The UK government will launch a consultation in Spring 2024 on introducing a captive insurance regime as it seeks to revive the insurance market.
The Chancellor, Jeremy Hunt, announced in his Autumn Statement that the Government plans to consult on a new framework to encourage the establishment of captive insurance companies in the UK.
The move comes after the London Market Group (LMG) approached the Treasury a year ago. Speaking to City A.M. Caroline Wagstaff, CEO of LMG said: “If we are to retain our position as the world’s leading market for risk transfer, we do need to be able to offer customers all the tools in the toolkit, and that includes captive insurance companies.”
Captive insurance is a form of self-insurance, whereby a company is created and wholly owned by those it insures. The idea behind it is that companies have control over the type of policies it needs, while also receiving coverage at a reduced cost compared to traditional insurance.
This type of insurance structure is extremely popular in the US, where Vermont has the highest number of captives domiciled with 1242 companies, according to Captive Insurance Times.
In Europe, the market leaders are Guernsey, Luxembourg and Ireland. While, globally, the captive insurance regime is usually found on off-shore islands with Bermuda as the leader, followed by the Cayman Islands.
Bermuda is known to have the highest total of captive insurance companies domiciled. It has created a well-oiled infrastructure on the island. Its small capital, Hamilton, is home to the Big Four, notable law firms like Appleby and Conyers, as well as several insurance companies that specialise in captive management.
Speaking to City A.M. Peter Carter, head of Willis Tower Watson (WTW) global captive practice explained: “I’m not surprised that this is being looked at now. France recently enacted legislation to make it friendly for corporations to domicile their captives in the country.”
It is argued that the UK could offer an attractive regime. Wagstaff explained that a lot of businesses have their core operations in the UK.
“Therefore having [a captive] which sits in Bermuda or Vermont or somewhere is operationally, quite clunky,” Wagstaff added.
She highlighted that for companies’ reputation, lots of boards are looking at where they keep these types of operations, as several parts of the world have “reputations for being tax havens”. She explained that the LMG were told that companies would consider taking their captives onshore to somewhere where the regulation is first class and there are no worries about tax avoidance.
However, it will of course all come down to how attractive the Treasury makes it for corporations in terms of capital requirements and taxation. Carter added that it will be a “make or break” factor.
He explained that for years UK corporations have opted for Guernsey or the Isle of Man as there is an established captive management infrastructure in place.
Carter also highlighted that even though London has the services needed to set up and maintain captives, it can be a lot more expensive in the City compared to other established domiciles.
He added that even if this gets the green light, in his opinion, it takes years for a domicile to become fully established and competitive.