Isle of Man: in the top tier
The Isle of Man has been a recognised captive domicile for almost 30 years and offers a broad range of captive management services. What can help the Island stand out as the domicile of choice?
There are many jurisdictions in which to domicile a captive insurance company, and while there are some similarities between all of them, recent economic events and the attention being paid to international finance centres have meant that attention is now equally and rightly being paid to the differences between them.
The Isle of Man has a number of distinguishing advantages in a qualitative sense, for example, the ability—subject to regulatory approval—for 100 percent of intercompany loans to be accepted as admitted assets when calculating solvency margins, which may be of benefit to the parent. In addition, the wide range of expertise available, easy transport links and access to the UK and Europe, and a range of company structures designed to meet the needs of captive owners are other significant advantages.
We now have in excess of 140 captive insurance companies on the island, ranging from medium-sized enterprises to large FTSE 100 companies. The major global risk managers such as Aon, Marsh and Willis have branches here, along with a number of smaller, independent risk managers. The Isle of Man is home to captives owned by parent companies from as far east as Japan, as far west as Canada, as far north as Finland, as well as from South Africa and Australia.
Many blue chip companies have captives in the Isle of Man, from a wide range of industries including power and utilities, financial and banking, shipping, retail, industrial and engineering, oil, construction, aviation, telecommunications, pharmaceutical, mining, car rental,transport and freight, insurance and legal. This shows our expertise as a jurisdiction in being able to handle a wide range of insurance and risk management needs.
The Isle of Man offers a range of options to the parent company, including protected cell companies (PCCs), limited liability partnerships, mutual captives, as well as the more traditional company structures.
As a jurisdiction, we have achieved an ‘AAA’ sovereign credit rating with both Standard & Poor’s and Moody’s, and have benefited from more than two decades of continuous economic growth. The island has also been instrumental in adopting a co-operative stance in terms of its commitments to the international community. Its inclusion on the OECD ‘white list’ of countries complying with global standards for tax co-operation and exchange of information, produced following the G20 summit in London, places the Isle of Man in the top tier of jurisdictions— along with nations such as the UK, the US, Germany, France, Sweden and Ireland, and recognises that we have ‘substantially implemented the internationally agreed tax standard’. The list confirms the island’s position among the most responsible and co-operative countries of the world. This together with the island’s unique geographical situation, which provides quick and easy access to the City of London and beyond, has helped position the Isle of Man as an established international domicile for the global captive industry.
As an island, we are able to react quickly to the ever-changing international environment, and the government constantly seeks to provide the most appropriate platform for business to operate.
Insurance companies are regulated by the Insurance and Pensions Authority (IPA ). In order for the island to prosper, the IPA seeks to ensure its regulatory framework continues to provide businesses with freedomto innovate and achieve their corporate goals, whilst protecting the interests of relevant stakeholders and taking account of developing standards in international regulation. It seeks to achieve a suitable balance of those objectives that are relevant to the needs of insurers on the island and enables it to carry out its responsibilities of maintaining a secure and reputable business environment.
How has the island weathered the economic storm and is there a silver lining in sight?
The international downturn of the last 12 months has had an effect on the global insurance industry, and while business has not been growing at the pace of recent years, the Isle of Man has weathered the storm well. We have enjoyed positive economic growth for 25 consecutive years, with an average of around 7 percent per annum over the last 10 years. While 2009/10 was affected by global economic factors, the budget is still in surplus and we expect GDP to continue to grow, albeit at rate of around 2.5 percent for the year.
The other major impact for all international financial and business centres has been the OECD report in 2009. This, together with the review into Crown Dependencies (The Foot Report), could have been viewed as being negative. However, the report has given us an opportunity to highlight our position as among the most stable, responsible and cooperative small countries in the world.
Around two years ago, most offshore jurisdictions were viewed as being essentially similar. The recent interest in these jurisdictions has meant that more analysis has been undertaken on the differences between them and we are pleased that this has given us the opportunity to highlight our strong track record of complying with international standards of financial regulation.
Our inclusion on the ‘white list’ issued by the OECD represents a major endorsement of the Isle of Man and our long-term strategy of positive engagement with the OECD. The IMF also published its report on the Isle of Man last year. The report said that the island has a general high standard of financial sector regulation and supervision, and in relation to the insurance sector, that it is similarly well regulated, with ‘considerable resilience against shocks’.
In March 2004, protected cell company legislation was introduced and has been in place for a number of years now. How successful has this been in attracting new business to the island?
PCCs have tended to be aimed at the middle market of companies that wish to take advantage of a captive solution in a highly costeffective manner.
As such, PCCs are seen as an essential option within the captive insurance world, and we have been pleased with the number that have been set up since legislation was introduced. While we were not among the first jurisdictions to get off the starting blocks with this, we are certainly seeing an increasing number of enquiries.
Has incorporated cell company legislation been introduced yet and, if so, what has been the level of interest?
Following the success of PCCs, incorporated cell company (ICC)legislation is currently being formulated and we expect it to be available very shortly. This will enhance the island’s offering to the insurance sector and we expect this to lead to an increased number of captive formations in the years to come.
During 2007, the Isle of Man Captive Association and Isle of Man Finance commissioned an independent strategic review of the island’s captive insurance sector. What were the key findings of this and what has changed since?
The review was commissioned towards the end of 2007 and reported in 2008. A strategy was designed to implement the findings of this review and is currently being updated to take into account the positive outcomes of the various reviews of international financial and business centres. The island’s already excellent reputation as a pensions and life insurance centre is also leading to enquiries into the relatively new area of using captives for employee benefit provision.
In general terms, the Isle of Man has most of the ingredients in place for it to become a leading insurance jurisdiction across the board. Positives being promoted include the low cost of doing business on the Isle of Man, a corporate tax position that does not seek to add to the taxation of the parent company, a qualified and available workforce, high-quality IT infrastructure, excellent working relationship between industry and regulator, and the innovative nature of the industry on the island. This is in addition to the excellent regulatory structure and the benefit of the Isle of Man’s international reputation as a domicile of high integrity and compliance with international standards.
In addition, while the Isle of Man is known as a quality life insurance and captive insurance domicile, we are also in a very competitive position to attract reinsurance companies. At present, there are a small number of reinsurance companies on the island and this is expected to grow.
Areas for improvement suggested by the report were the introduction of ICC legislation (currently being implemented) and the need for improved awareness of the Isle of Man as an insurance domicile.
How big is the overall Isle of Man insurance market and what are the prospects looking forward?
The insurance sector encompasses captives, general, reinsurance and international life insurance and employs a total of just over 2,000 people. In 2009, it received over £7.4 billion in premiums and had assets under management of over £47 billion. Internationally, Isle of Man insurance companies have branches in the Middle East and Asia.
Moving forward, we are expecting growth in the next few years, with particular emphasis on the captive and reinsurance sector. This will be at the core of our strategy and will be pursued in conjunction with the trade body, the Isle of Man Captive Association. We are confident that the Isle of Man will ultimately be recognised as the domicile of choice for new captive formations and for the redomicile of existing captives.
John Batty is business development manager at Isle of Man Finance. He can be contacted at: email@example.com