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UK captive regime gains momentum with Treasury meeting

Richard Cutcher
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UK captive regime gains momentum with Treasury meeting

A delegation of captive specialists met with the UK government’s City Minister Andrew Griffith at the Treasury today to discuss the potential introduction of a captive regime.

The delegation and meeting was organised by the London Market Group and Griffith and included captive owners, brokers, insurers and the wider risk management community.

The LMG has proposed an ambitious captive regime to ensure it can be viewed as a competitive option alongside established, international domiciles.

“This must sit alongside specific guidance for captives which focuses on reduced prudential risk assessments, a swifter approval process (30 – 60 days from application to licensing), reduced reporting requirements, lower capital requirements and reliance on wider group functions such as auditing etcetera,” the LMG states in its Plan for the Future document.

The LMG believes this can be achieved through secondary legislation to create a new class of ‘captive insurer’ as an additional schedule to the Regulated Activities Order, that would not be regulated under Solvency II or the proposed replacement, Solvency UK.

While the LMG has been exploring the idea of a UK captive regime for the past three years, this is the first time government has convened the market to hear first-hand the potential benefits and practicalities of how one would work.

“It was great to get round the table today with key industry leaders and financial services regulators to explore the case for designing a competitive UK captive insurance regime,” said Griffith.

“I am thankful to the London Market Group for bringing us all together and I look forward to continuing to work with industry to support growth and international competitiveness across the UK’s insurance sector, helping ensure the UK remains a world leading destination for risk management solutions and insurance innovation.”

There is momentum in Europe for more ‘home’ captive domiciling, with France leading the way with new legislation finalised this year and a steady pipeline of new formations materialising.

Captive Intelligence understands a first captive formation in Italy should be completed this year, while discussions are taking place within Spain and Germany’s captive communities about specific captive regulation.

Chris Lay, CEO of Marsh UK & Ireland and a former president of Marsh Captive Solutions, has previously said he believes London could be “a unique and attractive location for captive investment”.

Caroline Wagstaff, CEO of the LMG, attended the meeting and said: “The London Market is very grateful to the City Minister for his energy and focus on helping the market to thrive through the possible introduction of new products.

“Despite being the global hub for risk transfer, the UK’s regulatory regime is not conducive to businesses setting up captive insurers here. This is a rapidly growing global industry; with captive premium estimated to reach US$161 billion by 2030, and other jurisdictions – including France and more recently Italy, are opening their doors.

“If we are to remain the place where business comes for risk transfer advice and solutions, then not having this string to our bow means we are not keeping pace with new and innovative methods of risk management.

“A UK captive domicile would offer participants an extensive financial services ecosystem; London-based global brokers with extensive captive consulting experience, an unrivalled range of local banking and asset management options and the world’s largest and most sophisticated reinsurance market.”

The initiative to introduce a bespoke regulatory regime for captives in the UK is entirely separate from the Captive Syndicate project at Lloyd’s.

In the case of Lloyd’s, a captive would operate within Lloyd’s exactly like a traditional syndicate and would be overseen by the market, while a UK captive would be regulated directly by the Prudential Regulation Authority (PRA).

Artex Capital Solutions acquires Frontier Financial Solutions

Luke Harrison
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Artex Capital Solutions, a division of Artex Risk Solutions, owned by Arthur J. Gallagher & Co, has acquired Bermuda-based Frontier Financial Services.

Frontier is a management firm specialising in consulting, recruitment, business services and immigration services predominantly to reinsurance clients in Bermuda.

Terms of the transaction were not disclosed.

“Artex and Frontier found a highly regarded partner in each other with shared values focused on culture, service, proficiency and performance centred on individual client goals,” said Kathleen Faries, CEO of Artex Capital Solutions.

“Frontiers’ reputation in recruitment and staffing consulting services means we will be better positioned than ever to offer a truly one-stop solution to our clients, including assisting startups and mature companies with their short- and long-term staffing requirements and related services.”

Frontier director and co-founder Peter Brodsky, CEO Derek Winch and all Frontier employees will remain in their current location and continue to operate business-as-usual.

