FINANCE

PRACTICE UPDATE

OFFSHOREQ2 2014

CONTENTS2 The UK Crown Dependencies – Aircraft Registries

Ready for Take Off! 4 Dangerous Times for Trustees?6 Structuring Private Equity Co-investment Opportunities in Bermuda 8 Taking AIM into 201410 Risky Business – Insurance Linked Securities in Guernsey

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All are independently governed jurisdictions, with their own currencies, and none forms part of the UK, the Commonwealth of Nations or the European Union (EU). Although not a Member State of the EU, uniquely the Isle of Man forms a common area with the UK for Value Added Tax and customs purposes. The Crown Dependencies, together with Great Britain are known collectively as the British Isles.

Corporate aircraft have traditionally been registered in the home state of the owner. Alternatively, before May 2007, there were also three offshore aircraft registers in the Caribbean region, Aruba, Bermuda and the Cayman Islands. There are now over 190 private aircraft registered in the Cayman Islands, and more than 300 registered in Bermuda in both the public and private categories, many of which are owned by multinational companies or high net worth individuals.

Operating a business jet makes practical business sense for a successful international corporation. Two-day airline ordeals can be turned into an efficient one-day in and out journey, enabling business travellers to go direct to international markets quicker and more frequently. Business jet travellers regularly benefit from time-saving, schedule flexibility, efficiency and security.

The world’s largest register of business aircraft is the USA, currently there are nearly 12,000 business jets on their register and whilst the majority are owned by US Corporations and US Nationals, a large percentage are owned by non-nationals through US Trusts. The

THE BRITISH CROWN DEPENDENCIES - READY FOR TAKE OFF!Brian Johnson

The British Crown Dependencies are self-governing possessions of the British Crown and distinct from the UK Overseas Territories. There are three Crown Dependencies, the Bailiwicks of Jersey and Guernsey in the English Channel and the Isle of Man in the Irish Sea.

number of aircraft foreign owned through trusts technically makes the US the largest global offshore register.

The Isle of Man RegistryIn May 2007, the Isle of Man established an aircraft registry purely for private/corporate aircraft. As the Island could never be a contracting state to the International Civil Aviation Organisation (ICAO) it needed the UK as the contracting state to accept international responsibility for the register. The Isle of Man was the ninth aircraft register for which the UK accepts responsibility, the others being the Overseas Territories of Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Falkland Islands, Montserrat, Turks and Caicos and of course the UK’s own register administered by the CAA. The UK’s register has the nationality prefix ‘G’ followed by four characters, to provide a unique aircraft registration mark.

The UK had also been allocated a number of registration prefixes for potential future use by its Territories when ICAO was formed in 1944. Among these was the prefix ‘M’ which, at the beginning of the aviation industry, had originally been chosen by Spain, presumably with deference to its capital city Madrid. In 1931, Spain changed its civil aircraft register prefix to ‘EC’ for España Civil and ‘M’ remained in the UK allocation until it eventually became the perfect prefix for the Isle of Man.

The start of the Isle of Man register in 2007 could not have been better timed, with the economy still rapidly expanding, orders for some business jet models were sold out for up to five years ahead. Pre-owned jets were trading at a premium and changing hands above their value because buyers were willing to pay more to take delivery sooner, rather than endure years waiting for their new aircraft. Unlike other aircraft registers the Isle of Man was dedicated only to the registration of high quality private/corporate business jets and twin-turbine engine helicopters and does not register aircraft for commercial air transport. From day one it recognised that for successful global businesses, corporate aircraft are essential business tools and to

operate efficiently they need the support of a service driven, pragmatic regulator which sets high safety standards.

Uniquely for a Crown Dependency, the Isle of Man offers a distinct advantage for aircraft owning structures with its business-oriented customs division allowing for the speedy processing of VAT registration applications. Its small but efficient airport is a popular entry point for the importation of aircraft into the EU.

Registry in the Channel IslandsHoping to emulate the success of the Isle of Man, in 2013 the Channel Islands of Guernsey and Jersey considered establishing a joint Channel Islands aircraft register. However, it was decided that a joint register could not meet the separate operational and commercial interests of both Islands and it was agreed that each jurisdiction would move ahead with separate plans for two new aircraft registers. In December 2013, Guernsey launched its new aircraft registry, choosing ‘2’ as its nationality prefix followed by four characters.

