reinsurance location, location, location tuesday 19 th may 2009 willis, london

ReinsuranceLocation, Location, Location

Tuesday 19th May 2009Willis, London

Peter NivenChief Executive

Guernsey Finance

Seminar Chairman

Guernsey Snapshot…

• Politically stable• Not part of the EU• 50+ years experience in financial services• Mature legal system• Supportive, highly professional infrastructure• UK time zone – Europe – Asia – Americas• Favourable tax regime• Well educated and professionally qualified work force with insurance

skills

Insurance Expertise

• Leading captive insurance domicile in Europe

• 4th largest captive insurance centre in the world

• Innovator behind the Protected Cell Company (PCC)

• A leader in special purpose vehicles for corporate structures (PCC and ICC)

Depth of Professionalism and Expertise

• Several hundred financial services businesses• Balanced range of providers broadly comprising:

– Banking– Insurance– Investment Funds– Fiduciary services (trust and company administration)– Internationally recognised lawyers and accountants– Stockbroking– Investment management– An independent stock exchange – the Channel Islands Stock Exchange

(CISX)– A bespoke training facility – the Guernsey Training Agency (GTA)

University Centre• An independent regulator, the Guernsey Financial Services Commission

(GFSC)

Guernsey success to date

• 46 banks holding deposits of USD 240bn

• Fund Management sector assets USD 300bn

• Fiduciary business holds funds of USD 455bn

• 700+ Captives and Cells

Expert Panel

• David Reeves, Barbican

• Tony Mancini, KPMG

• Nick Wild, JLT Insurance Management

• Christopher Anderson, Bedell Cristin

David ReevesChief Executive Officer

Barbican Insurance Group

Guernsey – the location and the benefits

Guernsey – the location and the benefits

Benefits still not widely understood

Guernsey – the location and the benefits

Benefits still not widely understood

Need to brief market participants in detail

Guernsey – the location and the benefits

Benefits still not widely understood

Need to brief market participants in detail

Guernsey is the No 1 choice for Barbican based on a broad range of tests

Guernsey – the location and the benefits

Benefits still not widely understood

Need to brief market participants in detail

Guernsey is the No 1 choice for Barbican based on a broad range of tests

Main factors for us are long range planning and political stability

Capital Planning

Capital Planning

Return on Capital is our main KPI

Capital Planning

Return on Capital is our main KPI

Tax is a material factor in the KPI

Capital Planning

Return on Capital is our main KPI

Tax is a material factor in the KPI

OSCA is a straightforward, low cost process

Capital Planning

Return on Capital is our main KPI

Tax is a material factor in the KPI

OSCA is a straightforward, low cost process

No consultants necessary!

Capital Planning

Return on Capital is our main KPI

Tax is a material factor in the KPI

OSCA is a straightforward, low cost process

No consultants necessary!

Capital requirement is higher than Solvency 1 but still favourable

Capital Planning

Return on Capital is our main KPI

Tax is a material factor in the KPI

OSCA is a straightforward, low cost process

No consultants necessary!

Capital requirement is higher than Solvency 1 but still favourable

Return on Capital can be significantly better than onshore equivalent

Reinsurance

Reinsurance

Huge potential for local and international business

Reinsurance

Huge potential for local and international business

Barbican Re is a provider of Group and external reinsurance

Reinsurance

Huge potential for local and international business

Barbican Re is a provider of Group and external reinsurance

Also provides collateralised facilities using simple procedures compared to rival locations

Reinsurance

Huge potential for local and international business

Barbican Re is a provider of Group and external reinsurance

Also provides collateralised facilities using simple procedures compared to rival locations

No trustee, investment manager or custodian necessary/minimal legal fees

Reinsurance

Huge potential for local and international business

Barbican Re is a provider of Group and external reinsurance

Also provides collateralised facilities using simple procedures compared to rival locations

No trustee, investment manager or custodian necessary/minimal legal fees

Very quick to set up a collateralised facility

Conclusion

Positive start to our Guernsey experience

We are receiving a significant number of new enquiries

Barbican Re will seek a rating in due course

Rating is not an issue for many clients

Barbican is taking a long term view of Guernsey location

Tax Environment

Tony ManciniExecutive Director, Tax

Taxation in Guernsey

• Guernsey reformed its corporate tax regime from 1 January 2008

• Exempt companies, special regimes for insurers and international company status all abolished

• Standard rate of corporate income tax of 0%

• Banks and utilities taxed at higher rates

• All insurance companies fall into the standard rate of tax of 0% and are Guernsey tax resident

Taxation – What does is mean?

