Guernsey has signed four Chinese insurance-related memoranda of understanding (MoU) since mid-2016, and the island's captive insurance market is starting to insure Chinese companies.

This is creating new demand for letters of credit (L/Cs), which are used by many captive schemes to provide full or partial collateral to cover liabilities, and the demand for L/Cs is expected to increase.

Captive insurance

A captive insurance company is one that is wholly owned and controlled by its insureds. Its primary purpose is to insure the risks of its owners.

Standby L/Cs may be issued in favour of the captive's 'fronting' company, an authorised insurer that is paid by the insureds or owners of the captive to manage a scheme.

Increased demand

Guernsey based bankers say they are already seeing increased demand for L/Cs as a result of the MoU.

Bankers expect that as more Chinese business rolls in, more bank accounts will be needed and a further increase in demand for L/Cs is anticipated.

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