breakout session 3 tomorrow’s growth area? sponsored by speaker mark helyar - bedell group
Post on 13-Jan-2016
216 Views
Preview:
TRANSCRIPT
Breakout Session 3
Tomorrow’s growth area?
Sponsored bySponsored by
Speaker
Mark Helyar - Bedell Group
Tomorrow’s Growth Area ?
GICMA Conference, March 2007
Breakout Session 3
Mark Helyar – Partner
Bedell Cristin, Guernsey
mark.helyar@bedellgroup.com
www.bedellgroup.com
Content
• Convergence of the insurance & capital markets
• A quick journey through jargon –
Side-cars, CAT and Longevity bonds,
• How could we achieve better convergence in Guernsey ?
• Value-added captives
• Summary & Questions
Convergence Characteristics
• Driving force – insurance market capacity &
catastrophic risk (Andrew 1992 - $16bn)
• Insurance markets in order of 1/8 to 1/10 the size of
capital markets in Japan, US, UK, Germany and
France
Some headline characteristics -
1. Trend towards financial services conglomerates carrying
out banking and insurance activities and sharing skills
2. Realignment of products “transcending” traditional
boundaries and categories – insurance risk as an
investment product
3. Securitisation of insurance and reinsurance risk
Convergence Characteristics – The Mirror Image
Underwriter
Risk assessment re
claims
Policy (guarantee)
Premium
Claims
Reservations
Reinsurance
Banker
Due diligence re non-
payment
Loan agreement
Loan
Repayments & Interest
Defaults
Securitisation
Jargon Busting - The Reinsurance Side-Car
Reinsurer CAT
Reinsurance
Investors
Jargon Busting - The Reinsurance Side-Car
• Substantial, single catastrophe risk reinsurance
• Ceding slices of seasonal reinsurance risk to “investors”
• Generally requires a licensed insurance vehicle
• Very suitable for rented PCC cell structures
• No risk-gap , very “low” risk business (regulatory)
• High potential investment returns –v- 100% investment losses
• Typical in Bermuda – has reportedly attracted growth in hedge funds
dedicated to investment in insurance risk
Jargon Busting - The “CAT” Bond
Reinsurer
CAT
Reinsurance
Bond Issue
Credit Rating
Investors
Jargon Busting - The CAT Bond, Characteristics
• Substantial, catastrophe risk reinsurers
• Raises capital through loans (bonds) to investors
• Does not require a licensed insurance vehicle for investors
• Complete insurance to capital market risk transfer (transformer)
• Can be designed to be traded, exchanged or assignable
• Typically more expensive to structure than a side-car
• Credit rating important for wider investment purposes
• Less volatile risk than side-car because can smooth out risk
and losses / gains of good / bad years
Change in Longevity
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Age
% A
ttain
men
t
1981
2054
Jargon Busting - The Longevity Bond
Source – UK Government Actuarial Department, 2007
Jargon Busting - The Longevity Bond
SPV
Pension Fund
Mortality Index
BOND
Longevity Risk
Members live longer than index, bond pays out
Members die early, pension fund pays out from windfall
Jargon Busting - The Longevity Bond
• Key issue is transparent, independent indexing and
analysis tools
• Regulatory issues – the issue of financial instruments
by reference to mortality rates are classified as
insurance contracts in many jurisdictions
• Is this a financial or an insurance instrument or both ?
• If insurance, is the issue and sale of bonds also
classified as an investment product and therefore
subject to investment style regulation ?
• What are the effects of a secondary market ?
Longevity Bonds - The Potential Market
• 2006 Q3 net investment by self-administered pension
funds was £6.8 bn
• FTSE 100 companies pension shortfall in July 05 -
£37bn (based on FRS 17)
• Many observers believe that a market in longevity and
mortality risk will develop
• JP Morgan / Watson Wyatt / Cass Business School
announced “Lifemetrics” Toolkit for measuring and
managing mortality risk (Source: Financial Times 19/3/07)
Why Guernsey ?
• Internationally acknowledged, high quality, flexible
regulatory environment – risk based approach
• A premier league insurance domicile with managers /
administrators on hand to manage SPV activities
• Sophisticated financial services infrastructure in both
Guernsey (insurance) and Jersey (capital markets)
• Channel Islands Stock Exchange provides approved UK,
Europe and US status for listed securities with cost
effective, light touch regulation
• Numerous substantial domiciled investment / hedge
funds
How Could Guernsey Develop Convergence Business ?
• Cultural change – communicate better with other
financial service providers in Guernsey & Jersey to
develop awareness of capabilities of our insurance
industry and the opportunity for new business
• Cultural change – externally must be wary of reinforcing a
perception of Guernsey as only a pure “captive” domicile
• Look to develop better links with investment banks to
promote the jurisdiction as a suitable one for
development in convergence markets
• Develop accepted rating protocols for segregated cell
companies and Guernsey insurance SPV’s
The Value –Added Captive
1. Characteristic of the convergence market – multi-line &
cross-selling - not yet evident in Guernsey
2. Finance industry in Guernsey is delimited and silos exist
broadly along regulatory lines (insurance, fiduciary,
banking, investment)
3. Many other Guernsey products and expertise potentially
suitable for the captive parent or their executives &
employees
Examples of Potential Guernsey Benefits, Products and Services
• Employee benefit structures • Private treasury funds • Offshore (UK) recognised pension schemes • Sophisticated intellectual property protection & royalty
streaming• Group option hedging • Investment funds • Securitisation • Access to investment capital • Cheaper and more efficient financial assistance legislation for
mergers, acquisitions and holding structures
How Can Guernsey Develop Value – Added Captive
Business ?
• Education - develop awareness of capabilities and profile
of the insurance industry and the opportunity for
additional business amongst other sectors
• Raise and develop awareness amongst clients of other
potential Guernsey expertise and products
• Joint ventures, mergers and acquisitions
Summary – Common Themes for Growth
• Education – internal & external
• Sector convergence – joint ventures and product
development
• Regulation - mixed purposes
DISCUSSION
&
QUESTIONS
top related