In the third quarter of 2014, the third Crown Dependency Jersey plans to launch its new aircraft registry. Jersey is the largest of the British Channel Islands and is located 85 miles from the South coast of England and 14 miles from France. The financial services and legal sectors account for around two-fifths of the total economic activity. Jersey will soon announce its registration prefix and aims to establish a professional, well-resourced and efficient register to complement its well-regulated financial services sector.

Advantages to RegisteringThere are many advantages to registering an aircraft offshore. Firstly high regulatory standards, privacy, the identity of the aircraft owner can remain undisclosed, the flexibility to validate different nationalities of pilot’s licences, the ability to transfer your personal registration marks to a new aircraft, a politically neutral registration mark when flying in sensitive parts of the world, a secure mortgage register for financial institutions, favourable company tax and high international service standards as all offshore jurisdictions are regularly dealing with global organisations in different time zones. All three Crown Dependencies accept (or will accept) the same qualifying owners as the UK including Commonwealth and EEA citizens and companies. The Isle of Man is also adding Switzerland as a qualifying country.

The Future Looks Bright for Business AviationFollowing the credit crunch of 2008, the business jet market took a huge battering, with some manufacturers reporting order numbers dropping by two-thirds between 2008 and 2010. Chief Executives with jets on order quickly cancelled for fear of shareholder revolt, and the market for small and mid-size entry-level jets has still not recovered. Despite larger high quality intercontinental jets continuing to be sold, 2013 saw the first rise of 0.9% in business jet deliveries since 2008. Honeywell’s annual Business Aviation Outlook forecast, in late 2013, estimates up to 9,250 deliveries of new business jets valued at over $250 billion through 2023, which indicates a reassuring busy decade lies ahead for business aviation.

Offshore aircraft registers will soon have doubled in number during the last seven years and the three independent Crown Dependency registers, geographically convenient to Europe, within the same time-zone and familiar with servicing global clients, will probably attract a large number of traditionally ‘home’ registered corporate jets ‘offshore’ in the future.

CONTACT Isle of Man Brian JohnsonDirector of OperationsAppleby Aviation Ltd+44 (0)1624 647 640bjohnson@applebyglobal.com

This article first appeared in the Legal Week Offshore Feature in April 2014.

“Aviation outlook forecast ... estimates up to 9,250 deliveries of new business jets valued at over $250 billion through 2023, which indicates a reassuring busy decade lies ahead for business aviation.”

Where such a trustee is behaving perfectly properly (in accordance with the laws and regulations of its own jurisdiction) but suddenly finds itself on the receiving end of a criminal summons from another jurisdiction what is it to do?

In theory it could, of course, go to the authorities of that other jurisdiction and try to demonstrate that it was behaving perfectly properly in relation to whichever structure that authority was concerned about, but to do so would necessarily entail disclosing considerable details in relation to the particular trust, its assets and its beneficiaries. Would acting in such a way constitute a breach of the trustee’s obligations to the beneficiaries? Would the courts of the trustee’s home jurisdiction be sympathetic to the position of the trustee? This is an issue which was canvassed recently before the Guernsey Court of Appeal, but it is a scenario that could easily arise in any of the offshore jurisdictions.

In Re B – The FactsThe case of In Re B (Guernsey Court of Appeal, 35/2012) involved a Guernsey trust company (TrustCo) and one of its Directors (X) who were providing trustee services to two trusts. One of the trusts indirectly owned a share in real property situated in France, and both had French beneficiaries.

Following the death of the settlor of the trusts in 2001 his widow instituted civil proceedings in France in relation to the distribution of the settlor’s estate. An order was made for a judicial division of the joint

marital assets and the assets of the settlor’s estate in 2005, but as these proceedings rumbled on the assets contained in the trusts also became the subject of discussion. A criminal investigation in relation to the trusts was established in 2010 at the instigation of the widow and an investigating magistrate was duly appointed to look into the matter. The widow herself died later in 2010 (and with her, her civil claims also expired) but the criminal investigation persisted.

Simultaneously, it seems that tax investigations into the trusts and the beneficiaries were also progressing in France and, following a change in French tax law in 2011, certain disclosure obligations were imposed on trustees of trusts with French assets and/or French beneficiaries.

