London Market Group: accelerate introduction of captives
The London Market Group has renewed its calls to accelerate the drive to open a captive insurance sector in the United Kingdom.
The call came in the trade organisation’s annual “London Matters” report, which was released today.
The report’s authors said the London market employed 60,000 people and its contribution to the UK economy had increased by 26% to nearly 50 billion pounds between 2020 and 2023.
But it warned that competition was fierce and the market needed to continue to innovate in order to retain its position as the world’s largest specialty insurance market.
Sean McGovern, chair of the London Market Group, said: “To continue to punch above our weight there is an urgent need to create a regulatory environment that facilitates UK domiciled captives, demonstrating both at home and abroad that the market can respond swiftly and effectively”.
He added: “Although the London Market remains the largest hub of direct insurance and reinsurance when compared to other centres, its rate of growth has been slower than some of its key competitors and over the last decade its market share has remained broadly stagnant. So, we cannot take our place in the world for granted.
“London has historically been a hub of innovation, developing market-leading solutions in areas like cyber. As domestic markets develop their own solutions, however, business tends to migrate from London. To maintain its status, London needs to continue to drive new product innovation in areas like green technology and to ensure it can offer the full range of risk transfer tools.”
The report added: “There is a need to create a regulatory environment that facilitates UK domiciled captives, which have the additional benefit of London capturing reinsurance fronted from captives.
“The better facilitation of captives in the UK and increased clarity and flexibility of talent schemes are relevant asks to sustain mature firms in the London Market.”
The reported also warned that London’s alternative capital instruments – particularly insurance-linked securities – needed further refining.
“There are perceived challenges with the efficiency of issuing London based alternative capital instruments (ILS in particular), the London Bridge 2 offering needs further acceleration to increase capacity beyond its c.$2 billion in 2024,” the newspaper said.
“To retain its international competitiveness, the London Market requires frictionless support from the government at each stage of the participant company lifecycle,” it added. “To support the start-up and launch of companies in London, approval processes should be streamlined (e.g. the Senior Managers Regime) and the UK’s insurance related tax regime should be reviewed.
“Increasing awareness of the commercial implications of regulatory policies, minimising friction in creating new insurance solutions and continuing to engage with industry to widen capital markets access via ILS are measures to support the growth of London firms.”
The report, compiled by Strategy&, a part of the PwC network, argued that captives have “sustained relevance over a long period” and that Europe is expected to see growth in the sector.
It said the number of captives had grown from 5,800 in 2012 to 6,650 in 2017 while the ten largest captive domiciles accounted for $100 billion of the estimated $176 billion in gross written premiums written in 2022, up 5% from 2021.
Vermont, now recognised as the largest domicile, has GWP of $31 million while Bermuda had $27 billion. Vermont had 639 captives and Bermuda had 633 in 2022.
The reported noted that US states like Vermont and Hawaii were seen as attractive domiciles while foreign regulations such as Solvency II and anti-money laundering requirements were seen as being increasingly onerous.
“Europe lags in captives, however this is expected to change as jurisdictions change their stances,” the report said. “Luxembourg remains the primary European location (excluding Guernsey) with 40-50% share.
“France’s new captive regime in 2023 has increased captive domiciliation from 10 to 14 with potential to grow to 25 to 30 captives by 2024.”
It added: “While captives may affect the share of carriers in the UK, wider market participation amongst brokers, financial services and reinsurers may outweigh the drawbacks.”
The reported reiterated earlier predictions that adjusted captive regulations could bring 700 captives to the UK, delivering 153 million pounds of economic value.
