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Willis Management () Limited Captive Management in Guernsey

September 2003

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Contents

Introduction... Company Profile... Captive Management Services... Board of Directors... Investment Management... Taxation... Captive Company Establishment... Checklist for Establishment... Cost of Establishment Operation... Team Profiles...

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Introduction

Guernsey is the leading European captive domicile, Guernsey has developed technical and managerial with over 380 captives and 50 Protected Cell captive expertise, enabling it to offer management Companies made up of over 200 cells licensed for services far beyond standard "accounting and insurance purposes. The financial and regulatory reporting" services. infrastructure is recognised as being the strongest of all the European captive domiciles. Willis Management (Guernsey) Limited would be pleased to discuss any of the features and principles Steady growth in new captives is continuing, and of captive insurance management, and to explain the existing captives continue to thrive and develop. unique benefits offered by Guernsey.

continue... index... “Why choose Guernsey as the domicile for a captive insurance company?”

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Company Profile

Willis is one of the largest captive managers in Europe and has Our client base includes many major multinational corporations, Sample list of Willis Clients management companies in all the major reputable captive including industrial and commercial operations, financial locations worldwide. institutions and leisure groups. – Alliance & Leicester – Abbey National Willis Management (Guernsey) Limited is a wholly owned We serve wholly owned and association captives, and mutual – ABTA travel agents subsidiary of the Willis Group, the world's third largest insurance insurers on whose behalf we underwrite in excess of 35 classes – Britannia Building Society broking organisation. It was formed in 1981 and has: of insurance and life assurance on both a direct and a – British Institute of Freight Forwarders basis. – Delta plc – Well over 50 companies under management including 4 – Ernst & Young () mutuals and 8 protected cell companies. – Euclidian Group plc – First Rand – Over 30 staff employed in Guernsey. – La Farge SA – Misys plc – Net retained premium (i.e. after reinsurance), in excess of – Nisshin Fire & Marine £275million. – SAPPI – Royal Bank of Scotland – Funds under management in excess of £1.5billion. – The Rank Group – Transport for London – Woolworth Group Limited

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Captive Management Services

The core functions involved in captive management are carried out by Willis Insurance Management Corporate Governance Management (Guernsey) Limited. Willis has teams of professionals qualified and – Captive development and programme design Compliance with the Licensed Insurer's Code of experienced in each of the relevant disciplines, which include: – Underwriting Conduct through the production and maintenance – Insurance – Premium administration of a Framework including: – Accountancy – Policy documentation – Procedure Manual – Company Secretarial – Claims handling, administration and reporting – Key Risk & Control Matrix – Corporate Governance – Liaison with insurance and reinsurance brokers – Schedule of Key Actions – Maintaining underwriting accounts & statistics – Act as Compliance Officer These core functions are carried out in Guernsey in order to comply with the – Act as Money Laundering Reporting Officer requirements of the Guernsey Financial Services Commission (GFSC), and Accountancy demonstrate that the captive has a true Guernsey base and identity. – Management accounts Banking and Investments – Group consolidation reporting – Cash management Each servicing team benefits from a Chartered Accountant and a qualified insurer – Statutory annual accounts – Monitoring of investment managers (if (Associate of the Chartered Insurance Institute or better), supported by a number – Full accounting documentation including budgets and appointed) of experienced administrators. The office has a support infrastructure including a cashflow statements – Monitoring currency exposures Compliance Officer, a dedicated IT unit, corporate secretarial expertise and a fully – Authorisation and payment of expenses trained Money Laundering Reporting Officer. Company Secretarial – Compliance with Guernsey regulations Willis has established contacts with the GFSC, all major (and many minor) fronting – Provide registered office (if required) insurers and reinsurers, broking houses etc. to facilitate the smooth and effective – Act as General Representative administration of your captive insurance programme. – Maintenance of corporate records – Notice and Minutes of directors meetings Willis also has established contacts with all major banks, investment managers, – Preparation of board papers legal advisers, auditors etc. to ensure the smooth running of the company.

Whether management requirements are for a cell, PCC or captive, Willis has a team of dedicated professionals available. continue... index...

