Reducing risk

Risk is a downside of any investment.  Higher risk can make a project economically viable – the higher the risk, the higher the return required to compensate for it, and thus the less likely it is to be able to deliver it.  And a number of investments rely on minimising risk altogether: such as pensions, insurance, and reinsurance.  Where they do, IFCs are uniquely placed to minimise that risk.

Because IFCs are tax-neutral, they are used as an intermediate venue to pool capital from multiple onshore economies.  From there, it’s invested in IFCs back into multiple onshore destination jurisdictions.  This diversifies the portfolio: reducing risk.  Mitigating this risk reduces costs, increases risk-adjusted returns, and thus makes more projects economically viable.

Bermuda hosts 40% of the world’s insurance-linked securities and is home to 25% of the world’s captive insurance market.  70% of the world’s hedge funds are domiciled in the Cayman Islands.  During the financial crisis, Jersey, Guernsey, and the Isle of Man provided £350bn of net financing to the UK: dramatically improving liquidity and allowing financial institutions and businesses to survive the unprecedented shock.

This is essential to a range of everyday financial operations:

  • Managing pension assets – promoting choice and enhancing portfolio diversification, which reduces costs and increases returns
  • Providing insurance and reinsurance facilities to cover onshore risks

IFCs are tax-neutral, and they are therefore used as an intermediate venue to pool capital from multiple onshore economies. From there, it’s invested in IFCs back into multiple onshore destination jurisdictions. This diversifies the portfolio: reducing its risk and thus increases its returns.