The United Kingdom could be the next European country to introduce a regulatory framework for captives after the London Market Group (LMG) stepped up its discussions with the government on the topic.
Captive Intelligence understands the government is looking for “quick Brexit wins” and views captives as one option that could easily leverage London’s existing reputation as the world’s leading reinsurance centre.
Discussions are at an early stage, but there is a strong appetite within the LMG to make progress. One option would be to open up protected cell companies (PCCs) to permit their use for captive business. PCCs were introduced in the UK when regulations for facilitating insurance linked securities (ILS) came into force in 2017. Currently they only allow their use for ILS business, however.
It remains to be seen whether UK captives would have to follow the EU’s Solvency II regime. Bermuda’s success in achieving Solvency II equivalence for its commercial (re)insurers, while keeping captives outside of the regime, has set a precedent that the UK could seek to replicate.
The proposals being discussed by the LMG and the UK government are separate to those under development at Lloyd’s. Captive Intelligence understands a pilot scheme for applications to form a ‘Captive Syndicate’ within Lloyd’s could be opened as soon as May and the market will be looking for ideal candidates to take part.
Oliver Schofield, managing partner at independent captive consultancy RISCS, is excited at the prospect of being able to use Lloyd’s to facilitate captive business.
“The most attractive aspects of captive syndicates at Lloyd’s will be the ability for a captive to be able to issue policies globally wherever Lloyd’s have local licenses,” he tells Captive Intelligence.
“This is a value that Lloyd’s brings to all syndicates and captives will be included in that. In addition, a captive syndicate will automatically be a rated entity. Both of these are benefits that are being sought by captive owners.
“I think the interest will come from larger multi-line captive owners and prospective owners. The cost base is likely to be less attractive to mono-line captive owners who currently use a cell structure.”
Concerning the news the LMG is exploring the introduction of a regulatory framework for captives in the UK, Schofield adds: “If UK domiciled captives were required to adhere to Solvency II rules then I believe that would effectively kill off any interest.
“Secondly, the UK would need to allow cells as well as pure captives. More and more mid-size companies are establishing cells rather than pure captives so this will be critical for a successful UK captive product.”