Gibraltar’s minister for trade discusses growth opportunities and Solvency II in relation to the UK insurance market
After becoming the minister for justice, trade and industry of Gibraltar in October 2023, Nigel Feetham is determined to have ”Gibraltar seen as the centre of excellence and a driving force behind innovation” in the insurance sector.
Feetham’s journey in insurance began many years ago in 1996.
Back then, when the UK was part of the European Union (EU), the then chancellor of the exchequer Kenneth Clark gave a commitment to the government of Gibraltar that it and the UK would create a “common market in the financial services sector specifically to include insurance”.
Now, speaking exclusively to Insurance Times, Feetham says: “We were heavily involved in the marketing of the captive sector in Gibraltar, but that wasn’t entirely successful.
“But we had our first major breakthrough in Gibraltar during 2001, when Markerstudy set up their first insurance vehicle in Gibraltar.”
Later, in 2002, personal lines motor insurer Admiral set up in Gibraltar too.
Feetham continues: “That provided the necessary momentum for the UK market to stand up and take note as to what was happening in Gibraltar.
“I’ve called it herd instinct, because all it takes if for one major entrant to enter the market in a jurisdiction and then that is the catalyst for huge potential growth within the sector.
”When Admiral set up in Gibraltar it certainly attracted a lot of interest in the UK market, from what I would call virtual insurance at the time.”
He adds: ”In other words, for brokers in the UK that were involved in the entire underwriting process, except for taking their underwriting risk, the next logical step was to set up their own underwriting subsidiary – and Gibraltar became the jurisdiction of choice in the UK.”
The reason Feetham says that Gibraltar became so desireable to UK firms was because it offered “ease of access to a regulator” that was harder to come by in the UK, despite it being “one of the driving forces for growth in the sector”.
And at the time, “speed to market was critical”, he adds.
Getting off the ground
Feetham explains that the advantage of faster access to the regulator was the catalyst for interesting developments on the Rock.
He says: “In the early years of growing this particular sector, if you wanted to set up an insurance company in the UK it probably would have taken you the better part of two and a half years to do so – particularly if you came from a broking background.
“Whereas, in Gibraltar, we were able to spearhead growth in the sector within a year. Some firms that we set up in Gibraltar were licensed well before the year deadline and that was a huge advantage to those that were looking to enter the market.”
Since the beginnings of this arrangement, however, the sector has grown.
“Last year we were underwriting £7bn of premium and Gibraltar motor insurance companies account for 30% of the UK motor insurance market,” Feetham continues.
“We have also grown other sectors within the insurance area. Gibraltar companies account for 20% of the pet insurance market in the UK and 30% of the travel intermediated business. But of course, having that success behind you means that you have a high level of concentration risk.
“In other words, I as the minister for financial services, perceive there is a concentration risk there, which requires my government to focus on diversification.”
Feetham says that his party’s manifesto has promised to grow the sector away from high levels of concentration and diversify into other sectors.
He explained: “We have identified, as matters of policy, two sectors that we would like to see growth in – the captive sector and to diversify insurance away from motor and towards bulk annuity and pensions solutions for the UK and institutional market.”
Solvency II reform
In developing the the captive insurance sector in Gibraltar, the immediate challenge according to Feetham is “the application of Solvency II”.
This piece of regulation governs the required reserving requirements for insurance and reinsurance undertakings in the EU, but, since Brexit, Solvency II reforms set out in the UK have been planned to adapt requirements for firms operating in the UK insurance market.
These reforms include reducing the risk margin, which is an additional reserve required to be maintained by an insurer above its best estimate of liabilities and below its solvency capital requirements – for non-life insurance businesses, this reduction is of 30%.
“Under the common market arrangements, between Gibraltar and the UK, there is a requirement for Gibraltar to match UK standards,” Feetham says.
Feetham notes that, for captives setting up in Gibraltar but not looking for access or underwrite business in the UK market, “there shouldn’t be a requirement to follow Solvency II”.
A captive insurance firm is one that is a wholly owned subsidiary formed to provide risk mitigation services for its parent company or related entities.
He continues: “The reason why we are developing this is because it’s outside the Gibraltar Authorisation Regime (GAR).
”Therefore, there is no requirement for Gibraltar to match UK standards of regulation, so one of the things that we have committed ourselves to doing as a new government is developing a captive regime, which is non-UK focused and is therefore tailor made to the needs of the captive insurance market, which will allow us to compete with other jurisdictions that have successfully developed their captive markets – such as Guernsey and Caymans.”
Feetham hopes that, with the support of stakeholders in Gibraltar, “we will have a captive regime in place and, at least, the principles of it by the end of the year”.
On the flipside, as the minister looks to diversify insurance away from motor and towards bulk annuity and pensions solutions for the UK market, he hopes to grow this area for the island.
Lastly, Feetham adds: “I would like Gibraltar to be seen as a centre of excellence and a driving force behind innovation in this sector, I have been involved in insurance for many years and I understand the sector well.”
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