives
which allow large companies to share risk
with selected counterparties and new
types of securitisation structures built
around private equity style limited partnerships as potentially the first hybrid of
specialist reinsurer and investment fund.
These new developments don’t seem to
be hampered by lack of definition, nor
do they fit into any particular box. They
rely on the complex network of complementary skills and experience in development of financial services products which
Guernsey offers.
I have been told that an astute marketer,
one of those persons whose phone calls I
studiously avoid, might describe this as a
clear market differentiator – the fact that
Guernsey can’t be directly compared to
other jurisdictions defines and explains
its qualities as a place to do business, it is a
jurisdiction which ‘does different’.