Sandy Maxwell finds 'insurance friendly' Gibraltar revelling in its rising economic status

I came to Gibraltar with preconceptions about little Englanders and tax dodges, but left with a grudging respect for the people of the Rock.

Delve a little deeper than the fish 'n' chips and VAT-free emporiums, and you find that the 30,000 Gibraltarians are fiercely independent and multicultural. But the 98.4% vote in favour of retaining the link with the UK in 2002 demonstrates their abiding affection for the mother country.

Of course, there are certain advantages for a town with a population less than that of Yeovil being feted at the high table of international politics and finance.

The financial services industry, negligible 20 years ago, now accounts for 30% of the Rock's GDP. EU membership, with passporting rights into EU countries - insurance came on board in 1997 and broking in 2005, with reinsurance to follow by the end of next year - gives Gibraltar a competitive advantage over other jurisdictions such as the Isle of Man.

And Gibraltar's three exemptions (VAT, CAP and the customs union) mean that the Rock has the best of both worlds; one foot in the EU and "not really offshore", to quote Marcus Killick, chairman of Gibraltar's Financial Services Commission (FSC). Yet not quite onshore either...

The number of insurers has doubled over the past three years, to a total of 51, with overall assets of £391m.

Compared with Guernsey's more than 500 insurers, this makes the Rock a small player, but means Chris Collins, the FSC's head of insurance supervision, can be personally responsive.

Not surprisingly, many insurers wax lyrical about the FSC's accessibility. It has an annual budget of £1.7m, compared with the FSA's £240m, and only 24 employees.

Killick is bullish about the regulator's accountability. The FSC has cracked down on "those who try and misuse our name". It has cranked up its monitoring of unlicensed operators claiming to transact from Gibraltar.

He also emphasises that the FSC is obliged by statute to match the FSA's standards. External verification acts as a "bullshit

preventor", he adds, although his description of the FSC as "the most reviewed regulator on the planet" is somewhat hyperbolic.

Should UK players be worried about losing market share to Gibraltar? Collins bridles at the accusation - made by many insurers and brokers in the UK - that offshore centres such as Gibraltar are more laissez-faire and therefore the playing field isn't level.

But Gibraltar's lack of wealth tax, inheritance tax, estate duty, VAT, capital gains tax or exchange controls gives it a competitive advantage. And fast licence turnarounds and a light regulatory touch make for a business-friendly environment.

So can Gibraltar sustain its economic miracle - GDP per capita of £20,000, 2% unemployment and estimated growth of 8% in 2005? Political rapprochement with Spain would help the territory gain more international legitimacy, and the recent tripartite negotiations are a massive step forward.

Seeing the Rock's famous Barbary apes reminded me of the phrase "softly, softly, catchee monkey", which could equally be applied to the insurance sector. Collins wants to see more captives, steady growth and business as usual.

Winston Churchill reportedly said that Gibraltar would stay British as long as the apes remain on the Rock, and they show no sign of jumping ship just yet.