1. Breakout Session 7 Ahead of the game - World class regulation Sponsored by Speaker Michael Graham - GFSC

2. “Ahead of the Game” World Class Regulation Michael Graham Deputy Director of Insurance

3. Agenda Key Messages Captive Insurance Market Development International Regulations Captive Regulations Opportunities for Growth

4. Key Messages International captive markets continue to grow International interest and scrutiny in regulations Guernsey is leading captive regulation guidance Innovation and reputation is key

5. Guernsey’s Insurance Market Development

6. Traditional Captives New products (ie PCC, ICC) New markets (ie. Local Authorities) Broad Captives Reinsurers of commercial insurers (e.g. Gibraltar) Reinsurers of life insurers (e.g. PSIC) SPVs Transformer Cells Fronting vehicles, reinsurance vehicles

7. International Insurance Market Development Maturing Markets (e.g. Bermuda) –Started life as a Captive Domicile –Has now overtaken London as a Reinsurance Centre Emerging/Changing Risks –Takaful –Terrorism –Climate change –Geographic concentration of risk (China, India)

8. International Insurance Market Development Convergence of Insurance and Capital Markets – Transferring risks to Capital Markets (cat bonds) – Converting non-insurance risks into insurance risks through transfer vehicles (derivatives) – Use of SPV’s (cells) in these innovative structures

9. International Captive Insurance Market Development US Onshore domiciles – Over 20 in total, most recently Alabama New Offshore domiciles – Dubai, Bahrain,Puerto Rico Reduced numbers in some domiciles - Bermuda, Dublin, Luxembourg

10. International Regulations International Association of Insurance Supervisors –Established 1994 –Represents regulators in more than 130 countries –Guernsey represents the Offshore Group of Insurance Supervisors on Executive Committee –Guernsey is also a member of a number of the IAIS subcommittees, including Corporate Governance, Solvency, Accounting, Reinsurance

11. International Regulations 28 Core Principles –Globally accepted framework for the regulation and supervision of the insurance sector –Essential Principles that need to be in place for a supervisory system to be effective –Requires regulatory authorities to operate in a transparent and accountable manner –Used by the IMF to assess the quality of regulation in jurisdictions –Guernsey complies with all 28 Core Principles

12. Captive Regulations Must comply with the IAIS Core Principles IAIS Captive Issues Paper: –Explains the differences between captive and traditional insurance –Identifies areas for consideration in applying the Core Principles –Identifies the key role performed by Insurance Managers –Adopted by the IAIS in Beijing in 2006 IAIS Captive Guidance Paper

13. Captive Regulations IAIS Captive Guidance Paper –Working Group includes UK,France, Germany, Bermuda, Caymans, Dubai, Gibraltar, Ireland, Turkey, BVI,IOM –Chaired by the Director of Insurance at the Guernsey Financial Services Commission –Key to ensuring that the regulatory approach to captives is appropriate in light of the risks, but consistent with Core Principles –Will be presented to the IAIS in October 2008

14. How Guernsey is responding Review of the Insurance Laws to ensure consistency with the Core Principles Application of AML/CFT legislation to insurance (Core Principle 28) Initiatives to improve market conduct by intermediaries in anticipation of IAIS initiative Preparation for IMF visit in 2008

15. Opportunities for Growth Captive market continues to expand Captive users are becoming more sophisticated Reputation and Robust Regulation is KEY Guernsey is leading European Captive Domicile Diversification of insurance market, as confidence grows Competition is hot, so innovation and competitive advantage is required

16. Key Messages International captive markets continue to grow International interest and scrutiny in regulations Guernsey is leading captive regulation guidance Innovation and reputation is key