Captive owners will be in a stronger position post-Covid-19

15 June 2020

Owners of captive structures will be in a stronger position coming out of the Covid-19 pandemic, an online audience heard from the Guernsey Finance Captive Briefing webinar.

Guernsey, Europe’s leading captives jurisdiction, hosting more than a third of the European captives market, and whitelisted by the EU and OECD for economic substance, continues to see a strong interest to form new captives.

Willis Towers Watson Chief Broking Officer James Battersby, based in London, said the pandemic was likely to be the biggest insurance event ever and would impact future rates.

“We’ll start to see what price increases look like towards the end of the year and they will drip into direct insurance markets,” Mr Battersby said. “The market will continue to harden. Losses resulting from this pandemic are mindboggling but different in their spread.

“Business interruption is triggered by some physical damage event and for the most part [in this pandemic] there is none. Some policies have a non-damage element but they are few and far between and heavily sub-limited. Your captive can choose to write insurance covers, so what we are seeing is a huge number of pandemic exclusions and it is largely overwriting a lot of comfort the that market arrived at over a number of years. I think the needle will move more towards exclusions before coming back towards somewhere more sensible.”

Ciaran Healy, Director of Client Services – EMEA – at Aon Global Risk Consulting, said that captives were becoming a necessity rather than just a point of interest as a result of the pandemic, and were returning to their core benefits.

“These are prime conditions for a captive, why they were set up in the first place,” he said. “For those who have persevered with their captives over the soft cycle of the last few years, it’s payback now for that foresight. It’s a long-term strategy and captive owners are better placed to deal with the challenges we face now.”

Guernsey International Insurance Association Mike Johns said that the island was still seeing strong interest in new structures but believed that it was mainly driven by the hardening market rather than a fresh interest in captives.

“The positive message is that people are looking at their risk financing structures and COVID has focused their minds rather than turning their minds against investing capital,” he said. “We are definitely seeing an upward trend in captive formation.”

Mr Johns added that Guernsey could offer what captive owners were looking for – domicile experience, a good regulator, innovation, the experience of managers and infrastructure, good legislation and flexibility.

“Setting up a captive is the easiest part,” he said. “The hard part is making it work and helping it grow, and what happens when you want to consider additional lines of business.”

The webinar replaced an event that was scheduled for London in Match but cancelled due to the coronavirus pandemic.

The full playback is now available to watch on demand: https://www.weareguernsey.com/finance-events/2020/captive-briefing/.

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