In 2011, the protector of the trusts (a Swiss lawyer) was summonsed to give evidence to the investigating magistrate, but it seems he was uncooperative and did not disclose any material information in relation to the trusts. The investigating magistrate’s reaction was to summons TrustCo to attend before him for investigation – crucially, not as a witness but as a suspect with a view to being charged with assisting tax evasion and aggravated money laundering.

On taking French legal advice, TrustCo decided that its best course of action was to answer the summons and make disclosure of relevant information in respect of the trusts with a view to showing that it had acted properly at all times. On learning of this, however, one of the beneficiaries strongly objected to the proposed course of action, arguing that in doing so TrustCo would be in breach of its duty of confidence to the beneficiaries of the trusts. Not surprisingly, the matter came before the Guernsey courts.

The IssuesIn the absence of anything expressed in either the trust deeds or in the Trusts (Guernsey) Law 2007, addressing the issue of the power to disclose trusts information to third parties, the Court first had to determine what the law of confidentiality was in these circumstances. The position under English law

DANGEROUS TIMES FOR TRUSTEES?Marc Guillaume

It can sometimes be a dangerous business to be a professional trustee operating in a world where the fiscal and judicial authorities of certain on-shore states take a dim view of their citizens’ desire to minimise their exposure to taxation.

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is that trustees must keep the affairs of the trust confidential. Set against that, however, the Court noted that the leading Jersey authority on the point (In The Matter of The Internine and The Azali Trusts 2006 JLR 195) had held that there was no “irrefutable presumption that all documents held by the trustees for the purposes of the trusts were confidential”. On a careful reading of the Internine judgment, however, it becomes clear that the Court in that case was only considering the issue of confidentiality within the context of what amounted to a lawful discovery process – i.e. whether or not the documents concerned were privileged in some way rather than simply the subject of a duty of confidentiality. In the current case the Guernsey court had no hesitation in deciding that TrustCo did have a general duty of confidentiality to the beneficiaries of the trusts, albeit one that was subject to a number of qualifications.

What were these “qualifications” to the duty of confidentiality that makes that duty less than absolute? The Court determined that they were broadly similar to those which apply to a bank’s duty of confidentiality as they were formulated in Tournier ([1924] 1 KB 46), i.e. (i) where disclosure is required by law, (ii) where there is a duty to the public to disclose, (iii) where disclosure is made with the express or implied consent of the party to whom the duty is owed and (crucially for this case) (iv) where the interests of the disclosing party require disclosure to be made. Essentially, the Court found that a

trustee “has the right to disclose such information when, and to the extent which it is reasonable necessary, for the protection of the [trustee’s] interest”.

The DecisionHaving determined the law, the question was whether or not it was reasonably necessary for TrustCo to answer the French summons and disclose information in relation to the trusts to protect its interests. The beneficiary argued that it wasn’t. TrustCo and X, unsurprisingly, argued that it was since (i) they faced possible criminal charges and sanctions and (ii) the reputational risk to TrustCo was significant. Happily for TrustCo the Court agreed with it, and permission was granted to disclose information in relation to the trusts to the French investigating magistrate.

ConclusionA number of points can be taken away from In Re B. Firstly, notwithstanding the Internine case, it seems likely that In Re B contains a preferable statement of the general law applicable to a trustee’s duties of confidentiality to beneficiaries and one which we may well see referred to in the Jersey courts in future. Secondly, it serves to remind both trustees and beneficiaries that “there are limits to the obligation on trustees to keep the affairs of the trust confidential”. Finally, it shows (once again) that the local courts are there to help professional trustees as well as disgruntled beneficiaries.

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CONTACT Jersey Marc Guillaume Counsel | Group Head, JerseyPrivate Client & Trusts+44 (0)1534 818 280mguillaume@applebyglobal.com

“… local courts are there to help professional trustees as well as disgruntled beneficiaries.”

Bermuda’s legal and governance framework, together with its experienced and knowledgeable professional service providers, facilitates the creation of flexible and economically viable co-investment vehicles within a stable and business friendly jurisdiction.

