Guernsey eyes up LatAm captives

28 SPONSORED FEATURE
LATAMIR
In addition, cash fl ow benefi ts improve as the captive
has the ability to generate investment income from
unearned premiums. This is especially so where the
premiums are paid in advance and losses are paid out
over a lengthy period of time.
Guernsey is perfectly positioned to provide these
benefi ts as the island has a long and strong history as
a captive insurance domicile – when the fi rst captive
insurance company was established in 1922.
Indeed, Guernsey is now the largest captive domicile
in Europe and the fourth biggest globally, with
fi gures from the Guernsey Financial Services Commission
(GFSC) showing that there were 790 licensed
international insurers in Guernsey at the end of March
2014 – an increase of 99 over the preceding 12 months.
This means Guernsey is vastly experienced in the
provision of captive insurance services in the UK, European
and US markets, but we have also dipped our
toes into Latin America. For example, a Colombian
parent company is currently utilising a Guernsey captive
structure to primarily insure its Colombian risks
but also risks originating in other Latin American
countries.
Growth
Our experience is that the ease with which it is possible
to attract further captive insurance business from
emerging markets is largely dictated by their stage
of economic maturity. Within Latin America, it seems
that the sophistication of the market is important but
also that a country is comfortable with cross-border
trade.
For example, on a recent visit to South America,
it became apparent that Chile, Colombia and Peru’s
membership of the Pacifi c Alliance, along with Mexico,
means that they are well-versed in cross-border
trade and therefore much more open to the concept
of captive insurance. Indeed, Latin American fi rms are
already using captives established internationally in
domiciles such as Guernsey and that trend looks set
to develop further as the region increasingly adopts
an international business culture.
In some jurisdictions where there is a more insular
approach to doing business the local legislators may
decide to introduce domestic captive legislation. Yet,
GUERNSEY EYES UP
LATAM CAPTIVES
Fiona Le Poidevin of
Guernsey Finance looks at
why captive insurance is
becoming more common
in Latin America and what
makes Guernsey a suitable
captive insurance domicile
The use of captives as a risk management
tool is becoming increasingly common in
Latin America.
Sophisticated Latin American businesses
now recognise that a well-structured and managed
captive – which in its purest form is set up by its owners
to insure the risks of its parent and/or fellow subsidiaries
– can provide a wide range of benefi ts to a
company not commonly obtained through the commercial
market. Furthermore, it is worth pointing out
that captive insurance is not only used by the larger
public companies but also by small and mid-tier private
organisations.
Just some of the advantages include:
• The insuring of unusual or catastrophic risks or multiple
small risks
• Avoids paying large overheads and profi t margins
• Premiums relate to the insured’s previous claims record
• Direct access to the wholesale reinsurance market
• Benefi t from the investment return on retained premiums
• The retention within the group of the excess of net
premiums over claims
• Taxation effi ciencies - the payment of insurance premiums
is deductible in arriving at taxable profi ts and
receipt is at the group’s off shore captive
• Improved risk management and understanding of
the cost of risk
SPONSORED FEATURE 29
what we envisage is that firms from these
countries will insure their local risks in a
domestic captive but once they become
more comfortable with the concept and
expand internationally they will understand
the need to manage risk more effectively
and wish to establish a vehicle in
Guernsey to cover their global risk base
(ex-South America). This would be in a
similar vein to the way large US multinationals
often have a captive on that side of
the Atlantic for their US risks and another
in Europe for their rest-of-world risks.
Internationally expanding firms from
Latin America cannot just rely on a domestic
captive regime (if it exists) to
cover their global risks because there will
simply not be the experience and expertise
that is available in a jurisdiction such
as Guernsey.
Cell leader
Guernsey really began making its mark
with captive insurance when it pioneered
the cell company concept in 1997 with
the introduction of the protected cell
company (PCC) for use specifically in the
insurance sector.