Clients and employees will now have access to Artex’s resources from pre-incorporation concept development, structure design, incorporation, licensing, and through to ongoing company management and advisory.

“Developing talent across career spectrums is a key part of our clients’ growth strategy and we’ll continue to deliver the world-class consulting and recruitment services that Frontier is known for, especially as the demand for top talent continues,” said Brodsky.

“I am confident that our staff will greatly benefit from being a part of a larger network of clients and relationships that Artex will bring to this new partnership.”

In May this year, Artex Risk Solutions completed the acquisition of the Irish independent captive manager, Allied Risk Management.

Risk Strategies consolidates Atlas Insurance Management into RMA brand

Luke Harrison
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Risk Strategies, the specialty insurance brokerage and risk management firm, will consolidate its independent captives group under the Risk Management Advisors (RMA) brand.

The move will include merging Atlas Insurance Management, which was acquired by Risk Strategies in 2020, into the RMA brand and operations.

The newly consolidated operations will be led by managing director, Max Jong, who joined as part of the RMA acquisition by Risk Strategies in 2019. Atlas was acquired by Risk Strategies in 2020.

“At a time when alternatives to traditional insurance approaches in risk management are becoming more important than ever, I’m excited that we are taking this step in building out one of the country’s most knowledgeable and effective captives operations,” said Jong.

“Bringing together our operations will make it easier to build on and add to our capabilities in ways that meaningfully benefit clients.”

RMA specialises in the design, implementation and management of all types of captive insurance companies.

“Bringing these groups together under one brand and structure will have real benefits for both our clients and our overall business,” said John Mina, CEO of Risk Strategies.

“As one group, our professionals can more easily collaborate to solve problems and identify new opportunities as the demand for alternative risk approaches grows.”

AM Best affirms rating of COSCO SHIPPING captive

Luke Harrison
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AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a” (Excellent) of Hong-Kong domiciled COSCO SHIPPING Captive Insurance Co. The outlook of these credit ratings is stable.

COSCO Shipping Captive is owned by China COSCO SHIPPING Corporation.

The captive’s underwriting book primarily consists of marine hull business for the parent group and its affiliates, which is expected to be its key source of premiums over the medium term. Other business lines include liability, commercial property, cargo, motor, accident and health.

As a strategically important member of COSCO SHIPPING, the captive insurer receives various support from its parent in areas of business development, risk management, managerial and capital support.

The ratings from AM Best reflect the captive’s balance sheet strength, which the ratings agency assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

AM Best’s ratings also reflect the wide range of support the company receives from its parent, which the ratings agency perceives it to benefit from strong governmental support.

COSCO SHIPPING Captive’s risk-adjusted capitalisation remained at the strongest level in 2022, as measured by Best’s capital adequacy ratio (BCAR).

The company’s balance sheet strength is assessed as very strong, underpinned by a very low underwriting leverage and a prudent reinsurance programme.

The captive insurer’s capital and surplus has consistently grown at low- to mid-single digit rates, supported by a favourable dividend retention arrangement since its inception.

However, AM Best said the company is expecting a higher dividend pay-out ratio after it achieves net profits for six consecutive years.

COSCO SHIPPING Captive achieved a net profit each year from 2017 to 2022 and an average return on equity of 4.8% over the last five years (2018-2022).

The company’s underwriting performance continues to benefit from low distribution costs for group-related business and favourable reinsurance commission income, albeit offset by marginal net loss experience due to a small net earned premium base.

Due to a challenging capital market environment in 2022, AM Best said the captive’s investment performance experienced some headwinds.

The company will continue to focus on fixed-income oriented assets, which are expected to provide a stable stream of investment income.

Based on its three-year business plan, COSCO SHIPPING Captive expects stable premium growth while continuing to deliver a favourable bottom line.

Nevertheless, AM Best said its high-severity, low-frequency product risk profile and small net earned premium base may subject the company’s operating performance to potential volatility risk.

Negative rating actions could occur if there is a significant adverse deviation in the captive’s operating performance from its business plan.

“Negative rating actions could also arise if there is a reduced level of support from COSCO SHIPPING or a significant deterioration in COSCO SHIPPING’s financial strength or credit profile,” AM Best said.

