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efficiency that, for small to medium sized businesses in
particular, makes captive insurance more viable.
Guernsey has an experienced, innovative and
professional risk management sector specialising in
The first captive was established in Guernsey in
1922 and, today, the island is home to the major
multinational captive insurance managers, such as Aon,
Artex, JLT, Marsh and Willis, as well as independent,
Together, they service more than 800 licensed
international insurance entities, including captives from
major companies such as BP, BHP Billiton, Next, Marks
& Spencer and Tesco, as well as UK government-related
organisations – for example, Network Rail and Transport
Guernsey is the largest captive insurance domicile
in Europe and number four globally. This strength is
underlined by the fact that approximately 40 per cent
of the leading 100 companies on the London Stock
Exchange with captives have them domiciled in Guernsey.
Indeed, a significant majority of the international
insurers licensed in Guernsey have their parent company
located in the UK. However, the island’s insurance sector
is truly international. Firms from across Europe, the US,
South Africa, Australia, Asia, the Middle East and the
Caribbean have all established captives on the island.
A major draw is the fact that Guernsey pioneered the
cell company concept in 1997, when it established the
PCC, and has since also introduced the innovative ICC.
This means that the island has unrivalled experience and
expertise in cell company structuring.
In addition, Guernsey is not within the European
Union (EU) so is not required to implement its directives,
including Solvency II. The island is not seeking
equivalence with Solvency II because its requirements are
not proportionate to the risk levels within many of its
insurance and reinsurance vehicles. However, Guernsey
continues to adhere to the insurance core principles of
the International Association of Insurance Supervisors
(IAIS), which provide proportionate regulation to the
specialist insurance market.
Guernsey provides an environment in which captive
insurance can flourish in assisting risk managers to
enhance their insurance programmes.
premium is deductible in arriving at profits, and
receipt is at the group’s offshore captive
n Improved risk management and understanding of the
cost of risk
Captives can be established through conventional
limited companies, protected cell companies (PCCs) or
incorporated cell companies (ICCs). The cell company
concept was pioneered in Guernsey when, in 1997, it
introduced the PCC.
A PCC is a company made up of a core and individual
cells. Each cell is distinct and therefore the assets and
liabilities of each are ring-fenced. This legal segregation
ensures that no claim against one cell will be covered by
the funds from another.
The ICC, like the PCC, has cells but, in this case,
the cells are separately incorporated and distinct legal
entities. This offers flexibility in terms of an individual cell
being able to migrate away from the main structure, to
convert to a stand-alone company and, potentially, to
amalgamate or merge with other incorporated entities.
That said, Guernsey is also set to make an innovative
amendment to its company law to permit similar for the
cell of a PCC.
Cell companies offer the advantage of one parent
being able to write different lines of business into
individual cells. They also provide the possibility of
third parties being able to own a captive and allocate
individual cells to different clients.
This latter point means that captives are no longer
the preserve of large international organisations. The
ability to take a cell of an existing structure – rather than
establish an entirely new, conventional limited company
– has distinct benefits, such as flexibility and cost
insurance market is that both the premium and risk are
captured within the structure, allowing captive owners
to benefit from any resulting underwriting profits.
The benefits of captive insurance in comparison with
insuring through the commercial market include:
n The insuring of unusual or catastrophic risks or
multiple small risks
n Avoiding paying large overheads and profit margins
n Premiums relate to the insured’s previous claims
n Direct access to the wholesale reinsurance market
n Benefit from the investment return on retained
n Retention within the group of the excess of net
premiums over claims
n Taxation efficiencies – the payment of insurance
Risk managers might be unaware that their
company’s insurance programmes could
be enhanced, including by being more
cost effective, through the use of a captive
A captive is an insurance company which is usually
formed for a specific purpose, primarily self-insurance.
It is called a ‘captive’ because, in its purest form, it is
set up by its owners only to insure the risks of its parent
and/or fellow subsidiaries.
These can be established as either direct-writing
captives, who then use a third party reinsurer, or
as reinsurance captives, where a fronting company
(conventional insurer) acts as an intermediary. In either
case, the major distinction from using the conventional
Dominic Wheatle y, Chief Executive of Guernsey Finance, explores
how the Island’s captive insurance specialists can provide risk
managers with an alternative solution for their company’s
Guernsey captives –
an alternative risk
Kiev.Victor / shutterstock