Securing the captive crown

With another soft market on the verge, the grande dame of European captive domiciles, Guernsey, wants to reinforce its expertise in helping businesses manage the insur-ance cycle. The biggest captive domicile in Europe and the fourth largest globally behind Bermuda, the Cayman Islands and Vermont, Guernsey certainly has the track record, despite newcomers such as Malta attracting increasing attention.Director of the insurance division of the Guernsey Financial Services Commission, Alan Fleming, says that captive growth in Guernsey is "encouraging" despite statistics that show that the total number of captives in the region has fallen by nine in the first nine months of 2004. "Most of the bigger companies that are going to have captives have got them now," says Fleming. But he adds that businesses with captives are using them more, as the insurance market becomes increasingly risk averse. This view is supported by Kevin Rye, chairman of the Guernsey Insurance Company Management Association. Rye says the amount of risk being retained by captives in Guernsey has increased between five and ten-fold in recent years during the height of the hard market. Premium figures bear this out, with premiums written in Guernsey by offshore insurers increasing from £2.14bn in 2000 to £2.89bn in 2002, before coming off slightly, to £2.49bn, in 2003. But the increasing scope of FSA regulation, in particular the new solvency demands being put on UK insurers, could spell opportunity for Guernsey. Rye, who is also insurance director of captive manager Prism Insurance Management, gives one example of a client who is planning to set up a captive in Guernsey because it is "sick of FSA regulation".However, it is on the protected cell company (PCC) market that Guernsey really hangs its hat. As the first jurisdiction to introduce PCCs, in 1997, it is the global leader in this specialist market aimed at companies who want to have the benefits of a captive, but do not want to establish their own. PCCs are usually set up and administered by captive managers, and 'rented' to interested businesses, so giving smaller businesses access to alternative risk transfer. Fleming says that with the number of PCCs increasing from 57 to 62 in the first nine months of the year, there is a lot of interest in the market, now the main avenue of growth in the Guernsey insurance sector. He says that despite common perceptions, the use of vehicles such as captives and PCCs is more about demonstrating insurability and accessing the reinsurance markets than about retaining risk. Leader of the European captive practice at Willis, Malcolm Cutts-Watson, agrees.He says that despite the hard market having peaked, companies are taking a more strategic view of alternative vehicles, with interest in planning ahead and establishing them before the next hard market hits.

Why go to Guernsey?Located in the English Channel between England and France, Guernsey is a British Crown dependency that is part of neither the UK nor the EU.Guernsey's main income is derived from the finance industry, which accounts for about 55% of total income, having grown rapidly since the early 1990s. Tourism and flower growing are the next largest contributors to its total gross domestic product of £1.34bn. Its 64,500 residents are spread across four Channel Islands: Guernsey, Herm, Sark and Alderney. The capital, St. Peter Port, is located on Guernsey, the largest island. In total the land area is slightly larger in size than Washington DC.

Guernsey: The statsCaptives: 317Protected cell companies: 62Premiums written by offshore insurers: £2.49bn

The joy of GuernseyOne supporter of Guernsey is Hiscox chairman Robert Hiscox. He said that since setting up there about seven years ago, initially to write kidnap and ransom business, the Guernsey market had been "a joy to deal with", characterised by "sensible regulation".