Co-investment Co-investment deal flow tends to track overall private equity market deal flow, with volumes gradually increasing since the 2008 crisis period. A report by Preqin tells us that of the LPs tracked on Investor Intelligence; 43% are actively seeking co-investment rights when committing to funds, and a further 11% are considering such opportunities, with fund of funds managers accounting for the largest proportion of the co-investors (23%). The Hedge Fund Insight ‘Hot 100’ report released in April 2014 which captures emerging trends in the hedge fund industry, placed co-investment by fund of funds as number 52 in its list, reporting that “as one of the initiatives to demonstrate engagement by funds of hedge funds there is a trend to offering co-investment opportunities to clients”. Therefore we expect to see a rise in the number of funds looking to structure co-investment opportunities.

Co-investment rights give an investor the ability to make a minority investment, directly or indirectly, in a portfolio company. Rather than making a capital commitment to the fund an investor is given the opportunity to invest on the same terms as the fund.

Selecting the right legal and governance framework for the co-investment vehicle is one of the key considerations in implementing a successful co-investment structure. The optimal structure will depend on a number of factors including where and

to whom the co-investment opportunity is to be marketed, the nature of the potential co-investor base and the identified portfolio investment assets. Tax and regulatory issues will of course also be important in determining the structure. Where an offshore structure is to be implemented, Bermuda offers key advantages as a jurisdiction for establishing a co-investment structure as the primary pieces of company legislation (being the Companies Act and the Segregated Accounts Companies Act (SAC)) allow for the creation of bespoke governance and economic arrangements within a single entity. Options exist to ‘opt in’ to the amount of regulation a fund requires based on its investor base.

Utilising SPV’sUtilising a newly formed special purpose vehicle (SPV) with separate classes of shares is often preferred where there are multiple co-investors. Under this structure the fund and the co-investors invest on a side by side basis into a newly formed legal entity which will hold the portfolio investment.

An SPV formed in Bermuda may take the form of a Bermuda exempted company with limited liability (which can initially be established with a single shareholder, any amount of authorised share capital, unrestricted objects and the powers of a natural person); or a Bermuda mutual fund company (which can be closed ended and therefore falls outside of the scope of the Investment Funds Act).

Alternatively, a co-investment may be structured using a limited partnership structure. The advantages of forming a limited partnership in Bermuda include less regulatory scrutiny as the partnership acts do not look to regulate the affairs of limited partners; the

STRUCTURING PRIVATE EQUITY CO-INVESTMENT OPPORTUNITIES IN BERMUDASarah Demerling

A properly structured co-investment vehicle offers both the fund and its co-investors the ability to effectively manage, deliver and return economic benefit from identified investment opportunities.

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general partner can be based outside of Bermuda; and a Bermuda limited partnership can elect (in a similar way to Delaware limited partnerships) to have separate legal personality.

Incorporating an SPVApplications for incorporating an SPV or a limited partnership in Bermuda can usually be approved on a same day basis so when a co-investment opportunity is time sensitive the speed and relative simplicity of the incorporation process is another advantage of establishing a co-investment structure in Bermuda.

Once incorporated, the SPV is then registered as a segregated accounts company under the SAC. An SPV registered as an SAC company will enjoy statutory divisions between each segregated account. A ‘segregated account’ is an account containing assets and liabilities that are legally separated from the assets and liabilities of the company’s general account. The assets and liabilities that would be held within or in respect of a segregated account are then ‘linked’ to a class of shares.

Each class of shares linked to a segregated account will represent a portion of the particular investment or be linked to a separate investment (depending on whether the SPV has a single or multiple investments). The effect of this statutory division is to protect the assets of one account from the liabilities of other accounts. In addition, payments in respect of distributions and redemptions to co-investors will only

be paid out of the assets of the segregated account in respect of which the relevant shares are linked.

Provisions of the SAC The provisions of the SAC have recently been tested by the courts in Bermuda in respect of the purported insolvency of segregated accounts and the rights of creditors and shareholders in relation thereto. The provisions of the SAC in respect of the segregation of assets and liabilities were upheld in these decisions. This legal separation of assets and liabilities within the same company results in lower administrative and set-up costs as there is no need to incorporate and manage multiple investment companies.

The governing document of a Bermuda incorporated SPV is the bye-laws which are private and flexible, and typically supplemented by a (short-form) offering document or term sheet and a subscription agreement.

The fund manager or one of its affiliates will generally maintain control of the SPV which is typically achieved by issuing the fund manager with a class of non-participating voting shares with the co-investors subscribing for non-voting participating shares.

