Picture: Nigel Feetham, Hassans
With the possibility of a hard Brexit looming, Captive International speaks with Nigel Feetham, partner at Hassans, who has been on a fact-finding mission to lay out the best strategy for companies looking to protect their European business.
While the Brexit dust is still settling months after the June 23 vote, there are many UK and Gibraltar-based insurers who are still weighing up their strategies to ensure they get their own best possible deal.
Captive International caught up with Nigel Feetham, a lawyer at Hassans who serves Gibraltar in financial services and tax cases, who had recently returned from a trip to Malta to explore Gibraltar’s options in terms of conducting business with the European Union (EU) after the eventual departure of the UK from the EU.
Gibraltar currently has 40 active insurance companies, 10 of which write solely or a majority of EU business using the European passport, and do so on a freedom of services or establishment basis pursuant to the relevant EU insurance directives.
This puts Gibraltar in a position that is potentially impacted by Brexit, as Gibraltar is part of the EU by virtue of UK membership, which means that in a post-Brexit world it will also lose its EU status along with the UK.
Feetham states that the companies affected will need to consider these post-Brexit option in order to ensure they have continued access to the European (non-UK) market, much in the same way as firms with passporting rights do based in London.
There are two main options for companies seeking to protect their European business, domiciled in either the UK or Gibraltar, which Feetham lays out.
The first is for a company to set up a new licensed entity within the EU while retaining their entity in Gibraltar to maintain its strategic position for UK and international business.
The second option is to redomicile the Gibraltar-based company to another EU member state.
“Gibraltar has had redomiciliation legislation for many years and it is tried and tested. I helped to redomicile the first captive to ever be redomiciled from outside the EU into the EU (Gibraltar) back in 2004,” Feetham says.
“This is likely to be the favoured option but it obviously means moving the corporate entity together with the taxable profits and therefore inevitably loss of tax revenue.”
But where should the company redomicile? Feetham suggests that as far as Gibraltar companies are concerned, the two likely possible jurisdictions are Malta and Luxembourg.
While companies may have a preference for one over the other, Feetham says that both are suitable locations.
Out of the two, he suggests that Malta shares the most similarities with Gibraltar.
“The system of law is not entirely dissimilar and the authorisation process and prudential regime in insurance are also very similar,” Feetham says.
By contrast, Luxembourg is seen as having the advantage of its geographical proximity to the UK when compared to Malta, which Feetham argues in itself could add “considerable weight” in any decision-making.
On the flip side, there are Maltese insurance companies and captives currently writing UK business who would be faced with a similar position but in reverse; they would also need to set up alternative arrangement to continue to trade within or with the UK as a result of a hard Brexit.
Feetham says that the obvious solution would to be in the other direction; for these companies to relocate to Gibraltar.
“The benefit is actually 'three-ways' since the UK would also benefit from companies continuing to provide capacity into the UK market post-Brexit - this provides consumers with more choice and increased competition, in turn helping to keep the cost of insurance down. That can only be a win-win for everyone.”
Gibraltar’s future prospects
Where there is change there is opportunity – and while Feetham does not expect Gibraltar’s insurance market to grow to the same extent as it has in the past solely focussing on UK business, he does see an opportunity to develop non-UK facing captives and for large US Companies looking to enter the UK market.
“Gibraltar has become a centre of excellence in insurance. There is also real professional expertise locally built over many years and considerable investment has gone into regulation more recently,” Feetham says.
“This is not going to go away. It is a very solid foundation even if we might see a net loss of local companies in the short-term. In any event Gibraltar's focus in the future will be in attracting quality companies and not just making numbers.”
He believes there is an opportunity of mutual benefit here that goes beyond existing Gibraltar insurers that might be considering their options.
This could include new potential insurers who wish to set up shop in Gibraltar but are now faced with post-Brexit reality, or Maltese insurers writing UK business who would want to consider a new home in Gibraltar.
Feetham stresses that Gibraltar insurers that decide to relocate should still be given the option to keep their back office administration in Gibraltar through a separate company, meaning that no staff would have to be relocated or Gibraltar office space vacated, maintaining some economic activity locally.
“This would ultimately influence the choice of location whether Malta or Luxembourg in my view. Under the Solvency II regulations it is possible to enter into outsourcing arrangements and therefore this should be permissible as long as the requirements of mind and management and head office are satisfied in the new home state of the insurer.”
Nigel Feetham, Hassans, Legislation, Brexit, Gibraltar, Malta, UK, Europe