“Positive rating actions could occur if COSCO SHIPPING Captive demonstrates sustained and favourable results to strengthen its overall operating performance while supporting its current business profile assessment.”

Singapore PCCs would lower barrier to entry, but “complicated” to introduce

Luke Harrison
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Singapore PCCs would lower barrier to entry, but “complicated” to introduce

The potential introduction of protected cell company (PCC) legislation would be complicated for Singapore, and more likely to be driven by the insurance linked securities (ILS) market, but would lower the barrier for captive entry in the domicile.

Singapore is the region’s largest captive domicile, with 82 pure captives active in the jurisdiction at the end of 2022. The idea of introducing PCCs has been discussed by industry and the regulator for some time, but has never materialised.

“The legislation has to fit into the existing legislation governing such matters as forms of insurance, corporate structures and income tax,” George McGhie, independent consultant and strategic adviser to Artex International, told Captive Intelligence.

“If you look at the time and effort and cost of the work to introduce PCC legislation, the potential returns to Singapore in terms of number of corporate cells and premium that might be created, could be quite low.”

McGhie said that PCC legislation could be more justified as a means of expanding the ILS offering into collateralised reinsurance alongside catastrophe bonds which have developed “rapidly” in recent years.

He added that PCC legislation had been reviewed by the Monetary Authority of Singapore (MAS) going back around 30 years.

“So far, they’ve not taken any step to introduce PCC legislation, and any moves to do so are more likely to be driven by the ILS sector than by corporate risk demands, where there’s not really a great drive for it.”

PCC perks

A primary advantage of PCC legislation is allowing a lower barrier to entry for companies who may never have had a captive before or are too small for a single-parent structure.

“What is undeniable is that cell regulation would lower the barrier to entry in terms of risk managers and corporates wanting to test out a captive strategy or dip their toes in,” Kelvin Wu, head of insurance at Singapore-based Weybourne Holdings Pte Ltd which owns Dyson Group, told Captive Intelligence.

“It also allows you to experiment a little bit more in terms of the type of risk that you want to put through a captive, perhaps you want to explore third party risk and so and so forth.”

Labuan is the only domicile in the region that allows for PCC structures, with the legislation being introduced in 2010.

Captive Intelligence understands that there are five additional PCCs currently in development, which are expected to be established in the near future.

Wu noted that the regulation in Singapore is currently “quite vanilla” as it only allows for a wholly-owned captives.

“Fortunately, that fits into the structure and the strategy that we had, but if we were wanting to explore other captive structures that perhaps includes a cell and that sort of thing, then Singapore would be a little bit more challenging,” he said.

Lawrence Bird re-joined Marsh Captive Solutions in May as captives consulting leader for Asia and said that as Singapore currently does not have cell legislation, for businesses that want to use a cell, he is seeing them established primarily in Guernsey, Bermuda or Labuan.

“The latter essentially being the only domicile in the region with cell legislation,” he said.

Ludan Wang, head of corporate risk and broking in Singapore for WTW, believes that PCC legislation should only be introduced with caution.

“I would be concerned if we ran PCCs in a non controlled manner, meaning we’re actually allowing sponsors to set up PCCs without a very clear strategy on what goes into the cells,” he said.

Hicks and Dewhurst new member managers for EMEA

Richard Cutcher
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MAXIS Global Benefits Network (MAXIS GBN) has appointed Suzanna Hicks and Nathan Dewhurst as member managers, to support the network’s local insurers across the Europe, Middle East and Africa (EMEA) regions.

Hicks and Dewhurst join Rebeca Kinloch, member manager for the Americas region, and Brian Park, member manager for Asia-Pacific (APAC), to complete the member management team.

“We’re delighted to have Suzanna and Nathan join our Member Management team, and I am confident that they will do an excellent job of supporting our network members across the EMEA region,” said Iliyana Mladenova, chief operating officer at MAXIS GBN.

“Suzanna has great experience and PMI product knowledge, having worked at one of our network members for the past five years, and Nathan has worked closely with our clients and broker partners in the past, so they both bring a new perspective to the team.”

