27 June 2016EMEA analysis

Gibraltar may see captives growth as a result of Brexit

As a consequence of the UK leaving the European Union, Gibraltar could become more attractive for captives, according to law firm Hassans. Gibraltar insurers will mull relocating to EU but captives may benefit and insurers writing UK business not affected, the firm noted.

An exit from the EU could offer Gibraltar an opportunity to attract more captives business, Nigel Feetham, senior partner at Hassans, noted in a statement. He pointed out that EU-based captives have become “capital inefficient” for some owners as a result of higher capital requirements under the new Solvency II regime.

“A post-Brexit scenario therefore gives rise to a future opportunity for Gibraltar in an area where we would not otherwise have been able to compete for business under the current EU rules,” Feetham said.

This would, however, “require a new legislative framework to permit captive owners to set up captives in Gibraltar with less burdensome capital requirements similar to, say, Guernsey.

“I can also see a real boost in the use of Gibraltar protected cell companies by captives in such a scenario,” he noted.

Being outside the EU/EEA could have another advantage for Gibraltar if it introduced “a new regulatory framework that encourages non-UK/EU financial services businesses to set up in Gibraltar underpinned by regulatory ease of access, speed to market and a more pragmatic approach in certain areas than is currently available under EU rules.”

Feetham also expects increased employment growth in Gibraltar insurers writing UK business, which is largely the focus of the industry, as companies continue to grow staff numbers in line with their business plans.

However, Gibraltar-based insurers writing EU business will be primarily affected if EU law ceases to apply in Gibraltar. The most likely option which boards of directors would be considering in this case is relocating from Gibraltar back into the EU, he said.

Other less attractive options for these insurers would be to use an EU fronting arrangement or seeking a license at local level in each member state where business is written.

“Brexit does not represent doom and gloom for the Gibraltar insurance industry.” It just means that the insurance sector in Gibraltar will need to “partially reposition itself,” he explained.

Feetham concludes that it is highly unlikely that the current trading relationship between the UK and Gibraltar will be affected by Brexit, so for Gibraltar insurers writing UK business only it would be 'business as usual' says Feetham.