Guernsey reports massive interest in captives, but COVID uncertainty keeping a lid on new launches

01-10-2020

Guernsey reports massive interest in captives, but COVID uncertainty keeping a lid on new launches

Peter Child, Artex

Guernsey is seeing “massive” interest in captives but this is not yet translating into new launches, according to Peter Child, head of European operations at Artex and managing director of the Guernsey operation.

“The level of interest is just massive,” said Child, who was representing the Guernsey International Insurance Association on a panel at the Captives Knowledge Hub at the online Airmic conference. 

“The volume is a challenge for us to deal with, but conversions aren’t at the same level as yet,” he said. “I think it’s because captives should not be seen as a ‘magic bullet’ in risk management.”

Child predicted an increase in captive formations in Q4 and into 2021. “When COVID uncertainty reduces, that will enable people to make the longer-term investment decisions they need to make when setting up a captive,” he added. 

There is a perception that the number of captives increases rapidly as the market hardens and the price of commercial insurance goes up, noted Child, but he argued this is inaccurate. 

“A captive has always been a medium to long-term strategic investment of both time and money,” he said. “If you’re after a quick fix, captives won’t necessarily work.”

However, clients with existing captives are leaning on them increasingly heavily, said Child, as they considered the application of their optimal risk-financing strategies. 

““I think we are moving to a place where new captives will be comparatively sophisticated compared to their predecessors from the 1980s and 1990s, and those captives already established will start doing more and different and interesting things,” said Child. “The captive industry is going to turn into a much more sophisticated financial services offering than it ever has been before.” 

Guernsey saw a rise in captive formations in 2019 to 11, more than double the figure recorded in 2018. This was the most captives launched in Guernsey since 2016. 

Guernsey expects a further increase in 2020, despite delays caused by COVID-19 lockdown. 

Guernsey has more than a third of all captive insurance business in Europe, with more than 300 structures active on the island. 

Child said: “There are still a large number of captives being formed, with larger captives going through the feasibility process or the set-up process as we speak.” 

A survey of Airmic members confirmed that two-thirds of risk managers and insurance buyers are now considering captives in response to the hardening market. More than a third of those already with a captive were now using their captive for increased retentions, and more than 30 percent were writing new lines of business.

Artex, Guernsey International Insurance Association, Peter Child, COVID-19

Captive International