Tax Neutrality Another key advantage of forming a private equity co-investment vehicle in Bermuda is the tax neutrality of the jurisdiction. Private equity fund vehicles are not subject to any tax, as there is no Bermuda income, capital gains or withholding tax, corporation or profits tax applicable to a fund or to its shareholders. An exempted company (or exempted partnership) is able to obtain from the Minister of Finance an assurance that in the event that any legislation is enacted in Bermuda imposing withholding or other tax computed on profits or income, or computed on any capital assets, gain or appreciation, such tax will not be applicable until 31 March 2035.

CONTACT

BermudaSarah DemerlingPartnerCorporate & Commercial+1 441 298 3291sdemerling@applebyglobal.com

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“Bermuda’s legal and governance framework, together with its experienced and knowledgeable professional service providers, facilitates the creation of flexible and economically viable co-investment vehicles within a stable and business friendly jurisdiction.”

The strengthening UK economy has galvanised investor resolve and two UK regulatory changes – the removal of stamp duty on AIM shares and the ability to hold those shares in UK ISAs - have boosted demand and liquidity for AIM stocks. Ten companies have listed on the AIM market in the first quarter of 2014 and the market is expected to exceed the 35 IPOs achieved in 2013. Secondary issues have also seen a sharp rise in Q4 2013 (24) and Q1 2014 (11).Much of the demand AIM for IPOs and for offshore vehicles continues to come from Asia and particularly China. Against a backdrop of economic reform, domestic demand in China is starting to gather momentum. Chinese companies, raising finance for expansion, are increasingly looking for a tax neutral jurisdiction in which to establish their listing vehicles – and the Crown Dependencies expertly fit the bill.

A Tale of Transition? Although China recently passed the United States as the world’s largest trader of goods (USD4.16trillion in 2013), many market commentators are taking the view that China’s decade long investment driven economic boom is cooling. Clearly there is a political will to implement economic reforms that will transform the country and nurture the much sought after domestic demand. There is a suggestion that the policy shift has delivered (in NBS chief Ma Jiantang’s words) “a good momentum of stable and moderate growth in 2013”. Domestic demand in China is starting to gather momentum. Retail sales, a key indicator of consumer spending, delivered growth of 13.1% in 2013. Apple and Jaguar Land Rover’s recent success in wooing the Chinese retail market has been grabbing the headlines in western economies but domestic Chinese companies are expanding to fill domestic demand and are using the UK equity capital markets to provide the finance. UK Equity Capital Markets The Crown Dependencies’ unique constitutional positions and well established relationships with the City of London have helped generate substantial

interest from foreign groups looking for a tax neutral jurisdiction in which to establish a listing vehicle. Of the 36 foreign groups that listed on the London Stock Exchange AIM last year, seven were incorporated in Jersey,, five in Guernsey and two in the Isle of Man. In the first quarter of 2014, 12 foreign groups listed on AIM, almost half from the Crown Dependencies (three from Jersey and one each from Guernsey and the Isle of Man). Demand from Chinese originators has been particularly strong with seven Chinese companies, and are from Hong Kong listed on AIM in the last 12 months.

With a strong presence in both Hong Kong and Shanghai, and good links between the Jersey, Guernsey and Isle of Man teams and key market intermediaries, Appleby has advised three recently listed Chinese groups, Camkids Group plc, JQW plc and most recently Galasys plc (on 12 May 2104). Further IPOs are in the pipeline.

What has been striking is the level of international market knowledge and sophistication that domestic Chinese businesses and their key individuals now exhibit. The Chinese business community is becoming increasingly aware of listing requirements and the potential benefits of using a Crown Dependency company as a group listing vehicle, and this is reflected in the strong demand we are seeing from Chinese originators across all sectors.

Key Benefits Located in the Euro time zone, bridging US and Asian markets, the Crown Dependencies are OECD white listed and have been recommended in an International Monetary Fund report dealing with multilateral initiatives against money laundering, terrorist financing and tax evasion.

The Crown Dependencies are all highly regulated tax neutral jurisdictions. There is no corporation tax, capital gains tax or capital transfer tax. There is no requirement for a company to make any withholding

TAKING AIM INTO 2014James Gaudin

The first quarter of 2014 has seen strong demand across a range of financial services sectors but it is the London Stock Exchange’s growth market, AIM which has continued the spurt that started in mid-2013.

