3 March 2014Analysis

EMEA: a domicile review

While there has not been any great exodus from the captive space, captive formation numbers in the EMEA region provide some indication of the difficult conditions the market faces, characterised by a protracted soft commercial market and limited macroeconomic growth.

Growth within the captive space would best be described as limited, with only one jurisdiction—Guernsey—achieving anything like notable growth. Guernsey was able to add 78 new captive entities to its roster in 2013, consisting of 16 single parent, protected cell companies (PCC) and incorporated cell companies (ICC) and a further 62 PCC and ICC cells. Malta achieved some modest growth during 2013, adding four insurance companies and five cells.  It is apparent that cell captive legislation continues to be a major driver of captive numbers, even as growth has slowed.

Luxembourg welcomed three captives in 2013, Lichtenstein a single captive and Jersey a single cell, while Switzerland welcomed no new captives in 2013. Formations were flat in Europe, with cell formations perhaps the silver lining to what has been an otherwise cloudy year.

Lichtenstein and Switzerland are limited in their growth opportunities due to the fact that they do not have cell legislation, but with only Guernsey and Malta achieving anything like notable figures, it seems that European captives are caught for now in a general malaise.

The impending Solvency II regime may well be playing a part in this, with considerable uncertainty remaining regarding how captives will be treated under the new regime. Much has yet to be ironed out and the ongoing debate over final form has done little to spur confidence in the captive concept in Europe.

It is notable that those domiciles that have indicated they are opting out of Solvency II—most notably Guernsey—has achieved the best growth in 2013. It is apparent that Guernsey’s decision to continue to apply existing solvency requirements, rather than seek equivalency has been beneficial to the Island and its captive industry.

One significant regulatory change was implemented in 2013, with Malta introducing the Reinsurance Special Purpose Vehicles Regulations, 2013. Malta indicated that the new regulation will provide reinsurers and captive reinsurers with the tools to establish “innovative structures” to assist them in their operations, “most notably in relation to capital relief”.

Malta’s interest chimes in with that in Guernsey over the development of insurance-linked securities (ILS) structures in Europe. Addressing growth opportunities, Guernsey was one of the only domiciles sounding bullish, indicating that the Island expects ILS structure formations alongside cells and single parent captives in 2014 as the Island looks to “sustain and even enhance new business flows”.