Guernsey captives – multi-faceted relationships

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CAPTIVE GUERNSEY REPORT 2014
GUERNSEY | BARCLAYS
Guernsey remains a leading
international financial centre,
with strong expertise in the
fiduciary, funds, investment
and banking sectors, in addition
to being Europe’s largest captive insurance
centre and the fourth largest globally.
A key part of Guernsey’s success has been
its proactivity in promoting the capabilities
of the island and establishing strong longterm
relationships with key business partners
and introducers.
This theme of exploring and deepening
relationships is no different in the captive
sector. Increasingly we are seeing captives
being established in the island where the
establishing parent is interested in maintaining
existing relationships and maximising
efficiency in the way its insurance
structure will be run.
This can be achieved where the captive
is established in the island with partners
that are also connected with the parent
company, for example the captive might be
established with a local bank, like Barclays,
that also provides banking services to the
captive’s parent company.
Primarily the benefits centre around
a greater familiarity between the parties
responsible for establishing the captive
which grants flexibility in terms of establishing
the structure, choosing investments
and speeding up processes including the
establishing of basic banking accounts
through to the provision of collateral
arrangements, whether this is through letters
of credit (LoC) or trust arrangements.
For example, an arrangement for a
captive entity where the parent is also
known to the bank, allows the captive to
be established with the balance sheet and
investment objectives of the parent company
being taken into account. This in
turn allows a banking partner, with the
enhanced knowledge of the parent company
as well as the needs of the captive, to
look at a broader range of solutions. The
result is that the bank will often be able to
increase yield through the captive, while
still meeting the parent company’s asset
diversification programme. This could be
achieved by shifting an asset class from the
parent balance sheet, gilts, bonds, equities
to the captive balance sheet and not holding
it on the balance sheet of the parent.
Further, this can have benefits for the
financial status of the captive as it makes
the captive more cost-efficient in its own
right and it ensures that the captive is not
just viewed as a cost centre but an income
generator for the parent.
Outside of asset use within the captive,
these synergies can also lead to the introduction
of more economically and operationally
efficient structures for captives.
As an example, historically, the most common
way for a captive to secure its fronting
insurance arrangements was by a cash
backed LoC. While this may still be a valid
option, we are increasingly seeing captive
boards using alternative options that are
more flexible and cost effective, such as
the Security Trust Agreement (STA), and
also looking at ways in which the assets of
the captive can generate increased yield,
within defined risk parameters.
Through seeking to implement new
strategies of asset holding into captives,
such as the STA, a historical hurdle has been
the lack of understanding of these products
and their use. With the increasing access to
the parent as well as the captive, we have
now started to find these ideas are being
better received. Principally this is because
these products are not far removed from
what many larger corporates will use in
their day-to-day activities and this knowledge
is now being brought closer to the
captive structures. The representative(s)
from the parent company that sit on the
KNOW YOUR SERVICE
PROVIDER
The captive industry is seeing a growing trend for captive entities to forge relationships with partners who are
already connected to their parent company. Gavin Parker, head of captive insurance at Barclays in Guernsey,
argues that this approach has several benefits for all parties and that Guernsey is leading the way in establishing
and promoting these multi-faceted relationships
Written by
Gavin Parker
With over 10 years of banking experience across
retail, commercial and corporate sectors, Gavin
joined Barclays in 2009 and currently manages the
oshore and local markets business for Barclays
in Guernsey. This team looks after clients in the
captive, corporate and local markets sectors within
Guernsey. Gavin is responsible for driving Barclays
focus on captives within the European captive
market place.
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CAPTIVE GUERNSEY REPORT 2014
BARCLAYS | GUERNSEY
board of the captive can be helpful in shaping
discussions and decisions taken, while
recognising the separate governance structure
around the captive.
As the ties between parent company and
a captive are reinforced at respective board
levels, this has changed the emphasis for
captive service providers who now have to
view the process of establishing captives
more holistically. Previously, decisions
were principally made based on what was
best for the captive. We are experiencing
an increasing trend in captive managers
informing us that they have to bear in mind
that what is good for the captive may not be
good for the parent. We are also witnessing
that the representation on the captive
board is increasing in seniority from the
parent company e.g. a finance director
currently where previously a finance controller
would have been present. This is a
response to parents wanting the captive to
work harder for them as they are no longer
guaranteed to be self-sustaining through
interest rate return on cash held alone.
This evolution of captive boards has
meant that increasingly they are looking at
a broader range of potential solutions for
the captive that drive efficiency and return.
Shared banking providers also means that
the representatives of the parent company
that sit on the captive board will typically
already know the capabilities and individuals
within the bank the captive is dealing
with, they can therefore be more demanding
and insistent on what they expect and
wish from their banking partner.
Having closer ties between the two, and
indeed between the advisors and relationship
managers of each party, means that
these decisions can be made more easily
and that all parties can be kept informed
of why certain actions are being taken. To
illustrate the benefit of this approach, one
of Guernsey’s leading independent captive
managers gave us their view: “The client
appreciated the ‘joined-up’ approach used
by Barclays in bringing the client’s UK relationship
manager into the discussions with
the captive board in Guernsey. The parent
company and the captive were already both
using Barclays’ banking services, and the
UK relationship manager’s knowledge of
the potential expansion into the captive’s
investment management activities enabled
her to link in with the parent company’s
treasury team and ensure that their reporting
and other requirements were being
met from a group perspective.”
Guernsey is particularly active in promoting
this part of the captive management
space because it demonstrates the
importance of ongoing management to
the successful use of captives. Rather than
just a handy jurisdiction for establishing
a structure, the island has billed itself as
home to professional advisors who can do
things differently, building strong relationships
and maintaining and evolving those
to offer a better service. This sets the island
apart and focuses on the value-add, how if
captive companies look beyond their partners
as service providers and look to create
mutually beneficial relationships then success
is assured.
Part of any successful relationship
includes having an eye to the future. From
an insurance perspective, Solvency II has
created challenges and opportunities. In
this particular case this has provided benefits
for Guernsey as it is not part of the
European Union. The banking industry
also continues to go through change, with
Basel III affecting the treatment, and therefore
the potential cost, of letters of credit.
We continue to see Guernsey captive managers
being proactive to change, as they
work with their clients not only on their
day-to-day requirements of the captive,
but planning for the future to make sure
captives in Guernsey are equipped to deal
with future changes in a positive way.
Above all, working with existing contacts
gives great comfort to companies looking
to establish a captive. In an era when ‘know
your customer’ is increasingly important it
is perhaps not surprising that ‘know your
service provider’ is becoming more critical
to business decisions. Using the same
banking partners for both corporate and
captive structures makes business sense
and reflects Guernsey’s resolve to provide a
more holistic approach in the initial establishment
of a captive, while also aligning
service providers that will be able to support
the captive as its needs change over its
lifecycle.
“Part of any successful relationship includes having
an eye to the future”