Guernsey Spells Out ILS Collateral Rules for ILS Cells

The Guernsey Financial Services Commission (GFSC), a Guernsey regulator, has clarified the collateral rules surrounding the authorization process for insurance-linked securities (ILS) cells.

Namely, Guernsey will allow ILS cells to benefit from rollover provisions. The provisions include a "grace period" for the application of collateral at both the formation of new special purpose insurer (SPI) cells and the renewal of deals in SPI cells, often referred to as rollover, said the GFSC.

In a letter to the Guernsey International Insurance Association (GIIA), Katherine Jane, director of Risk and Financial Stability at the GFSC, wrote that the commission recognized that the timing difference between a special purpose insurer committing to a collateralized reinsurance transaction and the point at which the trust account is fully funded was a commercial decision for the ILS industry with the full knowledge and acceptance of the cedant.

The GFSC has agreed to a 30-day period at the start of a transaction where a cell will not be considered in breach of the ILS rules' requirements for being fully funded.

The GFSC said its ILS sector had performed well in recent years, with new registrations made in 2018 far outstripping a good year in 2017.

"We raised a number of regulatory matters with the Commission which we believed would make ILS in Guernsey even more attractive to our global client base and we very much welcome this move," said Peter Child, managing director of Artex Risk Solutions in Guernsey and chairman of GIIA's Market Development Committee.

He continued, "We already believe that Guernsey holds a number of advantages as an ILS domicile, including the breadth of our funds and insurance knowledge, our status outside Solvency II, our experience and, as proved here, the responsiveness of our regulator."

Key issues for selecting an ILS domicile include company law, the speed of establishment, taxation arrangements, and regulation, and Mr. Child said that Guernsey was well-placed in each area.