CROWN DEPENDENCIES: Guernsey’s fast track pre-authorisations expected to help boost captive formations in 2021.

Press release from Guernsey Finance on Wednesday 24 January, 2021.

Early success of Guernsey’s pilot fast-track pre-authorisation of insurance cells scheme is expected to help to drive the formation of more captives being formed in the island during 2021.

That was the clear message at Guernsey Finance’s Captive Briefing webinar, where a panel of experts discussed the current state of the industry and forthcoming developments in 2021.

Caroline Bradley, Deputy Director of the Authorisations and Innovation Division at the Guernsey Financial Services Commission, said she hoped that the pilot scheme, introduced by the regulator at the end of last year, would enable captives to respond quickly in the current market.

She said the GFSC expected something different from a captive than it would from a commercial insurer.

“The only thing we would regard as a material change of business plan from a captive is if they were to change tack and start writing third-party business,” she said.

“A captive can go ahead with changes to retentions, changes to reinsurance, to fronting arrangements, they can add new lines of business and they can do that without needing to provide any notification or await any approval from the Commission. So in that respect, we hope it enables captives to act quickly.”

The pre-authorisation scheme permits just-in-time creation of new captive cells in existing protected cell companies, enabling businesses that fit the criteria to form a captive cell solution in hours rather than days.

Also speaking on the webinar, Tom Richardson, Group Insurance Director at Associated British Foods, which has a Guernsey captive, said the hard market that has persisted over the past two years has demonstrated the value of his company's captive structure.

"You could probably characterise the hard market based on three factors – the rising cost of insurance, a shrinking in capacity, and a 'take it or leave it' approach to underwriting conditions.

“As a buyer, it has really brought our captive into focus - it has been able to respond in all of those areas.

"If you are a captive you couldn’t be in a better position than in this type of market. There couldn’t be more opportunity to add value to your organisation.”

Christina Bell, executive director and head of underwriting at Aon Captive and Insurance Management, agreed and predicted that 2021 would continue to be a busy time for the Guernsey captive industry.

“We are seeing a real surge in captive activity and existing captive owners are looking for strategic solutions to resolve the challenges they are experiencing in the hard market.

“People are very much looking ahead at how they can place their captive in a more strategic position, looking at structured reinsurance solutions and increasing retentions. Captives are proving a focal point for risk management strategy.”

Mark Rogers, Client Services Director at Artex Risk Solutions, said the case for a captive was compelling in the current market.

“Why spend premium in the market when you can put into your captive vehicle and retain some of those profits? Coming into 2021 we are going to see quite a few new formations.”

Guernsey, the leading jurisdiction for captives in Europe, added seven new captive structures during 2020 in what was a year where industry figures said they were almost overwhelmed with inquiries.