Jersey: excellence offshore

30-11-2010

Geoff Cook

Jersey: excellence offshore

Geoff Cook details Jersey’s leading position as an offshore financial domicile and explains why the island has grown increasingly attractive to the international captive industry

Jersey’s standing as one of the foremost specialist international finance centres gives it an impressive platform from which it can encourage and attract significant levels of reinsurance and captive insurance business.

The core skills sets required for the administration of insurance structures are not dissimilar to those necessary for administering funds and trusts, two of the sectors of the finance industry for which Jersey is renowned.

Although Jersey’s captive industry has developed only recently because of its late arrival as a significant provider of international, wholesale insurance services, the timing has not proved a disadvantage because it has enabled the jurisdiction to consider how its offering might provide advantages over competitor jurisdictions.

First and foremost, Jersey has been able to examine its legislative framework to see whether it could modify its investment structures to widen its appeal to the insurance sector.

In fact, Jersey has been attracting insurance professionals to the jurisdiction for many years and the Insurance Business (Jersey) Law 1996, which regulates the industry, is also flexible enough to allow individuals, partnerships and other entities to form captive structures. However, there is an ongoing process in Jersey of reviewing the laws associated with financial services so that they remain at the forefront of the marketplace, and practitioners in Jersey, working with legislators and government officials, have pinpointed where enhancements could be introduced that would appeal to a number of sectors, including the insurance market.

New laws

One such development was the passing of legislation in 2006 that introduced the concept of the incorporated cell company (ICC), alongside a revised version of the traditional protected cell company (PCC). It was a ground-breaking development, placing Jersey ahead of other competitors in introducing the law and it endorsed Jersey’s existing reputation as a leading force in the offshore financial services market.

The ICC involves the formation of separate, legally recognised cells within the overall structure, with each cell established as a distinct incorporated Jersey company. Whilst the PCC has been used successfully in other jurisdictions for some years, the Jersey version has been designed to offer more flexibility in both the use and structure. PCCs and ICCs can provide a means of entry into the captive insurance market to entities for which it was previously uneconomic. The overheads of a cell captive can be shared between the owners of each of the cells, making the captive cheaper to run from the point of view of the insured.

One of the objectives of Jersey’s legislative developments has been to provide flexibility within a robust legal framework. So, for example, organisations forming their own insurance subsidiary company tounderwrite their risks can use a cell within a PCC or ICC or even set up their own PCC or ICC.

A further strength that Jersey can capitalise upon is its high standing as a well-regulated and co-operative jurisdiction. With an increasing emphasis on corporate governance and regulatory oversight of investment entities, those jurisdictions that meet the highest standards will have a competitive edge over other centres.

Top tier

Jersey currently has the top ranking among offshore jurisdictions in the most recent Global Financial Centres Index (GFCI) and it has the endorsement of the International Monetary Fund in respect to its supervisory capabilities, for which it is deemed to be compliant or largely compliant with 44 of the 49 general Financial Action Task Force (FATF ) financial crime recommendations, a status that no other jurisdiction, not even G20 nations or other EU member states, can equal. Furthermore, Jersey can point to high levels of compliance with Basel and International Association of Insurance Supervisors core principles.

Alongside this recognition for the quality of its regulatory and legislative environment, Jersey has the depth and breadth of experience among its workforce to provide the administrative services necessary to support the insurance sector. Jersey has a virtually unrivalled breadth of international banking institutions and specialist law firms when compared with its main offshore competitors.

Redomiciliation

Jersey has the capacity to handle increasing amounts of insurance business. In fact, some clients are keen to consider Jersey as a domicile for their insurance business because close competitors already have an established presence in jurisdictions where the captive market is more mature. Furthermore, there is an opportunity for businesses moving to Jersey with other parts of their operating activity to then consider either the formation of a captive or even the redomiciliation from another jurisdiction.

An example of business growth in Jersey this year has been the redomiciliation of a captive away from another European jurisdiction, with the international group opting to move part of its operation to Jersey. Once the group appreciated the favourable conditions of the business environment in Jersey, it transferred a number of asset-holding vehicles, including its captive, to Jersey. The group is now considering the formation of a second captive in Jersey for its employee benefits.

Relocation

In recent years, a small number of fund management companies have decided that it makes economic sense to relocate their most senior staff and set up their head office in Jersey, rather than remaining in a major onshore centre such as London. While this trend has been evident among a small proportion of hedge fund managers and others in the alternatives sector, Jersey is likewise encouraging reinsurance business and captive managers to also consider the attractions of moving to Jersey.

With a workforce numbering more than 12,500 and the necessary skills sets to support a growing insurance sector, Jersey has the capacity to build business among insurance providers. A tax-neutral location, with a robust legal framework, operating in a convenient time zone and with extremely close business links with the City of London, Jersey offers an ideal fit for the wholesale insurance market, including the captive industry.

First choice

There is healthy competition among the leading jurisdictions for insurance business and Jersey aims to be included on the list when captive managers and their advisers select their domicile. To help in this regard, Jersey intends to continue to investigate new ways in which it can provide innovative solutions to meet the insurance needs of international businesses, so that in future when such decisions are made, Jersey is more often than not the first choice.

Geoff Cook is the chief executive of Jersey Finance. He can be contacted at: geoff.cook@jerseyfinance.je

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Captive International