12 October 2018Analysis

Brexit not high on the agenda for European captives

Brexit is not influencing redomiciliation among European captives, and while there are vast uncertainties around Brexit, it is not high on the risk management agenda for them.

This is according to Will Thomas-Ferrand, international practice leader at Marsh Captive Solutions, speaking at The Guernsey Insurance Forum 2018.

In his position as a captive manager, Thomas-Ferrand works with both EU and non-EU domiciles, and he has only seen one captive redomicile which had been partly influenced by Brexit.

“A captive gives you more opportunities and Brexit itself is a conversation affecting captives. But captives give you more flexibility to design your risk management solutions according to the times,” he said. “It doesn’t matter what political changes we are facing.”

Rather than the focus being on Brexit causing problems in small, isolated instances where the captive is trying to write from the EU to the UK or vice versa and not being able to achieve that, Thomas-Ferrand said it raises a bigger questions of whether the captive is financing the risks that its parent corporations is exposed to in the right way.

In terms of "Brexit-proofing" a captive, clients can look at risk-financing optimisation, which aims to help companies structure their insurance programmes in the most economically efficient way, while meeting the risk-tolerance goals of the organisation as a whole, Thomas-Ferrand explained.

Dealing with the short term impact of Brexit, corporations may explore fronting if they have a captive in Europe and they are trying to write a UK line. Other options may include using cells, with one to deal with UK risk.  The longer term option of redomiciling an existing captive is not something that many risk managers have considered as the choice of a jurisdiction is not something done on a whim, he noted.

Dominic Wheatley, chief executive at Guernsey Finance, had also argued that captives in Europe were somewhat in decline - although Guernsey is bucking that trend with nine new formations in 2017.

While the number of captive formations in Europe has been fairly flat - with the exception of Guernsey - Thomas-Ferrand challenged the view that captive were in decline, citing that the premium going into Marsh-managed captives had increased by 25 percent from the previous year, and a further 55 percent  compared to four years before that.

While less of a concern for captives, Brexit appeared to the panel to be more of a concern to UK re/insurers carrying on business with policyholders in the EU.

Suzy Awford, head of regulatory and government affairs at AIG Europe, said the most obvious takeaway from discussions around Brexit is that there is nothing in the future relationship that will give early access to the single market, and that many UK re/insurers have been setting up new entities in the EU.

“There are concerns over where claims can be paid,” said Awford. “There has been a lot of debate around whether there will be a public policy solution to contract continuity.”