Standing out from the crowd

In early February, the Treasury’s consultation on a UK captive regime closed. The London Market Group has worked closely with market practitioners to develop our response and, through that process, it has been made clear that there is real enthusiasm and excitement amongst captive owners, advisers and other interested parties in the prospect of being able to have a captive insurer in the UK. The phrase that was used time and time again was “the UK has the potential to be a ‘destination domicile’.

The UK is already the global leader for commercial insurance and reinsurance, hosting the largest talent pool and an extensive financial services ecosystem that can serve as a ‘one stop shop’ for new captive owners, allowing them to undertake a wide range of business in one place. Many international firms, seeking a jurisdiction for large captives, would consider a UK captive given that most captives expertise is already based here.

But location alone is insufficient. To become a domicile of choice, we need to get three key things right. It is therefore imperative that the approval and supervisory regulatory processes are fit for this purpose (rather than just the legal and regulatory framework). Thse three key elements of the regime are, in our opinion, as follows:

• A UK specific definition of a captive - the UK can now establish a new captive regime, independent of Solvency II, based on secondary legislation with the ability to integrate its own legislative definition of a captive insurer.
• Streamlined authorisation and proportionate supervisory approach - changes are needed to the existing PRA authorisation procedure to streamline the process for new captives. Once authorised, the captive should be subject to supervision as per its specific classification/definition. To ensure competitiveness, authorisation and ongoing regulatory and reporting costs must be proportionate to the risk profile of that captive.
• Proportionate capital and governance requirements – capital and governance requirements must be applied to align with the captive definition (taking into account the differentiated risk profile). This is particularly critical to the competitiveness of a UK regime.

Over the last three years, as we have pursued this campaign, I have been delighted time and time again by the enthusiasm from UK PLCs, UK public sector bodies and international firms to consider the UK as a credible jurisdiction to bring their existing captive and/or create a new captive.

What is certain is that if the UK continues to have no captive regime it will continue to lose out on this growing global market both in increasing premium flow and growing economic activity. It will also undermine the UK’s leading position as a risk transfer centre since it will not be offering the fullest range of tools available.  

We have the best opportunity in a generation to build a new and thriving market within our already successful insurance sector.  Let’s hope the government and the regulator pick up the baton and make it happen this year.