UK insurers are eying Gibraltar as a place to write business across the EU, as they become increasingly frustrated with the UK tax regime. Lauren MacGillivray met key government figures to find out what the territory has to offer.
Stepping off the plane in Gibraltar, one is immediately struck by the bare cliff side of the Rock that looms overhead. The limestone shell of beauty and boldness, which is patrolled by thousands of seagulls guarding dark tunnels housing old military guns, is defensive but defiant, much like Gibraltar’s financial services position.
As UK insurers become increasingly frustrated with the punishing UK corporate tax regime, they are looking to these rugged shores. Recently, Brit and Amlin made headlines with their threats to redomicile if the government refused to back down over new taxes, and the Chancellor Alistair Darling even made a special appearance at a recent ABI meeting, such is the power of the industry’s wrath.
So could Gibraltar exert a magnetic pull on the UK’s insurers? How much of a threat is the Rock, and what is its government doing to attract new companies? Insurance Times flew to the Rock and met Gibraltar’s head of government and leading members of its financial community to find out.
First up is corporation tax. Gibraltar is slashing its rate for domestic companies, thanks to convoluted negotiations with the European Commission. It has been arguing that Gibraltar should be forced to adopt the same corporate tax regime as Britain, and, while court reviews are ongoing, Gibraltar has been quietly positioning itself. It plans to up its tax on foreign companies, currently nil, and drop its tax on domestic companies, currently 33%. By 2010, the taxes will meet in the middle at 10%-12%. An attractive proposition for UK insurers currently forking out over 28% in corporation tax to the coffers of Whitehall.
“The 10% to 12% was chosen because it was already a proven acceptable model in the EU – in Cyprus, Ireland and many of the Eastern European new member states,” says Gibraltar’s head of government and chief minister Peter Caruana. “And some of the Baltic new member states have lower effective rates of tax than that. So low tax rates are already an established and acceptable model in the EU.”
In his Budget earlier this month, Caruana made a signal of intent by fast tracking the reduction in corporate tax for domestic companies, dropping it by 6% to 27% from 1 July this year. This has already attracted some attention – according to James Tipping, Gibraltar’s Finance Centre director, UK companies have been making discreet inquiries.
If they decide to move, they would be in good company. Currently, there are 60 insurance companies and eight insurance managers in Gibraltar. The insurance companies include 37 non-life companies, three life and 14 captives. Gibraltar has mainly niche players, but its biggest area of business for insurers is motor. It writes about 5% of the UK market and is second to Lloyd’s, having become home to a wave of Lloyd’s players looking for better conditions in 2001.
One underwriter that has been domiciled on the Rock for several years is Lamp Insurance Company, which moved over in 2005, attracted by the speed of the authorisation process and the accessibility of the regulator.
“As Gibraltar is part of the EU, we can passport into the UK under Freedom of Services legislation and provide our policyholders with the same level of protection as a UK-based insurer,” says Lamp underwriting director Alan Strange.
“In terms of access, regular flights depart from London Gatwick with a journey time of less than three hours means it is as easy to get to Gib as it is to Edinburgh.”
Chris Collins, head of insurance supervision for the Financial Services Commission (FSC), Gibraltar’s financial regulator, says: “For small operators, it’s an ideal location and for promoters of smaller companies, it’s relatively cheap. The taxation environment has been friendly, although not quite as friendly at the moment, but that is likely to return.”
Collins added: “I think when the [domestic] corporate tax comes down, Gibraltar will re-emerge as a key competitive jurisdiction.”
Emilio Gomez, chairman of the Finance Centre Council, adds that Gibraltar’s other major draw for insurers is the ability to write business anywhere in the EU.
“We can passport into the UK under Freedom of Services legislation and provide our policyholders with the same level of protection as a UK-based insurer.
Alan Strange, Lamp
“Insurance has been the biggest developing sector within the past five or six years here,” he says. “In the late 1980s it was the banks. I think insurance started developing when we got the passporting a few years back. It allows you to send services within the EU.”
