Tue, 08/07/2014 - 10:30
The choice of domicile for insurance-linked securities (ILS) transactions was among the hot topics discussed at a Guernsey Finance-hosted thought leadership event in the reinsurance centre of Zurich last week.
The event attracted 80 delegates from around the world, including Japan, Hong Kong, France, the UK and Switzerland and from across the asset management, wealth management and reinsurance and adviser communities.
It was held at the Park Hyatt Zurich where there were two panel sessions featuring ILS experts from Guernsey, the UK and mainland Europe. Domicile choice was one theme which stood out through both sets of discussions and Guernsey was singled out for praise.
Jonathan Barnes from Securis Investments said: “I am very happy with our relationship with Guernsey. In particular, it is situated in a favourable time zone, the banks are very responsible and the regulator is helpful. There is a strong pool of talent to draw upon which is not always the case in other domiciles and the proximity to London makes it nice and easy for us.”
Mark Helyar from Bedell Cristin in Guernsey said that the island offers a hybrid proposition which is different to other domiciles in that it not only provides Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs) for the reinsurance vehicles but also a number of flexible fund structures to facilitate investment in ILS, such as companies, PCCs and ICCs, general partner (GP) and limited partner (LP) vehicles, and both open and closed schemes. In particular, Helyar noted that more ILS deals in Guernsey tend to be peer to peer transactions which are bespoke in nature.
Pius Fritschi of LGT Capital Partners said flexibility in terms of types of funds was crucial along with a regulatory framework which provides the necessary security for parties engaged in ILS transactions.
The first panel session focused on the renewal season and recapped on the key trends of 2014 with a particular focus on modelling, pricing, transformation structures, choice of domicile and particular challenges in the space. Moderated by John Rowson of Aon Risk Solutions, the session featured Niklaus Hilti of Credit Suisse; Justin Wallen of Hexagon PCC Group; Barnes; and Piers Cantlay from Aon Benfield.
The panel questioned whether the models on Florida natural catastrophe risk were truly representative of the potential loss but it was still felt that the sector was profitably priced. Cantlay said “the gut feeling is there’s a massive concentration of exposure” and Barnes said “it’s very vulnerable.” Hilti said that “the models are not capable of reflecting such a specific risk type” and therefore “need a little bit of adjustment” but “it is still certainly amongst the most profitable businesses.”
They also considered the structures used in ILS, such as the Guernsey-pioneered PCC and ICC, as well as the need for pre-authorisation and fast track regulatory regimes which are available in the island. Barnes said that it was important to be able to sit down with the regulator and to be in the position to move quickly when required as deals are often fast paced.
The second panel session looked at investment and concentrated on the challenges of investing in ILS, investor perceptions and the comparative merits of certain types of investment strcutures. Moderated by Robin Fuller of Dexion Guernsey, the session comprised Helyar; Barrie Duerden of Rothschild Wealth Management; Sandro Zwyssig of Bank Julius Baer; Fritschi; and Patrick Stampfli of Schroder Investment Management Switzerland.
The panel concluded that managers were increasingly allocating to ILS due to the fact that it was uncorrelated to the wider markets at a time when investors are seeking liquidity and an income stream.
Fiona Le Poidevin (pictured), chief executive of Guernsey Finance – the promotional agency for the island’s finance industry, says: “There was recognition from the panellists that Guernsey brings something different to the market in terms of domiciling ILS structures. Guernsey is very attractive because of our experience of insurance business, together with the structuring of investment funds and listing vehicles and this means that what we offer is differentiated to other domiciles.
“The panellists also highlighted that they liked Guernsey’s fast track approval regimes for both insurance and funds and the responsive and approachable stance of the regulator. Innovation is also important and whilst Guernsey has a very good track record, for example with PCCs, it is important that we build on that record and this is something we are already working on with industry.”
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