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Domicile Wars: Innovation, track record keeps Guernsey on top of European pile


  • Guernsey has captive market has benefited from hard market conditions
  • Long history of innovation, captive focus makes Guernsey a domicile of choice
  • Domicile beginning to address concerns over talent pool
  • A UK captive regime could be a threat, if it was modelled on Guernsey, Bermuda

Guernsey’s drive to pioneer innovative captive legislation and its history of captive success have helped it take the crown as Europe’s largest, and fastest growing domicile in recent years.

However, the jurisdiction will have to battle certain challenges, such as attracting fresh talent and seeing off potential competition from increasing domicile options in the region, if it is to maintain this title.

The Channel Island is considered a go-to jurisdiction for UK-based corporates, as well as a popular option for international businesses, with captives also owned by businesses from the United States, South Africa, the Middle East, Australia, China and Asia.



Guernsey added 12 new captives in 2022, while three captives surrendered their licences, taking its total number of captives to 201 at year-end.

The Guernsey Financial Services Commission (GFSC) received 21 applications in the first six months of this year, eight of which were for captive licences.

The start to 2023 suggests another strong year of new formations of both pure captives and cells.

“We have seen increased interest in captive formations since 2021 and that continues for firms that are having difficulty in placing their insurance programmes or when the cover they seek is not available,” the GFSC told Captive Intelligence.

Adele Gale, deputy managing director of insurance in Guernsey at Robus and chair of the Guernsey International Insurance Association (GIIA), said one of the reasons for the increase in captives in the domicile is the large societal changes that have occurred since Covid.

“In terms of the types of businesses that exist and the types of businesses that have become global enterprises,” she told Captive Intelligence.

“There’s a demand for captives from those new entrance to the big players.”

Richard Paris-Smith, client service leader at SRS Guernsey, said captives are proving useful for industries that are struggling to get full support in the commercial market, particularly for carbon intensive projects.

“For example, a coal business may have a strong transformation story going on and some of the market for understandable reasons, is a bit binary with a yes or no answer,” he said.

“We’ve recently put captive vehicles together to take a meaningful retention and/or access reinsurance specialised capacity to support their coal operations.”

Similar to other domiciles, Guernsey is benefiting from the hard commercial market which is forcing more companies to look at captive utilisation.

“In 2021 and 2022 there were several companies that needed professional indemnity cover and were pushed into the captive market by pricing,” said David Hully, partner at RISCS CWC.

“But now many clients are seeing all their insurance expenditures (especially property and liability) going up and so are utilising captives more.”

In 2020, multinational law firm Linklaters LLP established Linklaters Insurance Limited, while the deVere Group formed White Knight Insurance Limited the same year also to help it tackle the hard PI market.

More recently, new captive owners in Guernsey have included THG, plc and Control Risks.

Hully noted that there is a growing business case for captives for smaller commercial companies that in the past might have shied away from having a captive due to the set-up costs.

“Now, the hard markets have pushed these SME companies into the realm of having an economically feasible insurance subsidiary,” he added.

“It is worth noting that the lower cost base and well-established cell structures in Guernsey have helped increase the number of SME’s establishing captives there.”

The domicile also has extensive captive legislation that allows for the formation of the majority of captive structures.

“Guernsey covers a large range of captives and from a practical standpoint they cover all the bases,” Hully said.

The GFSC said a single parent captive application can be processed by the Commission in around four weeks from submission of a fully completed application.

The domicile also has a pre-authorisation scheme for captive cells which means that, within certain parameters, a cell can be formed at short notice by the insurance manager providing the commission is advised within 14 days thereafter.

Gale said a cell can be a fantastic solution for companies wanting to set up a captive in Guernsey if a client has an immediate need to plug a hole in an insurance programme.

“Particularly in PI and the financial services businesses where they have a regulatory requirement to have PI insurance and they can’t place a specific layer,” Gale said.

“We’ve seen a growth across the industry in setting up cells and self-insuring that layer.”

Attractive domicile

Guernsey is an attractive captive domicile for several reasons, including its closeness to the London market, not being a Solvency II jurisdiction, and a regulator that is experienced with captive business.

“I think geographically it’s a good location to even someone based in Australia, for instance, as they’re probably going to be in London at least once a year,” Paris-Smith said.