• No local taxation• No withholding taxes on dividends or redemption of share capital• Certainty and clarity of treatment• Nominal capital duties on incorporation• No VAT in Guernsey• No VAT on services to Guernsey reinsurance company from EU

Plus: pool of experienced credible directors resident on the island to help demonstrate Guernsey central management and control

UK Taxation of Foreign Dividends

• Final proposal in Budget for new regime to commence on 1 July 2009

• Dividends from overseas companies exempt from corporation tax, provided certain criteria met

• No restrictions on size of shareholding

• No minimum shareholding provision

• Not important where the foreign company is resident

• Anti-avoidance provisions to apply

Qualifying Conditions

• No set criteria

• Controlled foreign company rules still apply (although being reviewed)

• Guernsey company must have:- mainly third party business- business establishment in Guernsey- majority of premium income from non-UK entities

• Above all, genuine commercial rationale

Ideal Tax Position

• No tax in Guernsey

• No taxation of profits in UK as they arise

• No taxation in UK on receipt of dividends from Guernsey

• No taxation on eventual sale of company

• Assuming law is enacted as announced in Budget!

Case Study Part 1

Case Study - Assumptions

• Internationally based investors and an experienced underwriter have identified opportunity for book of treaty business in respect of European Wind and Flood business

• Experience will be low frequency high severity with expectation of 1 in 10 years of underwriting losses

• 9 out of 10 years average loss ratio of 50%

• Premium volume circa GBP 25m

• Contemplating establishment of niche reinsurance company

Case Study - Assumptions

• Investors wish to maximise the return on capital in a robust regulatory environment

• Underwriter trusted and well known by the market and reinsurance brokers

• Wishes to adopt a low cost and streamlined method for writing the business

• Reward package will be directly linked to return on capital so interests aligned with investors

• Rating of vehicle will be important

• Considering London or Guernsey for establishment

London Pros

• Market for this business well established

• Underwriter know as a lead in that market

• Close to introducing brokers

• Legal and regulatory environment well understood

• Currently home for the underwriter

• Known to rating agencies

London Cons

• Speed to market could be 6 to 9 months. Opportunity will be missed

• FSA regulation cumbersome and expensive to comply with

• Solvency I and EU Reinsurance directive are onerous

• Solvency II a distraction from this business opportunity

• UK sovereign rating AAA under threat

London Cons

• UK tax on what will mainly be non UK sourced business

• High personal tax on Underwriter and other senior staff

• VAT on services bought in

• All operating costs will be high

London Operational Issues

• Office accommodation expensive

• High commuting time and cost = quality of life for senior staff ?

• All own staff and based in London office

• Face time with brokers time consuming but considered worthwhile

• Competition is on the doorstep

Guernsey Pros

• Speed to market 4 to 6 weeks

• No Corporate Tax / No VAT / Personal tax 20%

• Existing expertise can provide back office services

• Capital requirements will be negotiated based on OSCA

• No EU directives or solvency II preparations as a distraction

Guernsey Pros

• Guernsey on OECD tax compliant list

• Regulation well respected by International Association of Insurance Supervisors but regulatory burden and costs much lower than FSA

• 90 mins travel from London

• Guernsey sovereign rating AAA from S&P ( Feb 09)

CON SOLUTION

• No established market for this business Electronic trading • Underwriter will not have face Video conf or a visit to Gsy time with brokers • Remote from introducing brokers See above

• Regulation not known to rating Educate them agencies

• Regulatory environment not well It is simple understood

• Same for legal environment Based on UK law

Guernsey Operational Issues

• Office rentals lower

• Low commuting time and cost – better quality of life

• Staff costs lower due to lower personal tax

• Use of IT for trading to offset physical presence

• Easy visits to London for the day

• Very small team with back office support outsourced

Financial Comparison

London

• Capital requirement - driven by Solvency 1 and EU Directives

• Operational costs - estimate 15% more than Gsy due to VAT /Rent and personal taxes – estimated at GBP500K (purely for demo)

• Tax - 28%

• Net Profits after tax = 12m x 72% = 8.64m

Financial Comparison

Guernsey

• Capital requirement – driven by OSCA –assume to be same as London but might be less

• Operational costs - 15% less than London = GBP425k

• Tax 0%

• Net Profit after tax = 12.075m

• ROCE will be 40% higher even if capital is the same

Case StudyPart 2

Legal Issues

• Formation of Guernsey company

• Obtaining Guernsey insurance licence

• Distribution/dividends

• Other issues

Fast and Flexible

Formation Process

Client Due Diligence

Obtaining Guernsey Insurance Licence

• £100,000 minimum capital

• General representative and insurance manager

• Management and control in Guernsey

• 1 independent Guernsey resident director

Insurance Licence

Solvency

• 18% of premium up to £5,000,000, 16% thereafter

• Or 5% of claims reserves

• Subject to minimum of £75,000 (75% of min capital)

Distributions

Other Issues

• Protected cell companies

• Migration and amalgamation

Q&A

Peter NivenGuernsey Finance

Drinks Reception

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