Guernsey Celebrates Ten Years Of Captive Insurance Growth

by Jason Gorringe, Tax-News.com, London

02 February 2007

Guernsey remains a growing captive insurance domicile ten years after the jurisdiction introduced the world's first Protected Cell Company (PCC).

The island gave birth to the revolutionary concept when its PCC legislation came into effect on 1 February 1997. By the end of that year, there were six PCCs and 14 cells in Guernsey but by the close of 2006 this had risen to 68 PCCs and 243 cells.

During that period, the Island also introduced the innovative Incorporated Cell Company (ICC) concept.

The captive sector has continued to grow through the decade and at the end of 2006, while the net number of captives domiciled in Guernsey had dropped marginally from 12 months previously, the net number of captive entities (captives, PCCs/ICCs and cells) had risen, once again, to 624 and included the addition of the island’s first insurance ICC.

“It must be remembered that not only has there been a slowdown globally in the formation of new captive insurance companies but Guernsey is a mature captive insurance market,” observed Merise Wheatley, Chairman of the Guernsey Insurance Company Management Association (GICMA).

“Despite this there has actually been continued growth in the number of captives being established in the island, with the net fall resulting from a large amount of merger and acquisition activity impacting on the Guernsey market through amalgamations and disposals."

“In any case, the number of captives should not be viewed as the sole measure of the health of the industry. Guernsey’s captive sector now has an annual net premium income of more than GBP3.2 billion (US$6.29 billion)– nearly double what it stood at ten years ago. Corporate parents are placing more and more business with established captives and there is also increased use of the PCC, which allows different companies to use the same captive and where the individual cells are often bigger than many typical captives.”

More captives are domiciled in Guernsey than any other jurisdiction in Europe, and it is the fourth largest in the world in terms of the value of premiums written.

“Guernsey remains a very buoyant captive insurance domicile ten years on from its introduction of the PCC to the world,” observed Peter Niven, Chief Executive of GuernseyFinance – the promotional agency for the island’s finance industry.

He added:“The island is proud of its innovative approach in the finance industry and there is no better example of this than the PCC. It is interesting that while the PCC was initially developed for the captive insurance industry it has also become extremely popular within the funds sector. This typifies the pioneering spirit within Guernsey’s finance industry, which continually seeks to find innovative ways to fulfil changing expectations. Indeed, it is a tribute to our success that the PCC concept, in various guises, has also been introduced by many other jurisdictions across the globe.”

2007 not only marks the tenth anniversary of the PCC’s birth but also 21 years since Guernsey introduced its robust and pragmatic regulatory framework for captives.

“Guernsey though is not resting on its laurels,” continued Mr Niven. ”To ensure that business flows are maximised, work is ongoing to enhance the island’s infrastructure, for instance through the development of new types of insurance vehicles like cells and companies and also the promotion of captive insurance in Guernsey to new markets.”

The development of the PCC stemmed from the needs of the captive insurance industry. In a conventional company all of the assets and liabilities are linked, giving rise to a risk that the failure of one insurance programme could lead to the loss of assets relating to another. The PCC was developed to allow different risks to be ringfenced in ‘cells’ within the same company.

A PCC is one company made up of a core and individual cells. The cells are independent and separate from each other, and from the core. The core covers liabilities unrelated to a specific cell and may make good shortfalls in cellular assets once those assets have been exhausted. The segregation though ensures that no claim against one cell will be covered by the funds furnished by another.

An extension to the PCC, the incorporated cell company (ICC) has also been introduced, which differs from the PCC in that each cell is separately incorporated and therefore a distinct legal entity in its own right.

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