Further opportunities for Guernsey’s captive insurance sector

30 March 2017

A senior figure in the global captive insurance market believes that innovations and new markets will continue to offer opportunity for the Guernsey industry.

Malcolm Cutts-Watson – who has spent 35 years in insurance in three of the world’s major captive centres and now runs his own consultancy – told the Guernsey Press that he believed there was plenty of opportunities in captive insurance for Guernsey firms.

He spent his last couple of years with global insurer Willis attempting to open up the Chinese market for captives, an area which Guernsey seems set to start to break into.

Guernsey has signed four Memoranda of Understanding in the region in the last 12 months, with two of those being just recently – one with the China Insurance Regulatory Commission and one with the Beijing Airport Economic Core Zone. Both will assist with the mutual exchange of information and co-operation in the insurance market.

Earlier this year, Beijing-headquartered healthcare management firm DINGTAI Health announced it was planning to form a pure captive in Guernsey by the end of 2017 to control its medicine and health management risks.

A Guernsey captive insurance structure will also support china’s growing film industry after HLCG Film Guarantors announced it had selected the island following due diligence work on a number of captive jurisdictions.

“There is still life in captives as smaller and smaller companies take it up," Mr Cutts-Watson said. "There is interest from new territories and new products, such as innovations with the UK mortgage market.”

Mr Cutts-Watson believes the China market could be ‘huge’.

“What surprised me there was the speed of decision making,” he said. “I thought it was going to be very bureaucratic, but it is actually very dynamic and keen to adopt international best practice.”

Mr Cutts-Watson anticipated there would be two markets emerging in China. Domestic risk, he said, would stay in the country, but there would be the opportunity for local firms to provide advice.

Companies with international operations and assets outside of China could use a captive for all their risks and Mr Cutts-Watson said he expected that was unlikely to stay in the country.

“I would have thought that Hong Kong would be the obvious place for it, but there seems to be a challenge between the Hong Kong and Chinese regulators, so that is no longer an obvious choice, and the opportunity is available for all domiciles to get some of that business.

“I think there’s an opportunity. These international assets will end up in captives placed in the London market and Guernsey is perfectly positioned – it has the relationships, the sensitive regulation, the expertise, is close to London – it ticks all the boxes.”

Mr Cutts-Watson described the recent PwC strategic report on the local industry as ‘sensible and solid’.

“I don’t see there being a step change – growth in each individual area would be more than enough to keep the industry moving forward.”

A continued strong partnership between the industry, regulator and government is critical.

“There’s nothing revolutionary or startling to come out of it, it’s basically more of the same,” he said, though he suggested an idea of disaster relief insurance supporting impact investment as another potential growth area for Guernsey.

Natural disasters currently cause some $130bn of damage each year and only about $50bn of that is insured.

“I think there’s an opportunity. These international assets will end up in captives placed in the London market and Guernsey is perfectly positioned – it has the relationships, the sensitive regulation, the expertise, is close to London – it ticks all the boxes.”
Consultant Malcolm Cutts-Watson

Mr Cutts-Watson suggested captives could be established so that payments could be made immediately after a disaster, while such incidents could be pre-funded.

“This kind of risk financing fits in well with ILS, traditional captives and impact investing,” he added. “Diversifying risk is attractive to investors and can show Guernsey insurance in a positive light.”

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