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Board of Directors

Constitution of the Board of Directors Board of Directors Meeting Pack Minimum pack contents: – Notice and agenda of meeting – Minutes of previous meeting Typically the majority of the Board of Directors will be Guernsey Prior to each Directors' Meeting, Willis will prepare and distribute – Status report of all matters arising residents. In most cases, a captive will have three or five directors, to directors and approved interested parties a bound board pack from previous meeting of whom the majority will be Guernsey residents and the balance containing information to assist the directors in the decision – Summary of insurance cover provided will be shareholder representatives. In some circumstances a making process and keep them properly advised of the activities by the Company – Managers report, which will include: different board composition may be more appropriate. All licensed of the company. – Introduction captive insurers in Guernsey are required to have at least one – Underwriting review Guernsey resident director with no other direct relationship with (including reinsurance) – Claims review either the parent company or appointed manager of the captive. – Financial review – Any other business (e.g. new business, Willis would be pleased to introduce a number of potential local industry developments) directors, from a range of professional backgrounds and experience. – Financial information, including: – Management Accounts with comparatives as required – Underwriting Accounts – Claims information, appropriately analysed – Other relevant information – Investment Information – Report by the Investment Managers – Portfolio Valuation – Compliance Review – Analysis of cash deposits

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Investment Management

An element of the financial return from the captive insurance The appointment of an investment manager may be considered once company will consist of investment income,both from the the captive's funds reach the order of £10m, dependent upon the company's share capital and from its premium income. The shareholder's and board's attitude to investment risk. Tenders will establishment and execution of an appropriate investment policy normally be invited from a panel of investment managers, and is therefore very important.Criteria by which the investment policy presentations made to the Board of Directors of the captive, who should be judged include: will then decide which manager to appoint. – Security – Liquidity Guernsey has a wide choice of professional investment managers – Yield available locally. It is advisable that the investment manager be accessible by the captive insurance manager, as close liaison will The purpose of the investment policy is to enable the captive's be required. funds to be held in a form which is secure and liquid enough to meet the potential claims obligations, whilst obtaining the best Until a captive has sufficient funds to justify the appointment of an possible yield on the funds. In the case of a global insurance investment manager, the normal route is to place funds into fixed- programme, it is important to consider the mix of currencies of term bank deposits appropriate to cashflow requirements. This liabilities as well as the projected pay out pattern of losses. service can be provided by Willis under delegated authority from the board. Alternatively, a professional moneybroker or cash manager, The majority of captive insurance companies use professional or a bank's treasury service can be appointed, or funds invested in a investment managers, who follow formal guidelines laid down by managed money fund. the captive's board of directors. Guernsey has many reputable investment managers experienced in the particular demands of Should the captive business plan include inter-company loans to a captive insurance fund management. related group party, Willis would be pleased to negotiate the amount and terms of such a loan with the insurance regulator. We have a wide experience of such negotiations and can advise on the likely continue... outcome to assist in business planning. index...

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Taxation

“Willis has The taxation of captive insurance companies in Guernsey is The proposed taxation basis should be considered at incorporation, designed to offer the maximum flexibility to the industry, and has but need not be finally established until after the financial year- extensive experience... greatly assisted the continued growth of Guernsey as a leading end. The basis can be changed from one year to the next. captive domicile. The taxation options are as follows: For example, if the Company elects for tax-exempt status in year particularly with UK 1. Full tax exemption, subject only to payment of an annual one, it could choose to be liable for 20% taxation in year two, and fee of £600. then tax-exempt again in year three. This flexibility does not extend resident Groups...” 2. Taxation of 20% on operating profits. to option 4, which must be elected from incorporation for a fixed 3. Taxation solely of the captive's investment income derived from period and renegotiated when the period expires. Other options its shareholders funds; this is on a sliding scale and is effectively may be elected at this point. capped at £60,000. 4. Taxation at an agreed rate between 0% and 30%, upon Guernsey Advisory & Finance Committee has announced its formation of an "International Business Company". intention to abolish exempt and International Business companies in 2008 through the introduction of a zero tax rate for insurers. The vast majority of captives in Guernsey adopt Option 1 (Tax Exemption), giving freedom to distribute any or all of the Many companies are looking to comply with their parental company's profits to its shareholders by way of dividends, (subject Controlled Foreign Companies regulations by making the captive to any requirements of the shareholders' own tax authorities), tax resident in the parent's tax domicile. Though not available although captives under management by Willis do adopt other everywhere, and not appropriate to all clients, Willis has extensive options. experience of such arrangements particularly with UK resident Groups and can advise and assist in the administration of such arrangements. continue... index...

