Guernsey introduces new hybrid cell structure for ILS fund managers
Carey Olsen partner Christopher Anderson, with the support of the Guernsey Financial Services Commission, has created a new hybrid ILS vehicle - a protected or incorporated cell company that is both a licensed insurance company and a regulated investment fund.
The Guernsey hybrid means ILS managers no longer have to 'rent' cells of protected cell or segregated account companies to act as special purpose insurers.
Anderson explained that the Guernsey hybrid comprises of investments cells and insurances cells, with a core which houses the regulatory capital required of a licensed insurer.
The investment cells raise money from third party investors through the offer of shares or other securities. The hybrid can fundraise through any number of investment cells, and each investment cell can issue its own offering document describing its own investment strategy.
At the same time, the insurance cells in the hybrid vehicle write re/insurance contracts. Funds raised in the investment cells can be used to collateralise re/insurance written by the insurance cells through regulation 114A trusts, letters of credit, or funds at Lloyd's, for example.
"For the first time, the Guernsey hybrid provides managers with the opportunity to operate an investment fund and any number of sub-funds and SPIs in one place, supervised by one regulator, governed by one board of directors with one set of service providers and one auditor," said Anderson. "No other jurisdiction in the world offers such a unique combination."
The hybrid would have a single board of directors with overall responsibility for the vehicle's operation, and may appoint an external ILS fund manager or adviser.
As a licensed insurer, the hybrid must maintain minimum share capital - £100,000 for a general, £250,000 for a long-term insurer.
Anderson added: "Prior to the invention of the Guernsey hybrid, ILS fund managers had no choice but to 'rent' cells of protected cell or segregated account companies to act as SPIs. Very often the SPIs would be established in a different jurisdiction from the ILS manager's fund. The SPIs would operate entirely separately from the investment fund. They have a different board of directors, service providers and auditor from the fund and may even be in a different time zone."
Guernsey Finance chief executive Dominic Wheatley commented: “Guernsey is one of two key players in the ILS transformation market, and as the asset class grows we see Guernsey’s role growing too. Guernsey will continue to be at the forefront of innovation in ILS and this is a perfect example of forward-thinking."