But for the rulers of a comparative tax haven, Gibraltar’s governors are strikingly anxious to stress that there is more to the Rock than low tax. Tipping insists: “Gibraltar is not looking to be predatory in its approach towards taxation. The government believes in low corporation tax. It may be that companies may be considering relocating from the UK, some of them might consider coming to Gibraltar. But that’s not why corporation tax is being reduced – it’s part of a much longer-term philosophy.”
The government is positioning itself as a low-tax, instead of no-tax, financial services centre – perhaps risky considering Jersey and Guernsey, for example, are no-tax jurisdictions. But Gibraltar is now concentrating solely on attracting companies from elsewhere in the EU. The 10%-12% tax regime will undercut its main rival, Ireland, which has a top rate of 12.5%.
Gibraltar has taken great care in improving its reputation beyond that of just another tax-friendly domicile, and anyone who suggests different is quickly corrected.
For example, it promotes its endorsement from the International Monetary Fund for its financial regulatory environment and anti-money laundering regime, and has a history of fully co-operating with all relevant international bodies.
It has been evaluated using the standards of the International Association of Insurance Supervisors and the Financial Action Task Force, and says it scored better than many onshore and larger financial centres.
The FSC has an independent chairman and seven board members, and ensures compliance with EU obligations. It also implements standards of legislation and regulatory practice that match UK practice.
But while Gibraltar prides itself on mimicking the UK, it also differentiates itself by boasting a more accessible financial services community.
Bruno Callaghan, managing director of Willis in Gibraltar, says: “I think because it’s such a small jurisdiction, everyone gets along well with everyone else. The ability of the FSC to be able to talk to the industry and be able to pick up the phone and pop into a Willis, an Aon, or whoever, for a chat about a client, doesn’t happen at the FSA because of the size of the UK.”
Gibraltar was a Royal Navy base, but now has a mixed economy with financial services accounting for 33% of GDP and employing 3,000. Other core industries include tourism, shipping and port services, and online gaming. It shares a land frontier with Spain, and Callaghan predicts growth opportunities there.
“Now that you’ve got the politics mended between Gibraltar, Spain and the UK, Gib could become a conduit for South American business into Spain and vice versa. In due course, Spanish multinationals will begin to use Gibraltar as a domicile to be able to write their South American business.”
He adds: “It’s really only competing with Malta and Dublin. And Dublin is pretty much closed to business unless there’s a very large multinational wanting to operate from Dublin. Malta is a fledgling and should do very, very well, but because of where it is geographically, it will attract business from a different part of Europe than us.”
A major draw to the Rock, which covers just 6.5 square kilometres and has a population of just fewer than 29,000, has to be its accessible financial services environment.
But as much as Gibraltar may protest, its tax regime is probably its biggest attraction for insurers. IT
Who's who in Gibraltar
Peter Caruana, QC, chief minister and Gibraltars head of
government. Caruana is responsible for Gibraltars financial services. The 51-year-old native Gibraltarian is married with six children. He attended Queen Mary College and the Council of Legal Education in London. He became a member of the Gibraltar Social Democrats in 1990 and rose to become leader a year later. He has been chief minister since 1996.
James Tipping, Gibraltars Finance Centre director. Tipping is originally from Gibraltar, but worked in the banking sectors of various countries for 14 years. He returned to Gibraltar nine years ago and reports to the chief minister. He works on financial services policy and marketing, and helps the chief minister with international initiatives concerning bodies such as the EU, IMF and OECD. He also liaises with the private sector and helps run the high net worth tax regime.
Chris Collins, head of insurance supervision for the Financial Services Commission (FSC). Collins is from London and studied economics at the University of Reading. He got his first taste of insurance working for AIG in Germany during a gap year. He spent 20 years at Royal Insurance and worked in Portugal
and Ecuador. He also worked in the Cayman Islands in a
regulatory role, and spent six years in loss adjusting in London. The 61-year-old plans to retire from the FSC in October after six years and will be replaced by Michael Oliver, current head of insurance at the British Virgin Islands Financial Services Commission.