Hicks and Dewhurst will represent local insurers and their needs across MAXIS GBN projects and initiatives, deliver training and education, and maintain the relationships between MAXIS and its members.

MAXIS GBN has a network of over 140 members globally, with around 50 of these being based in the EMEA region.

“Collaborating with, and offering support to, our network members all over the world is fundamental to the success of MAXIS GBN as a business, and we’re looking forward to seeing how Suzanna and Nathan can help both MAXIS and the network meet our shared goals,” Mladenova added.

Captive industry fully engaged in Bermuda’s 15% corporate income tax discussions

Richard Cutcher
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Captive industry fully engaged in Bermuda’s 15% corporate income tax discussions

The potential introduction of a 15% corporate income tax in Bermuda will prompt complex business discussions, but is not expected to drive captives out of the jurisdiction.

The Government of Bermuda published a public consultation paper on 8 August as it works with industry to find the most appropriate way to meet the Organization for Economic Cooperation and Development’s (OECD) global minimum tax rules.

A proposed corporate tax would likely come into effect from 2025 and would only apply to multinational enterprise groups (MNEs) with annual revenue of €750M or more.

Local industry has been fully engaged with the consultation and there is expected to be a further, more detailed consultation, later this year before any new tax in finalised and confirmed.

A panel of tax experts at the Bermuda Captive Conference, including Deloitte tax partner Andy DeGregorio, Mikhail Raybshteyn, partner for global insurance tax at EY, and Scott Slater, partner, tax services leader at PwC Bermuda.

For qualifying MNEs with a captive in Bermuda, the impact of a new 15% corporate income tax will vary, depending on the group’s location, other taxes it is paying elsewhere or, for US companies for example, if the captive is already making the 953(d) election.

DeGregorio said the announcement in August was not a surprise with Bermuda already signed up to the OECD’s Pillar 2 initiative and the potential tax referenced in the February budget statement.

With the OECD pushing ahead with the introduction of a global minimum tax of 15%, to be paid on the group’s income in each jurisdiction a qualifying company operates, Bermuda is trying to minimise top-up taxes paid in other jurisdictions, while ensuring companies are not paying more than 15% in Bermuda.

“These taxes are going to be paid either way – if Bermuda does nothing, then the tax would be collected elsewhere,” DeGregorio said.

The United States has yet to sign up to Pillar 2 with the US Congress split, broadly along party lines, on whether it will support a global minimum tax.

For US-owned captives in Bermuda that make the 953(d) election – meaning they are subject to US federal income tax – it is expected no additional tax would need to be paid in the 15% regime, but it is not mentioned specifically in the consultation.

Those captives in Bermuda operating under 953(d) should ensure they have an Internal Revenue Service certificate confirming that election.

Any additional tax liability could be influenced by a variety of factors, including number of captives in the group, type of captive, ownership structure, whether the captive(s) are profitable, in run-off or whether there are other Bermuda companies within the group.

“Is there an easy fix? No, probably not,” Raybshteyn said. “For large companies especially, this is going to take a lot of effort to work out.

“At this point, we have more questions than real answers. We rely on what’s been published to date and what has come up in other jurisdictions that may or may not be mirrored by Bermuda.”

Slater emphasised that a lot of captives will not be big enough to fall into scope of the proposed new tax regime, while many US-owned Bermuda captives are unlikely to have an additional tax liability.

The biggest impact could be on non-US owned Bermuda captives that do not currently pay any tax today.

The panellists agreed, however, that if a 15% corporate income tax is introduced it is not expected to prompt a wave of exits from the Bermuda captive market.

“I don’t see anyone running for the hills,” Raybshteyn added. “I don’t think much will change. Companies need to make prudent business decisions (and those will differ for all), but is there a line to leave the island? No.”

Captive conversation has “flipped 180 degrees” – Barnett Waddingham’s Heah

Luke Harrison
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The conversation around captive utilisation has completely “flipped” over the past few years due to increased pricing and reduced capacity in the commercial market, according to Wan Heah, partner and head of general insurance at, Barnett Waddingham (BW), an independent UK professional services consultancy.

“I think a few years ago, if you asked me what’s in the captive space, a lot of them were talking about the viability of a captive,” he said.

