GIBA Member Focus: The Guernsey International Insurance Association

The Guernsey International Insurance Association (GIIA) was formed in 1983 to represent the combined interests of both Guernsey insurers and Guernsey insurance managers.

GIBA talks to Peter Child, Chairman of the GIIA Market Development Committee, about the sector and its future.

What is the key message you can give your industry at this time?

Guernsey is unique because it has such a wide and varied financial services sector. Many of our competitors do not have the complex infrastructure that we have.

We have a unique position in offshore finance centres, which we need to take advantage of as an industry. We haven’t adequately leveraged our level of expertise, and we can all play a part in doing so by working more closely together.

We’re living in a world of uncertainty. How would you describe the current state of the international insurance industry in Guernsey?

I think it’s pretty robust at the moment. Historically, this sector has been a slow burner when compared to others in financial services.

Since the late 1970s insurance has grown at a pretty consistent and steady pace year on year, and we’re still the smallest of the four main sectors. However, we continue to grow because we have a reliable business model that retains clients comparatively easily.

We have a diverse set of products that we’re able to offer to a wide range of global clients; however, there are threats.

For example, one of the challenges we face is increased scrutiny from international agencies, and misconceptions can be equally frustrating. There is a continuing perception by UK tax authorities that a captive insurance company will only be set up for tax reasons. That’s completely untrue as there are no tax benefits; pretty much everything we do is tax neutral. There are currently ongoing cases with HMRC that challenge its interpretation of Diverted Profits Tax and its application to Guernsey-based captive insurance companies. As things stand we are very hopeful that this one bête noire will soon be laid to rest.

Is growth slowing down?

No, it doesn’t appear to be slowing down. There are always innovations that come into the insurance world and, although we lump them together as ‘international insurance’, different products are being sold all the time that ensure growth.

If we go back to the late 1990s, it was protected cell captives – micro-captives for businesses who couldn’t afford captives on their own. More recently there’s been growth in insurance-linked securities and in the pensions longevity business.

So, there are always little niches that come along and help us grow. The captive insurance business remains fairly robust despite insurance premium tax increases.

How will Brexit impact on the sector?

It might give us more opportunities to align more closely with the UK and Gibraltar, with the potential to offer insurance products into the UK from Guernsey, which would be exciting.

We’re used to being outside the EU, because we have no passporting rights under EU legislation, so we might be able to share our experience with the UK following its transition.

How is new technology changing your industry?

I’m potentially excited about how this area of the industry will evolve. The new online insurance providers liberate companies from having to be in a particular location, particularly if they’re providing a technological interface between the end consumer and the insurance provider.

As an island, we’re geographically dislocated so for us the potential use of technology to get our products out to customers, wherever they might be in the world, could be exciting.

At the moment I am not aware of any particular insurance-based tech products in Guernsey that are making waves, but you never know. I’m sure there will be some development reaching fruition in the future.

With an eye to the future, is the recruitment of young people easy for the sector?

No, it’s not easy. We have programmes to bring young local people into our business and train them up to be the leaders of the future.

I think there are good intelligent, driven and motivated local people who, given a chance, can lead this industry in the years to come.

Is captive insurance still the biggest engine for driving the sector forward?

No, it’s not the biggest engine for growth, but it’s the foundation on which our business relies. It’s an extremely ‘sticky’ business: complex, and not the easiest to keep servicing correctly, but the sector does a pretty good job.

We’ve always carved out a place in the world as being particularly proficient at servicing captive insurance. However, various macroeconomic factors mean the captive insurance sector is currently not as compelling a proposition as it has been.

As a whole, the macro-insurance market has been incredibly ‘soft’ for a number of years because, as an investment class, insurance is more attractive than it has been. Not only are investors investing in something that diversifies investment risk, but also over a number of years, until the hurricanes of 2018, insurance as an asset class had shown decent returns year on year. This keeps the price of insurance down within the retail market. Captive insurers want the retail market to be, at least, comparatively expensive because it then makes sense for our clients to take their own risk in their insurance vehicles rather than transferring it to the third-party market. There are however genuine signs that the market is beginning to harden, which could be a fillip for captive growth.

Are you optimistic about Guernsey’s future?

Yes, absolutely. There have always been threats to our business environment, but we have done more than just survive these challenges, we’ve flourished. I’m confident that the same will happen again.