Monday, May 6, 2024

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UK captive initiative on Treasury agenda, Lloyd’s working with first captive applicant

Lloyd’s of London is working with an applicant which could establish the first Captive Syndicate in over 20 years, while the London Market Group (LMG) remains confident that the UK government remains keen to pursue a wider captive regime outside of Lloyd’s.

There are two separate captive initiatives in development in the United Kingdom.

One is the Lloyd’s ‘Captive Syndicate’ offering that would facilitate the formation of a captive within the iconic insurance market, while the other is based on an effort to create a new class of captive insurer, within the UK’s current regulatory framework, that would experience a lighter regulatory touch than commercial (re)insurers.



These projects are not in competition with each other, and present quite different offerings to the captive market.

The LMG, which has been lobbying government to welcome captive insurers for over three years, is in favour of a bifurcated insurance regime which would ensure captives writing only first party risk would be treated proportionally in a framework that would look more similar to Bermuda and Guernsey than those regulated within major European Union domiciles, such as Luxembourg and Ireland, that have to follow Solvency II.

Captive Intelligence understands that the UK Treasury has intimated captives will be back on its agenda in January 2024, as it is currently prioritising the Financial Services and Markets Bill and Solvency UK.

The latter project is to reform and update Solvency II, post Brexit, into a more tailored regime named Solvency UK.

Speaking as president of the Insurance Institute of London in a speech in November 2022, CEO Marsh of UK & Ireland Chris Lay threw his support behind the idea of a UK captive regime.

Lay, who ran Marsh’s global captive business from 2014 to 2016, said at the time: “An ambitious regulatory model for captives, combining a proportionate risk-based solvency regime with London’s global reinsurance market, could make the UK a unique and attractive location for captive investment.”

Lloyd’s Captive Syndicate

At Lloyd’s, the reintroduction of Captive Syndicates has been discussed and consulted on since 2019.

The first and only captive formed within Lloyd’s was by SmithKline Beecham Plc in 1998, but was put into runoff in 2001 after a merger with Glaxo Wellcome and a review of the group’s captive strategy.

The new offering, which was approved by the Council of Lloyd’s in August 2021, is now being more widely marketed by the corporation itself and several managing agents touting the offering.

A Lloyd’s captive could bring several unique advantages, such as a Lloyd’s rating, access to

insurance licences around the world which would remove the need for a front, and a ready-made insurance infrastructure to support the operation and management of the structure.

The disadvantages, however, are likely to be higher frictional costs, a reliance on managing agents rather than experienced captive managers and restrictions on business plans and the type of insurance that can be written.

Lloyd’s has been very open that the Captive Syndicate will be a niche offering, only really relevant for the largest accounts.

It is also thought that clients who explore this option will likely already have a captive in place and use the Captive Syndicate as an additional tool.

The syndicate application fee is £100,000 and the expected minimum annual premium threshold to make it feasible is predicted to be $20m.

Despite the narrow criteria, there has been interest from large coporates in America, continental Europe, the Middle East and Asia and Captive Intelligence understands there is confidence the first Captive Syndicate could be established by the end of 2023 in time for a 1/1 renewal.