Guernsey Maintains Its Leading Edge In Captive Insurance

The recent confirmation that Guernsey has retained its title of Europe's largest captive domicile, with 199 captives domiciled at the end of 2023, demonstrates that the island's insurance professionals are well placed to prepare for the evolution and growth of our industry.

The World Economic Forum's Global Risk Report 2024 highlights cybercrime, the adverse outcomes of artificial intelligence, and extreme weather events as some of the top risks organisations face. The report notes critical changes to Earth systems, biodiversity loss and ecosystem collapse as being 'interrelated and mutually reinforcing'.

The increasing confluence of multiple risks has become more unpredictable, making them harder to mitigate. In the face of this volatility, or perhaps because of it, the industry continues to evolve, and captive insurance is rising up the board agenda as an agile and flexible risk management tool with multiple benefits.

As the pace of technological, environmental and political change accelerates, Guernsey's captive insurance sector has emerged as a beacon of resilience and proficiency. We have a track record of delivering tailor-made risk management solutions and are well-equipped to confront and overcome emerging challenges with agility.

On a continued positive note, the recent findings of a report by one of Europe's leading economic consultants, Frontier Economics, commissioned by Guernsey Finance, shows that Guernsey's insurance sector continues to deliver significant value to the UK, with 40 per cent of the UK FTSE100 companies choosing Guernsey as their domicile of choice for captive entities.

Frontier Economics estimates that captives generate these UK FTSE 100 companies with annual cost savings of £100 million. Maintaining high levels of risk management whilst reducing insurance protection costs, increasing taxable profits, and lowering consumer costs should be applauded.

Guernsey captives facilitate direct foreign investment into the UK insurance industry. This international capital is used to create commercial (re)insurance entities that trade in the London market, creating liquidity and reducing costs.

Furthermore, international joint venture businesses use Guernsey captives to share the risk of international projects efficiently. All this benefits the UK economy and the UK finance industry. UK brokers arrange coverage; UK lawyers advise on claims; UK investment managers; UK actuarial firms and advisors are engaged by Guernsey captives. Guernsey's specialism and depth of expertise leads to insurance business flowing through London's wholesale insurance markets; without it, firms would look elsewhere, taking those benefits to other countries in Europe and the USA.

Beyond the UK and Europe, Guernsey's appeal as a captive domicile resonates globally, attracting businesses from diverse regions such as the Americas, Middle East, Asia, South Africa, Australia, and the Caribbean. This widespread recognition speaks volumes about our reputation for reliability and innovation in the captive insurance market.

Last year's milestone launch of the International Federation of Red Cross and Red Crescent Societies (IFRC) disaster response fund could pave the way for new insurance tools that address the increasing 'protection gap' created by extreme weather events. This need was highlighted in the World Economic Forum report as the number one risk over a 10-year horizon, and Guernsey's proven expertise in this area is evident.

From using protected cell company structures to insure nascent carbon removal projects, to clever thinking in 'build back better' initiatives, the insurance industry is tackling many challenges posed by climate change in new and innovative ways.

Guernsey's industry is committed to supporting initiatives aimed at enhancing environmental, social, and governance (ESG) standards. With ESG considerations increasingly at the forefront of organisational agendae, and a captive insurer being an integral part of a corporation's overall risk management strategy, it is critical that the captive is involved in its owner's considerations of these matters.

With an eye to the future, while the recent hard insurance market sparked increased interest in captive insurance and led to a surge in new formations, it seems that insurance rates in the commercial market are stabilising. However, the growth in formations and the increased use of already established captives shows no sign of slowing down. In addition to captives, Guernsey continues to see positive momentum in other segments of the market, such as ILS, Pension Longevity, and commercial carriers. This depth and breadth of insurance expertise sets us apart as a jurisdiction.

Guernsey's captive future is characterised by tradition and innovation, rooted in a steadfast commitment to excellence and client-centricity. As businesses navigate evolving risk landscapes, Guernsey remains dedicated to providing cutting-edge solutions in an ever-changing world.

Mark Elliott
Mark is the CEO of Polo Insurance Managers and Chair of the Guernsey International Insurance Association's Market Development Committee.