Britain is poised to challenge Bermuda’s dominance in the captive insurance market, according to last week’s statement by the Chancellor of the Exchequer, Jeremy Hunt.
In his speech for the HM Treasury Autumn Statement 2023, Hunt referenced the Office for Budget Responsibility, stating, “the combined impact of these measures will raise business investment, get more people into work, reduce inflation next year and increase GDP.”
A key development, found on page 99 of the policy document presented to Parliament, announces a government consultation in spring 2024. This consultation aims to establish a framework to foster the growth of captive insurance companies in the UK.
The London Market Group (LMG), which represents London’s insurance and reinsurance market, has been pivotal in advocating for a competitive UK captive insurance regime. LMG’s recent document highlights the absence of captives in the UK, attributing it to regulatory treatment equating them with larger insurance companies. They argue that captives, posing low systemic risk, can efficiently manage a company’s risk profile.
“Although the commercial insurance market in the UK is the largest in the world, in order to keep the top position we need product innovation, such as by allowing so-called “captives,” or open in-house insurance units,” Caroline Wagstaff, CEO of LMG, told a Westminster Business Forum event.
Bermuda currently leads the captive market with nearly 700 captives. The Cayman Islands is the second most popular jurisdiction -while the UK’s contribution to the captive industry is non-existent . The LMG report praises Bermuda’s nuanced regulatory system, which distinguishes between different types of insurance and enables swift authorization processes.
The report suggests that British regulators should adopt similar strategies, focusing on efficiency and reforming the Solvency II regime to attract foreign insurance and reinsurance. It also advises a more welcoming approach to overseas investors and a British captive regime that streamlines the authorisation process for UK Insurance-Linked Securities.
Despite Bermuda’s current status as the largest single jurisdiction for captive programmes, it faces increasing competition from the Cayman Islands, Vermont, and onshore domiciles like Delaware and Hawaii. The Bermuda Captive Network has noted differences in reporting standards among jurisdictions, with Bermuda being unique in its separate reporting for limited-purpose insurance entities and commercial licensed insurers.
The move by Britain to develop its captive insurance market could significantly alter the landscape, leveraging its strength as a major insurance and reinsurance marketplace and potentially attracting a substantial portion of the industry currently dominated by offshore jurisdictions like Bermuda.
