INSURANCE COMPANIES

INSURANCE BUSINESS (JERSEY) LAW 1996

Guide to applications under the Insurance Business (Jersey) Law 1996

Background

One of the positive features of the Insurance Business (Jersey) Law 1996 is the flexible approach taken with regard to the authorisation and regulatory requirements. The Financial Services Commission, and indeed the States of Jersey, has always been very much aware of its international obligations with regard to financial supervision generally, and the 1996 Law attempts to ensure as far as possible that the insurance supervisory regime in Jersey is in accordance with best international practice and standards. All insurance companies are required to obtain permits if they wish to carry on business in or from within the Island.

There are two classes of insurance business permit. Category A permits cover those insurance companies which are authorised by a jurisdiction outside of the Island. In this case evidence of continued consolidated supervision by the home country supervisor must be provided.

All other insurance business requires a Category B permit. In addition to the incorporation of traditional forms of insurance company, the Category B permit facility also allows individuals, partnerships and other associations to form captives, and caters for the establishment of Special Purpose Vehicles such as transformer vehicles and companies for the securitisation of insurance risk . A captive insurance company incorporated under the Companies (Jersey) Law 1991, needs to hold a Category B licence even if it does not undertake its insurance business in or from within the Island.

Introduction Top

a) An outline of the official policy with regard to new applications.

b) An outline of the Law.

c) Reasons for setting up a Category B Captive or Reinsurance Company.

d) Ten reasons for using Jersey.

Should you require further information or advice on setting up an insurance company in Jersey please contact:-

David Hart
Deputy Director - Insurance
Jersey Financial Services Commission
PO Box 267
14-18 Castle Street
St Helier
Jersey, JE4 8TP
Channel Islands

Telephone: +44 (0)1534 822000
Facsimile: +44 (0)1534 822001
Email: info@jerseyfsc.org

Insurance Business (Jersey) Law 1996 Top

The specific items of legislation are:

Insurance Business (Jersey) Law, 1996

Insurance Business (General Provisions) (Jersey) Order, 1996

Insurance Business (Solvency Margin) (Jersey) Order, 1996

An outline of the Law and the main Orders is provided as part of this information pack, and copies of the actual legislation can be obtained from:

The States Bookshop,
Morier House,
St Helier,
Jersey, JE1 1DD

Telephone: +44 (0)1534 502037
Facsimile: +44 (0)1534 502434

The Statutes provide that a person may only undertake insurance business in or from within the Island if that person is authorised by a permit granted by the Financial Services Commission. If the permit holder is authorised by or under the law of a recognised jurisdiction outside the Island then it will hold a Category A permit. Any other permit holder will hold a Category B permit. Insurance companies incorporated in Jersey are Category B permit holders.

Category A permits are granted to applicants to carry on business of the same description as that which they are authorised to undertake in their home country jurisdiction, subject to confirmation from the Home Country Supervising Authority. Applicants for Category B permits will, subject to meeting the requirements of the Commission, be authorised to carry on long term or general business of the classes listed in the First Schedule to the Law.

When considering applicants for Category A permit holders the Commission will consider the stature of the applicant and the Home Country Supervision to which it is subject. Confirmation will also be required, from the Home Country Supervisor, which the insurance business of the applicant in Jersey is subject to its consolidated supervision. Category A Permits may carry conditions at the discretion of the Commission.

In the context of Category B permit holders, the Financial Services Commission has decided that the following items would be relevant when considering applications for permits:

a) The standing, reputation and nature of business of the owners and their combined level of free capital and reserves;

b) The knowledge and expertise in insurance matters available to the applicant;

c) The paid-up share capital of the applicant and the level of free capital and reserves as compared with premium income;

d) Arrangements made or to be made by the applicant regarding re-insurance;

e) Whether fit and proper persons are employed by or associated with the applicant in the management, control and audit of its operations;

f) The nature of the risks to be insured.

All permits for Category B permit holders will carry conditions, as listed in the Schedule to the Insurance Business (General Provisions) (Jersey) Order 1996. The Law contains provisions to enable the Commission to impose additional conditions. A solvency requirement will also be imposed.

Any applicant, possibly together with their professional advisors, may initially seek to discuss proposed insurance operations with the Financial Services Commission prior to a formal application being made.

The information submitted for a Category B application will include the following main areas:

a) Background details of the applicant;

b) Copies of the latest audited accounts;

c) Details of persons who are to be directors, controllers or managers of the business in the Island;

d) Name and address of external auditors;

e) Particulars of the classes of insurance business which the company wishes to include in the permit;

f) Five year business plan;

g) Copies of draft re-insurance treaties.

