An innovative new single structure to conduct both the fund and insurance element of insurance-linked securities (ILS) business is being developed in Guernsey.
Mark Helyar, a lawyer with insurance expertise, is leading the way with the evolution in the ILS space and is involved in the development of what he described as a “Fund of One”.
The “Fund of One” would see an investor set themselves up with an unregulated investment fund and their own transformer cell, thereby running a private fund within a regulated structure.
The innovative structure has received support from Guernsey’s ILS industry, with the suggestion that it would present significant efficiencies for ILS fund managers.
Speaking at Guernsey Finance’s ILS Insight event in Zurich, Heylar commented: “This is the way I think investors want to see the direction of travel–more control, reduced costs, both vehicles in the same jurisdiction, variable capital commitments brought in and out, and you can see exactly what you are doing.”
According to Heylar, the model removed the challenges posed by regularly operating in different jurisdictions, regulation, time zones, accounting rules, audit and extra layers of administration costs.
He explained: “There is a big circle and everyone in that circle is taking a cut.”
“Investors have difficulty understanding where the value is in the chain, it is difficult to understand the process, and particularly when you get a year of natural disasters like last
year, people start to ask questions.”
“It occurred to us and to clients that this kind of approach doesn’t suit them. They
want to clearly control the deals they are doing.”
Heylar added that he expected the structure would be popular for large investors who did not want to be treated like a private investor, offering full transparency, a significant reduction in duplicated costs, and the chance to work with their choice of co-investors.
He said: “I am quite excited by this–in talking to regulators we are doing two things here which are usually done in silos–investment and insurance divisions often take a different approach to risks.”
“We have one of these on the starting blocks at the moment – a transformer and fund in the same vehicle.
“I’d like to see people considering this type structure in the future, it is an excellent vehicle to demonstrate transparency for investors and a good thing for Guernsey.”
Helyar described the ILS space as where the “capital markets and insurance markets meet” and said that the growth in the market has meant an increased need for structures and more efficiency.
“There is evolution—things are changing all the time, and new structures are appearing regularly as we are always trying to think of new ways to do things more efficiently.”
Guernsey Finance chief executive Dominic Wheatley said: “We’re proud that Guernsey offers a combination of stability, expertise, and receptiveness to new ideas that makes us uniquely able to facilitate innovation as it emerges in this space, and our commitment to maintaining this environment is clear and unwavering.”
