Guernsey is poised to implement the biggest shake-up of its insurance laws since their launch in 1986.

The main changes will be tightening up on minimum solvency requirements and corporate governance rules - the hot topics following the Enron and WorldCom accounting scandals and stock market crunch that is now sending equity portfolios crashing in value.

The changes came as insurer Euclidian announced that it was expanding its operation on Guernsey.

Euclidian chairman James Truscott welcomed the move towards tighter corporate governance, but warned against significant hikes in solvency requirements.

He said: "Increasing solvency margins gives us an extra cost, but it also makes the company more robust.

"If they increase the solvency requirements significantly it would reduce the attractiveness of having a Guernsey-based operation."

Guernsey's regulators are likely to win powers to make rules about the composition of a company's governing board and its use of non-executive directors.

Steve Butterworth, Guernsey's financial services commission insurance director, said he would want more detail about company's risks and objectives, directors' responsibilities.

In particular, they will crack down on boards in which one individual could be too powerful.

The new rules could be bad news for companies using Guernsey to run operations on very lean solvency requirements.

The minimum is currently 18%. Butterworth said, although that figure is unlikely to change, the proposals will mean the tightest outfits must increase their solvency. He said: "It's the biggest ever overhaul of Guernsey's insurance legislation."

The changes will affect 333 insurers using the island as a base for captives, plus the companies involved in its 47 insurance-related protected cell companies.

Euclidian launched its protected cell operation in January and expects to write up to £35m of reinsurance by the year's end, easing pressure on its Lloyd's Syndicate 1243 which could write about 15% more business.