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or deduction on account of tax in respect of dividend or interest payments (NB: Guernsey does require companies to make withholdings in respect of some locally earned interest and distributions).

Using a Crown Dependency company as the vehicle for an IPO may enable foreign trading groups to access London’s capital markets without becoming liable to UK tax (UK tax advice should be taken and followed in every case). There are no foreign exchange controls to limit a Crown Dependency company’s ability to hold foreign funds or securities and the mind and management of the company can be based in Jersey, Guernsey or Isle of Man. The introduction of cross border merger regulations allows foreign companies to merge with a Crown Dependency company providing potentially significant tax advantages.

A Crown Dependency public holding company is comparable to a UK PLC. In addition, Incorporated and Protected Cell Companies are also available in the Crown Dependancies.

Shares in Crown Dependency companies can be traded in uncertificated form and are eligible for admission into the CREST trading system. Three well known CREST enabled share registrars are regulated to conduct business in Jersey and Guernsey and two exist in the Isle of Man. Crown Dependency companies have unlimited capacity, share capital can be denominated in any currency and issued in any number of classes and no par value shares are also available. Treasury shares are permitted and allow effective management of share capital.

Jersey and Guernsey now has the provisions of the UK takeover code enshrined in its legislation. In the Isle of Man, the code has applied to certain IOM publicity traded companies for many years and changes made to code, which come into effect on 30 September 2013, extended the code to many more Isle of Man companies.

The above benefits provide a compelling case for using the Crown Dependencies and as awareness of this continues to grow in China, so too do the opportunities for Jersey, Guernsey and Isle of Man businesses.

CONTACT

JerseyJames GaudinPartnerCorporate & Commercial+44 (0)1534 818 337jgaudin@applebyglobal.com

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“… the benefits provide a compelling case for using the Crown Dependencies and as awareness of this continues to grow in China, so too do the opportunities for Jersey, Guernsey and Isle of Man businesses.”

Guernsey recently retained its title of European Captive Domicile of the year at the UK Captive Services Awards, defeating Dublin, Gibraltar, Isle of Man, Luxembourg and Malta, and is the fourth largest captive domicile in the world.

However, what is notable is the surge in alternative risk transfer business being structured through Guernsey, particularly utilising insurance-linked securities (ILS) and insurance transformers.

Alternative risk transfer (ART) uses methods other than traditional insurance and reinsurance to provide risk bearing entities with protection, mostly through the involvement of capital markets investors. ART therefore usually involves convergence of investment and insurance expertise, which is why it is not surprising that Guernsey has seen such an increase in these transactions, with its long-standing wealth of expertise in both sectors. Types of ILS ProductsILS products typically include catastrophe bonds (Cat bonds), industry loss warranties (ILWs) and sidecars. Cat bonds are risk-linked securities that transfer catastrophe risks to capital market investors. ILWs enable a purchaser to buy protection based on insurance industry losses arising from a specific event, rather than from the buyer’s losses. Sidecars are special limited purpose (re)insurance companies which assume a portion of the ceding (re)insurer’s underwriting risks (including losses and expenses) in exchange for a proportional share of the premium. ILS products typically cover natural catastrophes (hurricanes, earthquakes), life insurance (mortality and longevity) and man-made events (fire, terrorism, even lottery jackpot losses).

The sponsors of ILS products are (re)insurance companies, governments and companies who use ILS to transfer their (re)insurance risks to a diverse group of capital market investors, which generally include cat funds, hedge funds, private equity funds, pension funds, banks and (re)insurers. ILS products are used by sponsors as an alternative risk management solution to achieve capital efficient and flexible underwriting capacity, finance growth and to spread the risk to the capital markets. In this way ILS have become a viable alternative to the traditional (re)insurance markets.

By way of example of an ILS sidecar transaction, Appleby Guernsey has recently advised a major global provider of ART services in relation to a collateralized marine reinsurance structure using a Guernsey SPV reinsurance company as a sidecar, with investment fund investors effectively providing the collateral through preference share subscriptions into the structure.

