The favourable regulatory climate in Gibraltar has seen a steady stream of insurance companies move to the Crown colony. Andy Cook reports

By the end of this year British businesses will be able to buy employers' liability (EL) policies delivered through UK agencies, but written in Gibraltar.

At least two insurance companies, one thought to be backed by Markerstudy chief executive Kevin Spencer, are going through authorisation with the Financial Services Commissioner in the Crown colony.

It seems there is no end to the rise of Gibraltar. Novartis has set up its captive there and a number of big reinsurers are looking to move there, as well as primary insurers with an eye on the UK market.

Gibraltar's Financial Services Commission requires lower solvency margins than the FSA in the UK. And it can license new insurers in six months - a fraction of the best time the UK's FSA can offer.

Kevin Spencer is the market's biggest advocate. He has three underwriting firms in Gibraltar: taxi underwriter Symphony; high-performance car underwriter Planet; and traditional non-standard motor underwriter Markerstudy.

He says these companies, as start-ups in the market, have solvency margins of between 29% and 31%, but under the FSA, similar insurers would need 50% solvency margins.

"Even if they were not start-ups in the UK, they would need a solvency of 35%," he adds.

The first tranche of Gibraltar insurers have a Lloyd's history and mainly underwrite motor. Their thinking is that Lloyd's is becoming a relatively expensive place to do business - especially under the gaze of the franchise board. The benefits of the Lloyd's A-rating and being able to use the Lloyd's licence to trade in dozens of countries is neither here nor there for these motor writers.

Others like Highway have made a similar choice, but have set up their ex-Lloyd's business in the UK.

It is understood that the large scale UK motor writers remaining in the Lloyd's Market will look to get out as soon as dignity and contracts will allow. Cox chief executive Neil Utley confirmed Cox is tied to Lloyd's until the end of 2004 and is keeping a move to Gibraltar on the radar. Chaucer has also said that it has no immediate intention of leaving Lloyd's, but that nothing has been ruled out for the future.

The sceptics, with Highway at the head of the queue, have failed to stem the flow of cash to Gibraltar. Andrew Stone, operations director of BDO Fidecs Insurance Management in Gibraltar, says there are now so many insurers sniffing around the market, that the FSC in Gibralter is raising the barriers to entry.

"Solvency margins for private motor underwriting are now up around 25%," he says. The EU base level is 18% on the first ¤50m of premium written and 16% above.

For EL, Spencer reckons that a start up solvency margin of 50%-60% is required as opposed to a 70%-80% figure to satisfy the FSA.

Questions have been asked about policyholders' protection. Those writing motor and household through UK agencies fall under the Financial Services Compensation Scheme (FSCS). The Gibraltar firms pay the FSCS levy and the policyholders get their protection. It is understood that this is an opt-in scheme that could be withdrawn. So insurers are considering setting up a Gibraltar compensation scheme that would swing into action as a back-up.

BDO has helped 12 financial vehicles start in Gibraltar including seven or eight insurers. It has four in application stage and four more sniffing around, according to Stone. He says things are now looking so rosy that there are plans to increase staff. "BDO has 25 staff now, of which 12 are taking ACII, and in the next six months will take on another 15," he says.

Stone says that the FSC is becoming more selective as its capacity is being filled. He reckons that one in four or five is being turned down.

One sign that the market is here to stay is that Spencer, exasperated by the lack of top quality food in the colony, has opened his own restaurant - Thyme - aimed at the burgeoning business community.