The PCC, sometimes referred to as a
segregated cell company, is a single legal
entity made up of a core and any number
of cells. The cells are separate and
distinct from each other and most importantly
the assets and liabilities of each
cell are legally segregated from all other
cells and the core.
The concept allows a client to ’rent’ a
cell of an existing structure rather than
establish an entirely new, conventional
limited company. This approach carries
with it distinct benefits such as flexibility
and cost efficiencies.
As well as adopting the similarly innovative
incorporated cell company
(ICC), Guernsey has, through legislative
advancements, developed a regulatory
infrastructure that enables them to be
widely employed. An example of Guernsey’s
innovation and expertise in the
cell structure field includes Aon’s White
Rock Insurance Company PCC Limited,
which was established in Guernsey as
the first PCC in the world. Since inception
it has been used by more than 50
corporations as a cell captive facility and
grown to be the largest structure of its
kind globally.
Global captive player
Our long-standing heritage in the captives
and cell structuring arena has
helped Guernsey grow and means we
now play host to subsidiaries of major
risk management companies such as
AIG, Aon, Artex, Generali, Hiscox, Jardine
Lloyd Thompson, Marsh, Old Mutual, Royal
& Sun Alliance, SCOR and Willis, as well
as independent, boutique operators such
as Alternative Risk Management (ARM),
Hepburns Insurance, Kane and Robus.
This strength is underlined by the fact
that approximately 40% of the leading
100 companies on the London Stock Exchange
(LSE) with captives have them
domiciled in Guernsey. However, the island’s
insurance sector is truly international.
In addition to captives from Europe
and the US, Guernsey also boasts parent
owners from South Africa, Australia, Asia,
the Middle East and the Caribbean.
Oil giant BP has its captive insurance
company, Jupiter Insurance, domiciled in
Guernsey, as does global mining company
BHP Billiton through Stein Insurance
Company. Supermarket leader Tesco as
well as UK Government-owned entities
such as Network Rail and Transport for
London are other notable organisations
with Guernsey captives.
We do not expect to create the same
bedrock of captive clients in Latin America
overnight and recognise that expansion
of our insurance services into the region
is a long-term challenge. Yet, we see
great potential in Latin America as many
of the countries are already sufficiently
sophisticated and open enough to allow
risks to be written internationally.
What also adds to Guernsey’s captive
offering is that it has cultivated a conducive
legal, regulatory and tax environment.
Guernsey’s regulator, the GFSC,
adopts world-class regulatory standards
while being flexible and pragmatic. For
example, Guernsey has decided not to
seek equivalence with the EU’s Solvency II
regulatory regime for insurance but instead
follow the Insurance Core Principles
of the International Association. In addition,
in 2011, the IMF reported Guernsey
as being compliant or largely compliant
with 47 out of 49 of the FATF recommendations
on anti-money laundering (AML)
and countering the financing of terrorism
(CFT); the highest standard of any jurisdiction
so far assessed.
Guernsey was also within the first wave
of jurisdictions placed on the OECD/
G20 ‘white list’ in April 2009 and today
Guernsey has signed tax information
exchange agreements (TIEAs) with 55
jurisdictions, including Brazil, Chile and
Mexico. Further, Guernsey also continues
to extend its network of double tax arrangements
(DTAs) and has signed with
23 jurisdictions.
Conclusion
Companies in the UK, Europe and the US
have used captives for many years as a
specialist form of insurance, but we can
also recognise that the concept of captive
insurance is starting to evolve in Latin
America too. Companies there are becoming
multinational which means they
will need to look for solutions beyond the
domestic market and Guernsey offers the
right environment for establishing a captive
to insure risks both in and outside of
Latin America. 􀁑
• Situated in Europe between the United Kingdom (UK) and France.
• A British Crown Dependency
• Special relationship with the European Union (EU)
• Population of 60,000 people
• English speaking
• Currency: British pound sterling (GBP)
• Same time zone as the UK
• Links to both London and wider Europe
FACT BOX: GUERNSEY
SOURCE: GUERNSEY FINANCE