Exploring a deeper understanding of our clients’ specific requirements is the key to generating more effective solutions.
In this case, one of our Guernsey team’s trusted advisors, with a particular focus in the Insurance Linked Securities (ILS) sector, had a life assurance client looking to structure securitisation transactions.
Our client would sell specific income receivables related to life assurance premiums (receivables) to crystalise a capital consideration now, without needing to obtain any additional gearing on its balance sheet for onward expansion.
Guernsey was recommended as a jurisdiction due to its cellular company legislation and dynamic infrastructure. Due to the anticipated multiple securitisation transactions over a long period, an Incorporated Cell Company (ICC) structure was used, so each deal could be ring fenced in a singular cell owned by a Purpose Trust.
Many institutional investors like the stable and predictable income stream that ILS products provide. In this arrangement a separate cell is incorporated for each deal whereby the cell would typically issue a 10-year fixed interest bond in the name of an institutional investor lending it funds. With the bond proceeds the cell would purchase a portfolio of insurance receivables from the life assurance business, the regular cashflow of the receivables are then used by the cell to service the bond repayments and interest payments to the institutional investor.
With Praxis Guernsey providing full administrative services for ICCs and purpose trusts, this arrangement works for all parties; the institutional investors have comfort that the cashflows are managed by a licenced, independent, and experienced corporate services provider and the life assurance business is able to diversify its liquidity without increasing any credit risk.