The broad policy with regard to the capitalisation of Category B permit holders is that the financing of the company is sufficient to support the proposed business for the first five years, and to see the company safely into year six. The guideline minimum capital requirement is £100,000, but the Financial Services Commission will adjust this figure up or down depending upon the nature of the proposed business and the financial projections contained in the application.

Annual confirmation that business has been undertaken in accordance with the Law and any permit conditions will be sought from all permit holders.

A cheque for the application fee should accompany the formal application. All permits are renewable on 1 October each year and details of the fees can be found on the following link Fees.

The main benefits to a company establishing an insurance company in an offshore location are as follows:

1. Reduced insurance costs

2. Increased cash flow

3. Access to reinsurance markets

4. Cover risks which are hard to place in the markets

5. Improved control

6. Centralised insurance management

7. Possible savings in taxation

1. Reduced Insurance Costs

Captive insurance or reinsurance programmes should be cheaper to operate than paying out premiums in the market. This will result in lower premiums for the same coverage, or greater profit being derived by maintaining the same premium levels, leading to a reduction in future reinsurance costs or the redeployment of profits for the benefit of the company’s shareholders. A captive avoids acquisition or sales costs and the marketing, advertising and administration costs of commercial insurance companies.

2. Increased Cash Flow

Insurance premiums paid by a company to a commercial insurer are usually paid at the commencement of the year of risk and attract for the commercial insurer a significant amount of investment income. A captive, however, has the use and enjoyment of the premiums paid by the parent. The captive holds these premiums and invests them. The cash flow generated by these premiums benefits the owners rather than the commercial insurer. Premiums paid to reinsurers are usually paid in arrears and therefore there may well be an immediate cash flow benefit switching from the primary commercial market to the reinsurance market. The creation of a captive thereby converts a cost into a profit centre.

3. Access to Reinsurance Markets

A captive has direct access to the reinsurance market where companies tend to work on lower expense ratios than direct insurers. Thus reinsurance can be obtained at a lower cost than conventional direct insurance. Access to the reinsurance markets opens up possibilities for financing risks which are not otherwise available. Reinsurance, ceding and profit commissions may also be earned, which may further reduce the net cost of insurance.

4. Insurance of risks that are hard to place

Certain types of risk e.g. hazardous materials and selected professional indemnity are either impossible to place or only available at unacceptably high premiums. The captive insurance company may be the only way to absorb such risks, as it will have more favourable access to the reinsurance market.

5. Improved Control

Greater control can be exercised on those activities which impinge on risk management, such as loss control, safety instructions, loss reporting procedures and claims settlement, to the overall benefit of the captive and its parent company.

6. Centralised Insurance Management

The captive in addition to providing full insurance at reduced costs, serves as a central point to simplify, co-ordinate and control worldwide risk management. Insurance and reinsurance coverage can be tailored to solve the specific needs of the parent company. Insurance programmes of captives may be designed precisely to meet the global insurance requirements of the group and achieve continuity of insurance cover.

7. Possible Tax Benefits

The correct structure of a captive and conduct of its business may produce tax benefits to the parent company or group.

Ten Reasons for Setting Up an Insurance (Category B) Company in Jersey

1. Stability of Government

A 900-year relationship with the United Kingdom Government as an independent Crown Dependency. No political parties are represented in the States Assembly, which helps to ensure stable and secure government.

2. A first class regulatory regime and legal structure

Jersey has an international reputation with a proper concern for business probity, and a determination to protect the Island’s reputation as a respectable finance centre. All legislation is kept under regular review.

3. High quality accounting and legal services

It is doubtful whether there are many offshore centres that can match Jersey in the choice and quality of international accountancy and legal firms, or in the standard of support staff available to the finance industry generally.

The top international accountancy firms have offices in the Island. There are many firms of advocates and/or solicitors of the Royal Court of Jersey, and English solicitors, with a wide range of commercial experience at an international level.

4. Tax flexibility

Although the standard rate of tax is 20%, the structure of companies can be drawn up in ways that can reduce the overall tax burden.

5. Excellent banking services provided by banks of international stature

There are some 50 banks currently registered in Jersey under the Banking Business (Jersey) Law 1991, all of which are branches or subsidiaries of banks in the top 500 worldwide.

6. Close proximity to the London markets

The proximity of Jersey to the City of London, which is one of the major re-insurance markets, is important where re-insurance is the cornerstone of the effective operation of an insurance company.

7. Good postal and telecommunication services

Excellent global telecommunications and postal facilities are available using the very latest technology.

8. Jersey is a well established International Offshore Centre

Jersey has been established as an international finance centre for over 40 years.

9. Excellent communication by sea and air

Daily flights are available to London with regular flights to other European centres.

10. A pleasant environment in which to do business

An attractive environment which, combined with good hotels, restaurants and other facilities, makes the Island popular as a tourist attraction, a place to visit for businessmen and as a place to locate key management.