23 February 2017Analysis

Brexit provides opportunity for Gibraltar and UK to develop captive markets

Brexit presents a significant opportunity for Gibraltar and the UK to develop their captive markets – as well as the protected cell company space – outside of the EU, according to Nigel Feetham, partner at law firm Hassans.

Due to the capital inefficiencies of some EU-based captives due to the higher capital requirement of Solvency II, many captive owners may be inclined to relocate their captive outside of the EU to a more attractive domicile that does not have to compete under current EU rules.

For Gibraltar captives covering UK risks, the British Insurance Brokers' Association (BIBA) recently raised some concerns in its 2017 EU Exit manifesto surrounding its regulatory status.

"With regard to the UK risks covered by Gibraltar captives, we would request that the UK Government would not seek to change their regulatory status and that they would therefore continue to have the ability to provide compulsory insurance for UK risks as they do today,” BIBA said.

However, Feetham suggests Brexit will have little impact on this relationship and that it will be “business as usual”.

This is supported by comments from Robin Walker, Parliamentary Under Secretary of State at the Department for Exiting the European Union, who stressed the importance of the UK market to Gibraltar's economy, with around 90 percent of the Rock's business in financial services in the UK.

Walker said: “When it comes to financial services, there are mechanisms already underpinning Gibraltar’s access to the UK market which are enshrined in UK law.”

Feetham also suggested that it is very unlikely that Gibraltar insurers, which include captive insurers, writing UK business under Solvency II would be asked by the UK Government to stop in the future.

He cited the UK Government’s reiteration of its commitment to continue its trading relationship with Gibraltar in a post-Brexit world as one of the supporting reasons.

Up to 90 percent of all premiums written by Gibraltar insurance companies are UK based risks, primarily in the UK motor market where many local carriers have established a niche.

One of the main concerns regarding the UK’s departure is the status of Gibraltar captives that write EU (non-UK) business.

Fronting arrangements which make the lower cost of capital more economically viable makes domiciles like Guernsey an attractive location to re-domicile, but Gibraltar’s current legislative framework would require an overhaul for it to be less burdensome, according to Feetham.

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