A century of captive experience
The insurance and risk management industry in Guernsey has its origins dating back to the 18th century and the first captive insurer was incorporated in the island in 1922. Since then, Guernsey has grown to become the leading captive insurance domicile in Europe.
Around 40% of the UK FTSE 100 have captives domiciled in Guernsey. In addition to UK companies a number of firms in Europe, USA, Middle East, Asia, South Africa, Australia and the Caribbean have established captives in Guernsey.
“If BHP Billiton was starting all over again from scratch, given where the management teams are based, would we have a captive and, if so, where it would be located?... Guernsey came out significantly ahead.” Matthew Frost, Vice-President of Risk Finance, BHP Billiton
Benefits of captive insurance
A captive, in its purest form, is a company set up by its owners primarily to insure the risks of its parent and/or subsidiaries. Captive insurance offers many advantages over insuring through the commercial market:
- The insuring of unusual or catastrophic risks or multiple small risks
- Provides direct access to the wholesale reinsurance market
- Improved risk management and understanding of the cost of risk
- Premiums relate to the insured's previous claims record
- Benefit from the investment return on retained premiums
- The retention within the group of the excess of net premiums over claims
- Taxation efficiencies - the payment of insurance premiums is deductible in arriving at profits and receipt is at the group's offshore captive
More recently, Guernsey has applied its captive insurance expertise to niche markets such as longevity risk transfer.
Since 1 January 2016, all captives domiciled within the European Union have had to comply with Solvency II, the EU’s harmonised insurance regulatory regime. Guernsey is not in the EU and as such is not required to implement Solvency II.
Instead, Guernsey's new regime distinguishes between commercial (re)insurance and captive insurance. As such, captives in Guernsey will have a capital floor of £100,000 and confidence levels of 90%. This proportionate approach should be very attractive to current and potential captive owners and especially those who still want a domicile within the European region.