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Captive Insurance Company Establishment

The establishment of The licensing is a relatively straightforward exercise, entailing the A detailed business plan must be submitted to the Director of an insurance completion of an application form and the presentation of a Insurance, including detailed financial projections, giving information business plan, which is normally based on a feasibility study. regarding the proposed business, including programme structure, expected premiums/claims, operating expenses, investment income company in Captives domiciled in Guernsey are regulated by the Insurance and reinsurance markets. This information is then used to produce a Division of the GFSC, under the Director of Insurance. He will not full financial plan over at least a three year period (and longer, if long Guernsey involves only be involved in the licensing process, but will also take an tail risks such as liabilities are written). ongoing interest in the progress of the captive as it develops. its incorporation and Comprehensive due diligence must be undertaken to ensure The application form will require details of the ownership, share compliance with anti-money laundering legislation. subsequent licensing capital and share structure of the captive, as well as questionnaires from each of the proposed directors of the Company. Administrative Willis Management (Guernsey) Limited is experienced in the by the Guernsey issues, such as Registered Office, Company Secretary, and Insurance preparation and presentation of captive business plans as well as in Manager, are also addressed. the incorporation of captive insurance companies in Guernsey. We would be pleased to describe the full incorporation process, and to Financial Services The purpose of the licensing procedure is to ensure that the captive explain the responsibilities of the captive management company is being established for bona fide reasons, and that it will be under the Guernsey regulatory regime. Commission (GFSC). sufficiently capitalised to accept the underwriting risk which is proposed. Whilst the insurance regulations in Guernsey are Cell formation with incorporated protected cell company designed to assist the development of captive insurance business, Similar consideration as with a pure captive incorporation process the nature of insurance regulation is very strict, and the laws and applies. The main differences being the approval of the PCC's Board regulations must be adhered to at all times. of Directors to form the cell and the completion of the Cell Management Agreement to access and utilise the cell within the spirit of the agreement rules and regulations.

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Checklist for Establishment

This process can be completed in a relatively short time, provided the insurance programme and capital structure are known. Whilst Willis has managed to Captive establishment complete the establishment of a captive within seven working days, a period of six to eight weeks would be more typical.

Capital Business plan Business plan agreed Company Licence application 2 10 subscribed. prepared. 4 with captive parent. 6 incorporated. 8 submitted. Feasibility of Commence a captive business. agreed Parent company Select board of Draft licence application and 7 Directors' meeting to issue shares, 9Licence Licence 1 board approval 3 directors, and discuss 5 business plan discussed with discuss Business Plan and to appoint: approved. 11 issued. of captive. business plan. Director of Insurance. Auditors Secretary Bankers Managers

This process can be completed in a relatively short time, provided the insurance programme and capital structure are known. Whilst Willis has managed to complete Cell establishment the establishment of a cell within fourteen working days, a period of eight weeks would be more typical.

Parent company board Manager to table Cell application and business plan considered PCC board Cell Capital 2 approval of cell. 4 business plan for 6 with Director of Insurance at Guernsey 8 approved. 10 subscribed. consideration by PCC Financial Services Commission. (GFSC)

Feasibility of a Commence cell agreed. Business.

Parent company approve Business plan Business plan agreed 7 Confirmation from the GFSC 9 Cell management 1 the cell management 3 prepared. 5 with cell parent. that they have no objection agreement signed by cell agreement. to the cell being formed. parent PCC and Manager. continue... index...

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Cost of Establishment Operation

“The costs ...of a

The costs associated with the incorporation, licensing and Costs of Establishment: operation of a Guernsey-based captive insurance company are very Guernsey-based Legal Fees £800 - £10,000 low compared with the financial benefit a successful captive can Application Fee offer its parent. single parent captive £3,100 captive insurance protected cell company £3,100 Costs associated with the establishment and ongoing management per cell £1,040 company are very low Stamp duty (maximum - 0.5% x authorised share capital) £5,000 of a PCC may be higher than those indicated above dependent upon the levels of complexity and activity of the vehicle. Annual Operating Costs: compared with the

