Lobbying for change is a long game and the London Market’s campaign for a UK captive regime is proof positive of that statement. I clearly remember talking about it in the first meeting I had with government in 2021. I made the point to the Economic Secretary to the Treasury (a number of those have come and gone since then…) that there was a market that could be worth US $161 billion by 2030 and the UK has no share in it – and post Brexit he could change that. It certainly got his attention.
The financial incentive for the government to attract captives to London is compelling. With an attractive captive proposition, UK public sector bodies and private entities could begin to re-shore captives currently based in other jurisdictions. An estimated £153 million could flow from these re-shored captives, and the establishment of more would follow in the longer term. Marsh, in August 2022, estimated that 200 new captives had been created in 2020-21 by their business alone.
Why, you might ask, have we not progressed faster? Some of the delay has been because with Solvency UK and the Financial Services and Markets Act, HM Treasury’s agenda has already been quite full. But I am delighted to say that, with their announcement of a consultation on captives this spring, there is now real momentum.
I make two relatively simple points for pressing for this change. The first is that if London is to remain the global risk transfer centre, it needs to be able to offer all the tools in the toolkit. And without a UK captive regime, we are missing a critical component.
The second is that this is not just good for the insurance market, it is good for UK Plc – giving them options for simplicity and efficiency. The benefit to companies of re-shoring their captives to the UK are evident. Establishing your captive down the road from your UK office enables a seamless working relationship between the two businesses, and economies of scale. What’s more, London has a long history of expertise in insurance and the pool of talented and experienced people is extensive.
Captive insurers, created to insure only the entity that owns it, are currently discouraged from domiciling themselves in the UK today by the lack of a proportionate regulatory environment. The current system is just unappealing and there are much more attractive markets, such as Guernsey, Bermuda, and Vermont, where they can go.
So, we can’t just build any old captive regime. There is a lot of choice out there and we need to create a compelling, competitive captive environment that is attractive within the UK and internationally. We have worked with a wonderful group of experts from all parts of the value chain to outline what is required to do that – both from the government, but more importantly from the regulators.
Core to the success of a UK captive regime will be an approach by the regulators that is designed and structured in a balanced and proportionate way, considering the reduced prudential risk assessment of the relevant captive vehicle. If the UK captive regime is to be internationally competitive it is imperative that the approval and supervisory regulatory processes are fit for purpose and match the timescales and user-friendly processes adopted by its competitor jurisdictions.
This campaign has not been the work of moments, or even months, but the signs are positive, and we have seen real engagement coming from all parties. The London Market Group is ready to work with government, regulators, the insurance industry and the captive community to deliver this for the UK. Having helped to articulate the proposition and scope of the opportunity, we will continue to convene market experts to help the Treasury and regulators to understand how to make us stand out from the crowd.
