An original version of this article was published in the Sunday Telegraph’s Risk and Fraud Report, Aug 2014.
By Fiona Le Poidevin, Chief Executive of Guernsey Finance
Recent data suggests that the developed global economies are recovering from the financial downturn and the UK is making much quicker progress than many other comparable centres.
However, I am sure that despite this upturn in prospects many business leaders will be keen to take advantage of the cost savings and risk management efficiencies afforded by captive insurance. If you do then it is worth considering that a very important factor in establishing a captive is the choice of domicile.
Guernsey’s first captive insurance company was established in 1922 and this heritage has helped the Island grow significant experience and expertise. Today, the Island plays host to leading global captive insurance managers such as Aon, Jardine Lloyd Thompson, Marsh and Willis as well as Artex International (which recently acquired Heritage Insurance Management) and also independent, boutique operators such as Alternative Risk Management (ARM), Hepburns Insurance, Kane and Robus.
The number of international insurance entities managed by providers in Guernsey has risen by 96 in the 12 months to the end of May this year, taking the total number domiciled in the Island to 796. Indeed, the Island is the largest captive insurance domicile in Europe and number four in the world.
Guernsey’s status as a British Crown Dependency which is English speaking, uses the British pound Sterling and is in close proximity to and within the same time zone as the rest of the British Isles has helped attract a large number of captives from parent companies based in the UK.
Our client base includes some 40% of the FTSE 100 companies which have a captive such as BP, BHP Billiton and Tesco as well as UK Government owned entities such as Network Rail and Transport for London. The Island’s location between the UK and France also means that it has attracted captives from parent companies based around Europe. However, international insurance business in Guernsey is also increasingly coming from much further afield.
A major attraction of Guernsey in more recent years has been the Island’s early commitment not to seek equivalence with Solvency II. Guernsey is in Europe geographically but it is not in the EU and therefore adoption of EU Directives is on a voluntary basis. The Island has decided that seeking equivalence to Solvency II would not be in the interests of our captive insurance sector but instead we will continue to meet the standards of the International Association of Insurance Supervisors (IAIS). This provides a stable and proportionate regulatory environment for captive insurance in Guernsey.
The Island is also considered an innovator in insurance legislation. Guernsey pioneered the cell company concept when it introduced the Protected Cell Company (PCC) in 1997. Until then, captives had been the preserve of larger organisations but the innovation enabled small and medium sized enterprises to ‘rent’ a cell of a PCC and thereby take advantage of the captive concept without the associated costs of establishing their own fully-fledged insurance company.
Indeed, a growing number of new captive formations are coming from the SME market according to the Marsh captive benchmarking report for 2014. It also recognises that captives are not formed for tax purposes but for their value as a risk management tool.
There are many benefits to having a captive and we believe that they are optimised by choosing Guernsey as the domicile.