CAPTIVE INSURANCE CAPTIVE INSURANCE COMPANIES – AN UPDATECOMPANIES – AN UPDATE

Thursday 6 November 2003

Peter Neville

Director General

of

Guernsey Financial Services Commission

Captives – The HistoryCaptives – The History

• First appeared over 200 years ago• Purpose: to provide cover too expensive or

unavailable in conventional market

• First Guernsey captive: 1922.

• “Captive” to parent and related risks

• Other benefits recognised

• Insurance industry now accepts the concept

Principal Captive CentresPrincipal Captive Centres

BermudaCayman IslandsVermontGuernseyLuxembourg

[Source: A.M. Best]

Number

1313

600

438

382

268

As at 31 December 2002

Guernsey Finance IndustryGuernsey Finance Industry

Banks

Funds

Fiduciaries

Insurers

66 banks/£71.6 bn deposits

507 funds/£40.1 bn assets under management

227 full and personal licensees£77.7 bn liquid assets under management

386 captives of which: 56 are PCCs which contain 192 cells30 Captive managers26 Life55 Intermediaries31 Domestic£12.7 billion gross assets£2.89 billion gross premiums

Guernsey CaptivesGuernsey Captives

• Increased interest

• Covering risks previously self-insured

• Covering more sophisticated risks

• Over 40% of FTSE 100

Reasons for use of CaptiveReasons for use of Captive

• Useful in hard and soft markets• Access to reinsurance• Broader coverage• Premiums more stable• Placing of profitable customer related business• Cover for “uninsurable” risks• Improved risk management• Advantageous funding vehicle

Reasons for using GuernseyReasons for using Guernsey

• Lower costs

• Increased flexibility

• Less bureaucracy

• Tailored capital

• Professional and innovative managers

• Good transport and support services

Cell

Cell

Cell

CellCell

Core

A Single Legal EntityA Single Legal Entity

1

32

CoreCapital

Cell Capital

Cell Capital

Guernsey Insurance (PCC) Guernsey Insurance (PCC) LtdLtd

Protected Cell CompaniesProtected Cell Companies

Caveat

• Cell assets held in another jurisdiction

• Attitude of overseas courts

Reputation – The IMF ReportReputation – The IMF Report

• Comprehensive regulatory framework

• GFSC: - well established and well respected

- experienced staff

• GFSC commended for continuous proactive attitude to enhance the regime

The FutureThe Future

• Guernsey/Lloyd’s/London

market working agreement?

• Corporate membership vehicle?