How do they do it in Gibraltar?
Last year was a disaster for motor insurers with the UK combined ratio for FSA-regulated companies at 120.5%. Yet the equivalent ratio for the Gibraltarian motor issuers writing into the UK outperformed at 98.2%, proving motor insurance can be profitable.
So how do Gibraltarian insurers make money when their UK counterparts can’t? In part it’s due to the strength of their franchises and close proximity to the distribution feeding them. They generally underwrite niche accounts and are therefore less subject to price competition.
They also work closely with reinsurance partners who provide much of the capital supporting the market. As a result, reinsurance retentions are generally much lower, with large losses passed onto reinsurers, while expense contributions from partners are significant.
Outperformance however comes at a price: the Gibraltarian motor market is likely to be short of capital in a future Solvency II world.
Ian Clark is a partner at Deloitte
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