Historically, Jersey does not have a reputation as an offshore insurance centre. In recent years, considerable efforts have been made to change this perception, with a fair degree of success, writes Nigel Woodroffe.
The Insurance Division of the Jersey Financial Services Commission came into being at the beginning of October 1996, to coincide with the introduction of the Insurance Business (Jersey) Law 1996, which took effect from 1 October of that year. This law removed the restrictions previously applied to insurance business, and for the first time introduced the registration and supervision of all insurers wishing to carry on business in the island.
The previous insurance legislation, which dated from 1983, prohibited the formation in Jersey of insurance companies carrying on long term insurance business and those wishing to sell their products to third parties. The formation of insurance companies in the island was therefore effectively limited to captives. The 1983 law was also silent on the registration and supervision of insurers authorised in another jurisdiction but carrying on business in Jersey.
Under the provisions of the Insurance Business (Jersey) Law 1996, there are two classes of insurance business permit. The category A permit is issued to those insurers which are already authorised and regulated in an acceptable jurisdiction elsewhere and wish to carry on business in Jersey, either by setting up a branch or by selling through financial intermediaries. By the end of 1997, 148 such permits had been issued, and this figure rose to 170 during 1998. However, with an increasing number of insurance companies merging or engaging in acquisitions, it is unlikely that such growth will be seen during 1999 or beyond, and it is possible that the number of insurance permits in issue may fall as newly merged businesses rationalise their operations.
Category B permits are issued to businesses which establish and register an insurance company in Jersey. These companies are therefore authorised and supervised by the Commission. On 1 October 1996 there were four such companies (all captives), and this number increased to 11 by the end of 1997 and to 14 by December 1998, including for the first time long term business insurers and special purpose vehicles. As with all areas of financial services in Jersey, the concern of the Commission is to attract businesses of quality to the island, rather than quantity, and it is consequently expected that growth in this area will be slow and steady rather than spectacular.
Although captives are the type of insurance company most associated with offshore jurisdictions, Jersey has been successful in attracting long term insurers to the island. During 1998, the Commission applied to the Insurance Directorate of HM Treasury in the United Kingdom for Designated Territory Status for Jersey. This was granted in June, and was a very important step in establishing the island as a full service offshore insurance centre. The effect of such designation is that a long term business insurer which sets up in Jersey is able to market its products into the UK without having to obtain separate approvals in that jurisdiction.In recent years, the insurance industry worldwide has been facing an excess of insurable liabilities over capacity to insure them. As a means of overcoming this problem, insurers and reinsurers have been securitising such risks, using capital markets to issue bonds to investors to trade a higher level of risk on their investment for a greater return. Such offshore companies are known as special purpose vehicles and Jersey has been successful in attracting a share of this market not only through its own efforts but also because of the financial expertise which exists within the financial community generally in the island. It is hoped that this area of business will continue to grow during the coming years.
During 1998, the Commission continued to strengthen its links with other regulators through its membership of the International Association of Insurance Supervisors and the Offshore Group of Insurance Supervisors. Such memberships enable the regulatory authority to exchange views on matters of common interest, and help it to keep abreast of developments worldwide and to maintain a supervisory regime in line with international best practice.Probably the most important and widely publicised event of 1998 was the review by Andrew Edwards of the regulation of financial services in the Crown Dependencies (Guernsey, Jersey and the Isle of Man). While the review was complimentary in many respects, it also highlighted areas where improvements might be made. All the recommendations contained in the review are being considered carefully in Jersey, and some or all of the insurance elements may be reflected in an insurance business amendment law later in the year. Any such amendments can only strengthen the island's reputation as a well regulated offshore centre, with supervisory arrangements in line with international best practice.
One piece of legislation was passed during 1998. The Insurance Business (Amendment) (Jersey) Law 1998 has been introduced to address a number of administrative issues and minor problems which have arisen during the first 18 months of operation of the 1996 law.
Historically, Jersey does not have a reputation as an offshore insurance centre. Over the last two years, considerable efforts have been made to change this perception, with a fair degree of success, and 1998 was certainly a year of progress. Work will continue during 1999 and beyond to establish the island as an offshore insurance centre of repute.
Nigel Woodroffe is the Director Insurance, Jersey Financial Services Commission.