Now is the perfect time for captives to prove their worth, says captive owner

A captive could not have a better opportunity to add value to its parent organisation than it has in the current market, according to Tom Richardson, group insurance director at Associated British Foods (ABF).

Speaking at a Guernsey Finance market briefing for the captive industry, Richardson suggested that a hard market is characterised by the rising cost of insurance, declining capacity and a “take or leave it” approach to terms and conditions.

ABF’s captive has demonstrated its value in recent months based on all three criteria, he said.

"If you are a captive you couldn’t be in a better position than in this type of market,” said Richardson. “There couldn’t be more opportunity to add value to your organisation.”

Mark Rogers, client services director at Artex Risk Solutions, said the case for a captive is compelling in the current market.

“Why spend premium in the market when you can put into your captive vehicle and retain some of those profits?” he asked. “Coming into 2021 we are going to see quite a few new formations.”

Christina Bell, executive director and head of underwriting at Aon Captive and Insurance Management, predicted that 2021 will be a busy year for Guernsey’s captive industry.

“People are very much looking ahead at how they can place their captive in a more strategic position, looking at structured reinsurance solutions and increasing retentions,” she said. “Captives are proving a focal point for risk management strategy.”

Panelists agreed that Guernsey’s pilot fast-track pre-authorisation scheme for cell captives will help drive a growing number of formations in Guernsey in 2021.

The pre-authorisation scheme was introduced in late 2020 and permits just-in-time creation of new captive cells in existing protected cell companies. It means eligible companies can form captive cells in hours rather than days.

Caroline Bradley, deputy director of the authorisations and innovation division at the Guernsey Financial Services Commission (GFSC), noted that captives are given more flexibility by the regulator than commercial insurers.

“The only thing we would regard as a material change of business plan from a captive is if they were to change tack and start writing third-party business,” she said. “A captive can go ahead with changes to retentions, changes to reinsurance, to fronting arrangements, they can add new lines of business and they can do that without needing to provide any notification or await any approval from the Commission.”