“If they’re looking for somewhere to set up a captive then Guernsey has got a great location.”

Gale noted that the domicile benefits from having an established regulator in the GFSC.

“We’ve had insurance regulators for 40 years, our insurance business law has been around since 2002,” she said.

“Our regulations are flexible enough to be seen as one of the most innovative domiciles in the world.”

In June 2021, insurance activity accounted for 11% of the employment activity in the finance sector in Guernsey.

Total gross value of assets managed by the insurance sector in the domicile stood at £31.4bn at the end of 2019.

“So, the infrastructure that you have surrounding the private wealth funds and insurance industry is massive,” she said.

The domicile has also been viewed as a pioneer of captive innovation over the past 30 years, none more so than being the first jurisdiction to formalise and transform the old rent-a-captive structures into protected cell companies (PCCs) in 1997.

It is also the first, and only, domicile to date to introduce an ESG Framework for Insurers which several captives have made use of and continue to reference in board meetings.

Malcolm Cutts-Waston, non-executive chair at RISCS CWC, highlighted that Guernsey’s self-promotion makes it a more attractive proposition compared to its main competitors.

“It’s always putting something in the press or launching new initiatives,” he said. “If you compare that to say the Isle of Man, where the promotion is low key and the industry profile is small, it demonstrates Guernsey is constantly reinventing itself.”

Cutts-Watson also noted the freedom Guernsey has compared to jurisdictions within the European Union, which have to follow Solvency II.

“European regulation is run on an EU-wide basis and so there’s a directive that applies to all those states, which has the benefit of a standardisation approach to regulation,” he said.

In comparison, Guernsey, the Isle of Man and Jersey are more like the US states which set their own insurance laws and regulation rather than the federal government introducing 50 state-wide rules.

“They’re controlled at a lower governmental level and therefore they can be more responsive to the needs of the market,” Cutts-Watson said.

“It also means there’s healthy competitive because as soon as one jurisdiction creates a regulatory advantage, others can immediately respond. Whereas in Europe you’ve got this juggernaut of Solvency II.

“Mind you, there are some interesting recent developments in countries such as France which has introduced a more bespoke regulatory framework for captives, and so, in effect is endorsing the Guernsey model.”

The GFSC said there are no current proposals for changes in captive regulation although the Commission is proposing to strengthen the regulatory environment for retail general insurers where it has seen increased risk to the customer.

“The Commission is committed to maintaining a proportionate regulatory regime for captive insurers which reflects the risk profile of the sector,” the GFSC said.

Challenges

One of the biggest challenges Guernsey is facing in being able to replace the talent pool needed to maintain the success of the industry on the island.

“Population is also a challenge because obviously we are small, so the talent pool is fantastic but obviously limited, so it’s a challenge to allow enough immigration to support the industry,” Paris-Smith said.

As a means of combatting a potential talent shortfall, Guernsey launched a new, updated course in international insurance management in February.

“We’ve been really focused this year on launching our textbook and the certificate and diploma courses as well as launching the recruitment event which we hope will be an annual event that will drive understanding around what we do into younger people,” Gale said.

Hully noted that another challenge for the island’s growth is the lack of new candidates in the multinational client base for single-parent captives “as those clients who want them, have generally already established them”.

“For example, there are only so many companies in the FTSE 100 – so once many of them establish captives then you reach saturation,” he said.

“Although of course this is different outside the UK, USA and other countries where captives are not so broadly utilised.” 

Paris-Smith said one challenge for Guernsey “is staying in that number one position and balancing the regulation so that we are strong enough but not hampering your business at the same time”.

While new domicile developments in the EU, such as France, are unlikely to impact Guernsey’s pipeline, the Lloyd’s Captive Syndicate project and the London Market Group’s efforts to lobby the British government to make the UK an attractive domicile for captives, could pose a potential threat.

Cutts-Watson believes that if the UK government and regulator “got their acts together” and launched a captive offering that was regulated on a style, similar to Guernsey’s, then this could be a real threat.

“If the UK itself decided to put in place a dedicated set of captive rules based on what’s happening offshore, then I think captive business would move to the UK,” he said.

“But it’s a big if as it would require a cultural mindset change within the PRA and FCA.”