Tony Hillman takes a look at the new insurance business arriving in Jersey.
In the June-August editions of this publication in the years 1995, 1996 and 1997 I outlined respectively Jersey's emergence as a captive domicile and the statutory and regulatory framework for insurance business infrastructure.
Jersey clearly demonstrates all the ingredients. But how much has been achieved and where are the likely areas of future development?
Subject to exemptions, all persons carrying on insurance business in or from within Jersey are required to be authorised by a Jersey permit. Jersey has in issue 174 insurance business permits. Of those, 160 are Category A permits (issued where the applicant is already authorised by an insurance supervisor outside Jersey) and 14 are Category B permits (issued in all other cases).
Although Jersey seeks continuing growth in the number of insurance business permits issued, from the perspective of the island significance depends not on the number of permits but on the volume of business conducted by permit holders and, consequently, the requirement for banking and other professional services to be provided from Jersey.
Jersey has permitted the writing of insurance by Jersey companies since 1983, but only since October 1996 have the doors been truly open. The indications in the short period since then have been that new business is likely to include business falling within the following categories:
Special purpose insurance vehicles
In the short period since it was set up on 1 October 1996 the Insurance Business Division at the Financial Services Department in Jersey has worked hard to create and develop a reputation for flexibility and a willingness to provide bespoke solutions. Jersey must now be in the premier division when it comes to deciding on domicile for vehicles used to bring additional capacity to the insurance industry by way of investment from the capital markets. Typically, a Jersey company will be set up (often, but not necessarily, owned by a Jersey charitable trust or purpose trust) to act as reinsurer or retrocessionaire and finance its activities by means of a bond issue rated by one of the major rating agencies. Growth in that area is necessarily subject to the insurance cycle with the result that structures will be devised, and in some cases will be approved in principle, to become operational once rates in the insurance market harden. Returns to investors can, of course, be managed by careful negotiation of the triggering events and benefits limits in the reinsurance or retrocession agreement entered into by the Jersey reinsurer. Such vehicles in Jersey will need a Jersey insurance business permit (since they are to carry on insurance business) and a Jersey regulatory consent for the issue of their bonds. In practice, the Insurance Division and the Investment and Securities Division of The Financial Services Department will work hand in glove and, in the writer's experience, will enhance and certainly not hinder the "Jersey product".
In the June-August 1997 edition of this publication I referred to Jersey as carving a niche for itself as a location for organisations aiming to offer high premium, unit linked life products and managing the underlying funds themselves. That may have been too restrictive a statement, in that the experience of the year since then demonstrates the launch of at least one high premium, unit linked product involving their party fund managers. This is clearly an area in which Jersey is particularly interested in attracting further growth. It is also an area to which Jersey is well suited in view of the island's extensive fund management expertise.
Financial risk reinsurance
It should perhaps not have been surprising that among the first institutions looking at using Jersey after 1983 were banking groups familiar with managing financial risks and who were considering setting up offshore operations to carry on that business through the medium of insurance products. Jersey continues to develop in the area of financial risk reinsurance and the familiarity with that business gained by the island's infrastructure should place it in the forefront with regard to future opportunities. This area of business seems to be best suited to international banking, insurance and financial services groups with, or willing to discuss establishing, a physical presence in Jersey. By that means the reinsurer would expect to be able to demonstrate to other territories the appropriate level of mind and management offshore.
I demonstrated in my article in the June-August 1997 edition of this publication that the infrastructure to service captive insurance and reinsurance business undoubtedly exists in Jersey. In terms of its ability to provide that service, Jersey now seems to be as attractive a location as any other. In some respects perhaps better, in that the island's banking and fund management industries (that look after so much of the assets of captives set up in other jurisdictions) are right on the door step. It seems reasonable to guess that the willingness and resources to take on new business are at least as great in Jersey as anywhere else. A significant part of the anticipated growth in Jersey's captive insurance and reinsurance activities may prove to come from corporates already making use of Jersey's finance industry for other aspects of their business, or having other contacts with the island, who choose to add to the use they already make of Jersey by domiciling their insurance activities there for the first time.
Now that the workload involved in implementing the Insurance Business (Jersey) Law 1996 has been completed, the Insurance Division at Jersey's Financial Services Department is able to apply a higher proportion of its attention and resources to the promotional aspect of its role. Industry participants should expect to see a higher profile for Jersey over the years ahead, achieved not just by greater focus on Jersey in publications such as this but also by a Jersey presence at the quality insurance industry conferences.
Jersey is very clearly open for business. The opportunity to find out more about the Jersey product should not be overlooked.
Tony Hillman heads up the insurance business practice at Crills in Jersey. Mr Hillman graduated from Oxford University in 1979 with a first class honours degree in jurisprudence and qualified as a solicitor in England and Wales in 1982. He moved from London to Jersey to join Crills in 1984.