ListingsAlthough the ILS in that transaction were not listed, Guernsey is well placed to accommodate ILS listings. Guernsey provides access to the London Stock Exchange (LSE) and other international exchanges, including Hong Kong, Toronto, Ireland, Euronext, as well as the Channel Islands Securities Exchange. Guernsey has a wealth of experience in listings, being the jurisdiction of incorporation for more non-UK entities listed on the LSE than any other jurisdiction.

TransformersAt Appleby we are also seeing a large increase in interest in the use of Guernsey vehicles as insurance transformers, i.e. vehicles through which reinsurers or insurers transform risks from the capital markets into insurance or reinsurance form, or vice versa. For example:

RISKY BUSINESS - INSURANCE LINKED SECURITIES IN GUERNSEYKate Storey

Guernsey has long been established as a leading jurisdiction for insurance business; having been providing captive expertise for almost 40 years.

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■ Derivative in – reinsurance out: the vehicle acquires protection as protection buyer under a derivative with Party A and acts as insurer under an insurance contract with Party B as insured;

■ Reinsurance in – derivative out: the vehicle is the insured under an insurance contract with Party A and acts as protection seller under a derivative with Party B.

Typically, the Guernsey pioneered protected cell company is used, or an incorporated cell company, and a different cell of the cell company can be used for each type of transaction. With a Guernsey cell company, the assets and liabilities of each cell are legally segregated from those of the other cells and those of the core of the protected cell company or the umbrella incorporated cell company, but with the advantage of cost savings from only being required to have one board of directors.

Rent-a-captiveA further example of risk transfer activity we are seeing is the use of cell company rent-a-captives to insure risks and receive premiums and also enter into reinsurance contracts/risk transfer transactions with third parties.

ConclusionIn conclusion, Guernsey insurance business appears to be in a notably healthy phase, with 89 new international insurers licensed in the Island during 2013, taking the total number of such insurers to 758 at the end of 2013.

Appleby’s team of lawyers are based in key offshore jurisdictions that are significant players in the global (re)insurance market – including Bermuda, British Virgin Islands (BVI), Cayman, Hong Kong, Isle of Man and Jersey - and are therefore well placed to advise clients that are seeking to carry out business in any of these offshore jurisdictions or transact business with locally-based insurers.

CONTACT

GuernseyKate StoreyCounselCorporate & Commercial+44 (0)1481 755 620kstorey@applebyglobal.com

“Guernsey insurance business appears to be in a notably healthy phase, with 89 new international insurers licensed in the Island during 2013, taking the total number of such insurers to 758 at the end of 2013.”

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Global/BermudaCameron AdderleyGlobal Group HeadCorporate & Commercial+1 441 298 3229cadderley@applebyglobal.com

BermudaTimothy FariesGroup Head, Bermuda+1 441 298 3216tfaries@applebyglobal.com

GuernseyJeremy BerchemGroup Head, Guernsey+44 (0)1481 755 601jberchem@applebyglobal.com

JerseyWendy BenjaminGroup Head, Jersey+44 (0)1534 818 057wbenjamin@applebyglobal.com

British Virgin IslandsMichael J. Burns Group Head, British Virgin Islands+1 284 852 5318mburns@applebyglobal.com

Hong KongJohn MeliaGroup Head, Hong Kong+852 2905 5764jmelia@applebyglobal.com

London/ZurichStephen JamesGroup Head, London/Zurich+44 (0)20 7469 0527ssjames@applebyglobal.com

Cayman Islands Bryan HunterGroup Head, Cayman Islands+1 345 814 2052 bhunter@applebyglobal.com

Isle of ManFaye MoffettGroup Head, Isle of Man+44 (0)1624 647 631fmoffett@applebyglobal.com

Mauritius/SeychellesMalcolm MollerGroup Head, Mauritius/Seychelles+230 203 4301 (Mauritius)+248 429 5283 (Seychelles)mmoller@applebyglobal.com

The articles in this newsletter are for information only. They should not be acted upon and are no substitute for specific legal advice. In the event that any clarification or advice is required, please contact the editor, Wendy Benjamin (wbenjamin@applebyglobal.com)

If you would like to receive our newsletter electronically, advise us of amendments to your details, or be removed from our database, please contact Appleby’s marketing department (subscribe@applebyglobal.com)

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This publication is for general guidance only and does not constitute definitive advice © Appleby Global Group Services Limited 2014

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