CAPTIVE INSURANCE COMPANIES – AN UPDATE Thursday 6 November 2003 Peter Neville Director General of Guernsey Financial Services Commission

Captives – The History First appeared over 200 years ago Purpose: to provide cover too expensive or unavailable in conventional market First Guernsey captive: “Captive” to parent and related risks Other benefits recognised Insurance industry now accepts the concept

Principal Captive Centres Bermuda Cayman Islands Vermont Guernsey Luxembourg [Source: A.M. Best] Number As at 31 December 2002

Guernsey Finance Industry Banks Funds Fiduciaries Insurers 66 banks/£71.6 bn deposits 507 funds/£40.1 bn assets under management 227 full and personal licensees £77.7 bn liquid assets under management 386 captives of which: 56 are PCCs which contain 192 cells 30 Captive managers 26 Life 55 Intermediaries 31 Domestic £12.7 billion gross assets £2.89 billion gross premiums

Guernsey Captives Increased interest Covering risks previously self-insured Covering more sophisticated risks Over 40% of FTSE 100

Reasons for use of Captive Useful in hard and soft markets Access to reinsurance Broader coverage Premiums more stable Placing of profitable customer related business Cover for “uninsurable” risks Improved risk management Advantageous funding vehicle

Reasons for using Guernsey Lower costs Increased flexibility Less bureaucracy Tailored capital Professional and innovative managers Good transport and support services

Cell Core A Single Legal Entity

1 3 2 Core Capital Cell Capital Guernsey Insurance (PCC) Ltd

Protected Cell Companies Caveat Cell assets held in another jurisdiction Attitude of overseas courts

Reputation – The IMF Report Comprehensive regulatory framework GFSC:- well established and well respected - experienced staff GFSC commended for continuous proactive attitude to enhance the regime

The Future Guernsey/Lloyd’s/London market working agreement? Corporate membership vehicle?