“So, even up to four years ago, the group could go out and get external insurance cheaper than the captive would be able to charge because the market was hungry, and they had capacity to use up.”

Heah said the conversation had now completely changed, with clients struggling to get external insurance, and as a result, the captive owner no longer worries about viability.

“In fact, what they do care about is if they are getting the right price. So that conversation has done a complete 180.”

Heah noted that he had been party to conversations in which organisations that have never had a captive before are now thinking about launching one because they cannot get the cover they need.

“What they want is probably in the reinsurance market somewhere, but they can’t get that because there isn’t a direct primary insurer that would be willing to take the risk on,” he added.

Heah said Barnett Waddingham acts as the outsourced actuarial function for captives domiciled in Europe, including in Ireland and Malta.

“In addition to being the outsourced actuarial function, sometimes we also act as the head of actuarial function,” he said.

“We effectively act as the chief actuary, and will take on the statutory and regulatory obligations that come with that.”

He said the company also helps captives with pricing and performance reviews whilst being cognisant on expense controls.

“From our perspective it is making sure that you can still deliver a cost-effective actuarial service without removing value from the delivery,” he said.

Heah highlighted that BW provides actuarial expertise for both small and large captives, even in instances when a larger captive might also have its own in-house actuarial function.

Bermuda, Islands and US leadership reshuffle at Marsh Captive Solutions

Richard Cutcher
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0
Bermuda, Islands and US leadership reshuffle at Marsh Captive Solutions

Marsh’s Julie Boucher has relocated to South Carolina and taken on the new role of US captive chief client officer, while Michelle Sivanayson has moved to Bermuda to succeed Boucher as islands practice leader.

Boucher has worked more than 35 years in captives at Marsh, first within the broker’s US captive group before relocating to Bermuda in 2018 to become the first islands practice leader. The Islands role brought the Bermuda, Cayman Islands and Barbados offices together into one region.

Boucher will continue to report into Ellen Charnley, president of Marsh Captive Solutions.

Sivanayson has 20 years of captive experience and began her captive career in Bermuda.

She moved to Halifax, Nova Scotia to help establish Marsh’s Captive Operations Group (COG), which she assumed leadership of in 2017, responsible for more than 150 colleagues in Canada and India, providing operational support to captive clients around the world.

Laurie Marshe, with Marsh Captive Solutions since 2008, succeeds Sivanayson as COG leader, based in Halifax.

Mike Parrish, previously Bermuda client services leader, has moved into a new role supporting European captive clients, and has been succeeded by Tanja Korff.

Korff will report into Sivanayson and will be responsible for delivering Marsh’s captive capabilities and advice to clients in Bermuda.

Korff joined Marsh Captive Solutions in 2006 and most recently lead client service teams in the United States out of Columbus, Ohio.

There is a newly created role for Chris Varin who has been appointed chief digital officer.

Varin has had a 32-year career at Marsh Captive Solutions and was most recently US practice leader.

He will continue to report directly into Charnley and is now responsible for leading the digital transformation of the Marsh captive business by leveraging technologies and platforms to drive growth, improve efficiency and enhance client experience.

Ed Precourt has been promoted to US client services leader and is responsible for leading all aspects of the client operations across the US.

He has worked more than 30 years with Marsh Captive Solutions and was previously deputy US practice leader.

GCP Short: Cells, third party risks and captive benchmarking

Richard Cutcher
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Domenico Pettinari, Marsh Captive Solutions
Finky Yan, Marsh Captive Solutions

In this GCP Short, produced in partnership with Marsh Captive Solutions, Richard is joined by two vice presidents from the consulting team to discuss their career progress to date and the variety of client projects they have been working on.

Domenico Pettinari and Finky Yan address the growth in third party risks, new captive formations and an enlightening comparison of cell captives to a Manhattan apartment, which I particularly enjoyed and pretty sure I will be using in the future.

For more information on Marsh Captive Solutions, visit their Friend of the Podcast page here.

For the latest breaking news, analysis and thought leadership from the global captive market, visit Captive Intelligence and sign up to our twice weekly newsletter here.

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