Guernsey captives may save UK blue chips £100m a year

Guernsey captive insurance companies may save UK FTSE 100 companies as much as £100 million a year, a study says. 

The study, carried out by Frontier Economics for Guernsey Finance, Crown Dependency’s business development arm, said Guernsey’s insurance sector had £4.8 billion in gross written premiums in 2022. 

The report, written to show Guernsey’s importance to the UK economy, placed emphasis on Guernsey’s captive insurance sector, which is the largest in Europe. It said 40% of FTSE 100 companies have a Gurnsey captive.  

It said this “demonstrates the scale of Guernsey’s provision of captive insurance to UK companies, given that the vast majority of its services relate to UK clients”. 

“To demonstrate some of the benefit accrued by UK businesses through Guernsey captive insurers, we have engaged with an individual large UK firm that established a captive insurance vehicle in Guernsey in 2000. 

“This firm estimated that its Guernsey-based captive has enabled it to save over £2 million per year as a result of reduced premia and investment income. Notably, these savings remained inside the UK parent, as opposed to flowing into an international insurance company.”

It said: “We have performed illustrative ‘what-if’ modelling, to estimate the total size of cost savings across all these large UK-based firms, assuming they saved similar amounts to the firm described above. 

“Our analysis finds that Guernsey captives may create efficiencies of £93 million per year across these 40 large UK companies. This does not include savings enjoyed by other UK firms which are not included on the FTSE 100 and are therefore a highly conservative estimate of the total cost savings generated by Guernsey-based captive insurance companies for the broader set of all UK businesses.” 

It added: “Clearly, Guernsey-based captive insurers provide other benefits to UK companies, particularly in enabling UK firms to better mitigate niche risks, such as flooding or product recall. 

“While Guernsey is the biggest European captive domicile statistics compiled by Allianz show the biggest captive domiciles globally are Bermuda, Cayman Islands and the USA.

“If Guernsey ceased to be an option for UK firms seeking to establish a captive insurer they would have to look elsewhere in Europe (such as Luxembourg) or further afield (likely the North American domiciles we have listed above). 

“This would in turn lead to less insurance business flowing through London’s wholesale insurance markets and more money flowing through equivalent markets in Europe and the USA respectively.”

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