Jersey is continuing to strengthen its legal and regulatory structure to enhance its attractions as an offshore insurance centre and hopes to capitalise on the development of catastrophe bonds, writes Wayne Fessey following a conference on the island.
Jersey is this year to launch a financial service commission, a statutory corporate body operating independently from the government to assume responsibility for the development, supervision and promotion of the island's financial services industry.
Robert Christensen, the chairman of the Jersey Offshore Insurance Association (JOIA) and of a conference in January on the subject of the island as an offshore insurance centre, says: "Jersey has been finding its feet and is only now really starting to promote insurance and reinsurance and establish foundations for sustained growth that will enable us to develop the right kind of long term, quality business that we are looking to attract to the island.
The conference was held just over a year since the introduction of the Insurance Business (Jersey) Law 1996 which allows Jersey to develop a full range of offshore insurance and reinsurance business. It took place against the background of an announcement by the UK Home Secretary Jack Straw of a wide ranging review of the legal and regulatory structures of the Channel Islands and the Isle of Man, including company registration procedures and money laundering deterrents.
Although the way the planned review was announced surprised and puzzled Jersey's Finance and Economic Committee, neither it nor the Financial Services Department is concerned by it. They feel that surveillance reinforced and supported by legislation designed to thwart misconduct and illegal dealings is a factor in attracting the quality of business that they seek for the island.
Mr Christensen says: "We already have strong guidelines to prevent money laundering and fraudulent activity and, in fact, now the law actually requires that banks and other financial institutions here actively disclose all crimes, including suspected money laundering activity."
The Financial Services Department devoted much of the past year to identifying and registering category A insurance companies (those already authorised and supervised in another jurisdiction) with permits to conduct insurance business on Jersey, currently around 160. This group includes companies from the United Kingdom, continental Europe, the United States, Canada and South Africa. Jersey is now aiming to increase the number of offshore insurance companies registered in Jersey, holding category B permits, from the current 13.
Two of the first companies to gain category B licences are Liberty International Holding plc and Scottish Widows International Ltd. Ian Muat, managing director of Scottish Widows International, said the Edinburgh based mutual "selected Jersey to promote its products to the international expatriate community because of its strong regulation that is still flexible enough so as not to restrict it commercially."
Jersey hopes to capitalise on its well established offshore banking industry to develop the insurance sector. Like Bermuda and the Cayman Islands, it sees great potential in the development of catastrophe bonds, which are likely to be done by means of a special purpose vehicle (SPV) reinsurance company licensed in an offshore jurisdiction.
According to Mr Christensen, Jersey is probably the European leader in SPVs of all types and outside Europe its only real rival is the Cayman Islands. He believes the island could gain if the demand for CAT bonds, still in an early stage of development, grows.
Another conference speaker, Jean Terren, legal counsel to a London investment bank, explains that Jersey is able to deal with the CAT bond structure and zero capital SPVs which many other domiciles cannot. "The capital markets are able to take over the risk that the reinsurance market cannot cover. Also, many fund managers are now looking at CAT bonds because of their low correlation with bond and equity returns."
Jersey is not discouraged by changes in the UK's Controlled Foreign Companies legislation. John Hare, international tax partner with Coopers & Lybrand in the Channel Islands, reviewed the current tax position affecting UK owned captives for the conference. He says that although tax is not the main reason for setting up a captive, there are still benefits to be gained from structuring a captive to realise tax planning opportunities.
Beginning with the conference, this year promises to see a major promotional effort by Jersey to increase awareness of its revised legal and regulatory environment among financial services practitioners, such as banks, accountants and lawyers. The insurance division will have a presence at the two major risk management conferences this spring, AIRMIC in the UK and RIMS in the US, and Jersey has become a member of two important industry associations, the International Association of Insurance Supervisors and the Group of Cross Border Insurance Supervisors.
Wayne Fessey is editor of Global Reinsurance Electronic Information Services whose address is http://www.globalreinsurance.com.