Willis would be pleased to provide costings once additional Management Fee Pure captive £40,000 financial benefit a information about the PCC had been finalised. (typical fee for a simple insurance programme, but may be higher for more complex programmes) successful captive can The annual costs to run a cell within an existing Willis facility will Own PCC £30,000 (for a PCC core + £10,000 plus per cell dependent on insurance complexity) depend on the complexity of the business plan and the Cell in a third party sponsored PCC plus £27,000 offer its parent.” management time required to handle the cell. Typically, these can (for a cell, including access fees due to the PCC core for rented cells) be up to half that of a wholly owned captive. Audit Fee min £4,000

Government Fees £3,200 (£3,100 GFSC licence fee, £100 Greffe filing fee) 0.25% of gross premium income (min £775, max £3,100) for cells

Directors Fees £4,000 (typical fee per director, depending on amount of work involved)

Exempt Tax Fee £600 continue... index...

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Team Profiles

Daily supervision of our

client companies is the Managing Director Account Director Account Director responsibility of one of our Dominic Wheatley, BSc ACII Gary Tansell MSc AIRM ACIS Shaun Brook, ACII Dominic has overall responsibility for the Gary manages a portfolio of multi-national captives Shaun oversees the management of a number of Managers and/or Directors. management of the Guernsey operation and for and protected cell companies. Gary's team specialises client companies with structured, global corporate ensuring the quality of services to each client in unconventional captive structures and complex programmes. He specialises in the design and company. Dominic is a graduate in economics and an accounting requirements. Gary is an Associate of the implementation of structured programmes utilising Of our 31 staff, the majority Associate of the Chartered Insurance Institute. He is a Institute of Risk Management, a Chartered Secretary reinsurance capacity and a range of non-conventional Chartered Insurer with over fifteen years' insurance and has an MSc in Corporate Governance. He has over means of security, and the development of bespoke have (or have made substantial experience, having previously worked in underwriting 20 years experience in offshore finance, specialising in captive solutions to unusual risk financing issues. progress towards) professional management and as an aviation reinsurance captive insurance for the last 12 years with Willis in Shaun is an Associate of the Chartered Insurance underwriter in the London market. He joined the the and Guernsey. Gary runs the Institute and a Chartered Insurer. He has over qualifications in either insurance company as an Account Manager in 1995. He is Accounting Task Force that ensures the consistent nineteen years of insurance experience, having or accounting, to ensure that a presently a member of the Guernsey Insurance application of the latest accounting practice across previously worked as a Professional Indemnity Advisory Committee. the office. underwriter and a broker in the UK. Shaun moved full management service can into captive management when he moved to be offered in all aspects of Account Director Account Director Guernsey in 1995 and joined Willis in 2000. In Richard W. Falla, B.Ed. (Oxon) Martin Best, ACII FCIB addition to his Account Directorial responsibilities insurance company Richard manages a number of client companies that Martin manages a number of clients covering a broad Shaun is very active on the consulting side of the management. write large multinational programmes, and he has range of risk classes. He has wide experience in the Willis Captive Practice, working on a range of considerable experience in their establishment. He is establishment and operation of captives, and in the technical and commercial projects. an Oxford graduate who has now spent thirteen design and implementation of corporate insurance Development work is performed years as account manager and director with Willis in programmes and the use of captives in ART structures. Guernsey. Richard is a member of the Executive Martin is an Associate of the Chartered Insurance both in conjunction with our Committee of the Guernsey Insurance Company Institute and a fellow of the Chartered Institute of Management Association. Bankers. He has over 20 years' insurance experience. specialist Captive Consulting Martin is responsible for compliance and quality unit as well as with other parts throughout the office, and was responsible for the development of Willis' market leading initiative in continue... of the Willis Captive Practice response to the new Corporate Governance as required. Code of Conduct. index...

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Willis Management (Guernsey) Limited

P.O. Box 384 The Albany South Esplanade St Peter Port Guernsey GY1 4NF Channel Islands Telephone: +44 (0) 1481 720049

www.williscaptives.com

Willis Management (Guernsey) Limited is a member of the Willis Group

Willis Limited, Registered number: 181116 Registered address: Ten Trinity Square, London EC3P 3AX WIM/1595/07/03 Lloyd’s Broker and Member of the General Insurance Standards Council