Guernsey: Guide To Establishing Insurance Companies In Guernsey

1. INTRODUCTION

Guernsey is well renowned for its insurance industry, which has origins dating back to the 18th century and has an excellent reputation for innovation and professionalism in international insurance.

Guernsey's insurance sector includes commercial insurers and captive insurance companies which have been incorporated in the Island since 1922. Guernsey has grown to become the leading captive insurance domicile in Europe and number four in the world.

Guernsey offers a range of structuring options for insurance companies, depending on their requirements, which include limited companies, protected cell companies (known as PCCs) and incorporated cell companies (known as ICCs).

Guernsey was the first jurisdiction to introduce a PCC in 1997 and has been regularly using cell companies and refining the concept since then. A PCC is one company made up of a core and individual cells. With a PCC, unlike in an ordinary company where all assets and liabilities are linked, the assets and liabilities of the different cells will remain separate from each other so no claim against one cell will be covered by the funds of another. Guernsey has also introduced the ICC, which, like a PCC, has cells but they are separately incorporated and distinct legal entities.

As at 31 July 2013, Guernsey played host to 774 international insurance entities, which included 435 PCC cells and 22 ICC cells. At the end of 2012, the international insurance industry in Guernsey had gross assets of £22.90bn, a net worth of £9.34bn and wrote premiums to the value of£4.63bn.

2. AUTHORISATION

The law governing insurers conducting insurance business in or from within Guernsey is the Insurance Business (Bailiwick of Guernsey) Law, 2002 (the Insurance Law), which is supplemented by a number of regulations.

There are two main types of insurers licensed in Guernsey:

Insurers in Guernsey can be licensed to write either long term business or general business. Insurers writing long term business will be required to have policyholder protection, with an additional requirement to appoint an independent Guernsey based trustee who will report directly to the Commission.

Any persons wishing to be licensed as an insurer to carry on insurance business in or from within the Bailiwick of Guernsey must apply to the Guernsey Financial Services Commission (the Commission) for a licence.

3. MINIMUM CRITERIA FOR LICENSING

When assessing applications for a licence to write insurance business, the Commission considers the application both against the minimum criteria for licensing, as set out in the Insurance Law, and the means by which the applicant will comply with all other requirements of the Insurance Law and its associated regulations, rules, codes and guidance issued by the Commission from time to time. Key considerations include whether:

4. REQUIREMENTS FOR LICENSING UNDER THE INSURANCE LAW

Any applicant seeking to obtain an insurance licence must apply to the Commission using the prescribed form and must provide the Commission with certain information, including:

Additional information and documents may be required generally, in particular where the applicant, controller, or ultimate holding company is resident in a sensitive jurisdiction, as published from time to time by the Commission on its website.

5. DIRECTORS AND A GENERAL REPRESENTATIVE

With regard to the composition of the Board of Directors, the Insurance Law requires that the board of directors of an applicant includes at least one director who is not an associate of, or associated party in relation to, the applicant (other than as a director) and who is not responsible for the management of the applicant's business, unless the Commission has agreed in writing to waive this requirement.

In addition, the Commission expects there to be at least an equitable balance between local and non-local directors and that control of the board of the applicant and the monies of the applicant will reside in Guernsey. The policy of the Commission is that corporate directors are not permitted.

A licensed insurer must also appoint and must at all times maintain the appointment of a general representative to act on behalf of the insurer. The general representative must be:

The Commission also requires all current and proposed directors and the general representative of prospective applicants to fill out a personal questionnaire regarding their qualifications, experience and legal and regulatory information, in the form found on the Commission's website (www.gfsc.gg).

6. FINANCIAL REQUIREMENTS

6.1 Minimum Capital

At the date of this guide, the minimum capital requirements for insurers is £100,000 for insurers writing general business and £250,000 for insurers writing long term business. In practice, the Commission often requires insurers to have higher levels of capital depending upon the nature of the business.

6.2 Margin of Solvency

Licenced insurers are also required to maintain a prescribed margin of solvency and approved assets.

This margin of solvency is the excess of the value of the insurer's approved assets (see below) over the value of its liabilities.

The minimum solvency requirements are:

The Commission may require an insurer to maintain a higher solvency margin depending upon the nature of the business.

The Commission also requires licensed insurers to determine and justify their own margin of solvency, subject to the minimum amounts specified above and provides guidance on how this it to be calculated.

A licensed insurer which carries on general business shall be deemed insolvent if at any time it does not comply with the margin of solvency requirement applicable to it.

Approved assets are set out in the Insurance Business (Approved Assets) Regulations, 2008. The assets are split into Classes 1, 2, 3 and 4 and the Commission imposes restrictions on the valuation of assets contained in Classes 2, 3 and 4. The approved assets include:

7. FEES

Fees must be paid to the Commission when the application is made. The application fees, with effect from 1 January 2014, are:

The annual fees in force as at 1 January 2014, payable by 31st January each year, are:

8. APPOINTMENT OF ACTUARY

A licensed insurer carrying on long term insurance business must appoint a qualified actuary. Written notice of this appointment including the date of appointment and the name and qualification of the actuary must be given to the Commission.

9. APPOINTMENT OF AUDITORS

A licensed insurer must appoint qualified auditors. Written notice of this appointment, including the date of appointment and the name and qualification of the auditors must be given to the Commission.

10. DURATION OF LICENCE

The licence shall (unless any condition of the licence provides for any other period of duration) continue to be valid until it is revoked by, or surrendered to, the Commission.

11. ANNUAL RETURN

All licensed insurers are required to prepare an annual return in such form, containing such particulars and accompanied by such information and documents as the Commission may require. The relevant information required on the annual return are set out in the Insurance Business (Annual Return) Regulations 2008.

Typically information on the relevant annual return includes the following:

12. CONDITIONS OF INSURANCE LICENCE

The Commission may, when granting a licence or at any time thereafter, impose conditions in respect of the licence as it thinks fit. Such conditions may apply to licensed insurers generally, to any class of licensed insurer or to any particular licensed insurer. Conditions may include limitations on the acceptance or carrying on of insurance business or prohibitions on the insurer soliciting (whether at all or in any specified manner) insurance business, either generally or from particular persons or classes of persons.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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