UK to chase Bermuda over captives
Bermuda may soon be challenged for its captive insurance primacy by Britain.
The Chancellor of the Exchequer has updated the British Parliament on a raft of measures — some already in place and others on the way — which he said were “difficult decisions to put our economy back on track”.
The speech for the HM Treasury Autumn Statement 2023 that was delivered by Jeremy Hunt quoted the Office for Budget Responsibility as saying “the combined impact of these measures will raise business investment, get more people into work, reduce inflation next year and increase GDP”.
Not included in the speech, but buried on page 99 of the document of policy changes laid before the legislature is a small note about a specific consultation: “The government will consult on the design of a new framework for encouraging the establishment and growth of captive insurance companies in the UK. The consultation will launch in spring 2024.”
The London Market Group has been exploring “the case for designing a competitive UK captive insurance regime”, as outlined in its September document: A Plan for the Future: The Successes Achieved and the Next Steps Forward.
LMG represents the insurance and reinsurance market in London, and is expected to be a significant party to the government consultation.
Together with captive owners and market experts, it has already met with the City Minister to discuss captive insurance and explore the case for designing a competitive British captive regime.
The report noted: “There are no captives based in the UK, as it is seen as an unattractive location. UK regulators treat them the same as an insurance company, although they pose a very low risk to the overall financial system and indeed can help companies manage their own risk profile more effectively.
“It is however a rapidly growing global market, with [approximately] 7,000 captives worldwide and captive premium at [approximately] $69 billion, which is estimated to reach $161 billion by 2030.
“In August 2022, Marsh, a leading captives adviser, estimated [approximately] 200 new captives had been created in 2020-21 by their business alone.”
The report delved deeply into Bermuda’s leading role as a captive domicile, noting that the island’s solvency regime operates in a proportionate way, reducing barriers for low risks entities such as international reinsurers.
The LMG report said: “This includes them having more stratified systems which recognise the differences between reinsurance, commercial insurance and retail insurance.
“For example, the Bermuda Monetary Authority has different classes of [insurer and reinsurers], together with authorisation criteria and [Key Performance Indicators] which match the level of risk that entity poses to the system.
“This allows them to undertake an authorisation on an international reinsurer, with clients that are solely other insurance companies, in less than a week, thereby freeing up resources to focus on entities which are serving individual retail consumers.”
The report advises more reliance on the wide range of globally trusted regulators such as the BMA in relation to the Prudential Regulation Authority’s supervision of British and even American branches, instead of adding a further layer of regulation of its own.
Some 85 per cent of London market income is earned by companies domiciled outside Britain and almost 70 per cent of the capital that comes to the UK’s commercial insurance market is foreign-owned.
The report argues that to keep this business, Britain needs to become like Bermuda, Singapore and Switzerland by promoting the market it regulates.
“The Bermuda Business Development Agency has been heavily promoting itself as becoming the global green finance centre of expertise.
“Its key selling propositions are the historical ability to look at hurricane and weather risk, the nimbleness of its regulatory regime, its responsiveness and its ability to pivot and meet new needs.”
Key points that the industry believes the Government can address include:
• A more proportionate approach to regulation
• British regulators adopting metrics reporting on efficiency towards ensuring the London Market remains the most attractive home for large risks
• Reforming the Solvency II regime to make London a natural home for foreign insurance and reinsurance
• Introducing a British captive regime and improving the authorisation process for the UK Insurance-Linked Securities regime
• Creating a “welcome mat” for overseas investors
The number of captive domiciles continues to grow and the London market’s interest in becoming the next top domicile is not surprising, considering its strength as an insurance and reinsurance marketplace.
More than 70 jurisdictions have some form of captive legislation, but Bermuda is the largest single jurisdiction based on the number of captive programmes — although that lead is increasingly under threat from Cayman Islands and Vermont, with both domiciles apparently set to overtake the island, according to media counting.
According to Statista, for example, growth is far more significant with onshore domiciles such as Vermont, Delaware, DC, South Carolina and Hawaii, although that may be partially related to the how different domiciles count captives. There is no standard paradigm.
The Bermuda Captive Network told The Royal Gazette last year: “Bermuda is the only jurisdiction that reports separately on limited-purpose insurance entities and commercial licensed insurers.”
The British Government has promised to back British business with 110 growth measures, including those to: remove planning red tape; speed up access to the national grid; support entrepreneurs raising capital; get behind the fastest-growing industries; unlock foreign direct investment; boost productivity; reform welfare; level up opportunity to every corner of the country; and cut business taxes.
The Office for Budget Responsibility says the combined impact of these measures will raise business investment, get more people into work, reduce inflation next year and increase GDP. A dynamic economy depends on the energy and enterprise of people more than any diktats or decisions by ministers.
He said the policies remove barriers to investment, and reward effort and work.
These are excerpts from the Chancellor’s remarks:
Inflation
When the Prime Minister and I took office, inflation was at 11.1 per cent. Last week, it fell to 4.6 per cent. We promised to halve inflation and we have halved it. Core inflation is now lower than in nearly half of the economies in the EU. And the OBR say headline inflation will fall to 2.8 per cent by the end of 2024, before falling to the 2 per cent target in 2025 …
Borrowing and debt
Next, I turn to my Right Honourable friend the Prime Minister’s pledge to reduce debt. Before I took difficult decisions at last year’s Autumn Statement, debt was predicted to rise to almost 100 per cent of GDP by the end of the forecast. Since then, the economy has outperformed expectations and I have taken difficult decisions to reduce borrowing. As a result, headline debt is now predicted to be 94 per cent of GDP by the end of the forecast. The OBR today forecast underlying debt will be 91.6 per cent of GDP next year, 92.7 per cent in 2024-25, 93.2 per cent in 2026-27, before declining in the final two years of the forecast to 92.8 per cent in 2028-29 …
...And we continue to have the second lowest government debt in the G7 – lower than the United States, Canada, France, Italy or Japan.
I turn to borrowing. According to the OBR, borrowing is lower this year and next, and on average across the forecast by £0.7 billion every year compared to the Spring Budget forecasts. It falls from 4.5 per cent of GDP in 2023-24, to 3.0 per cent, 2.7 per cent, 2.3 per cent, 1.6 per cent and 1.1 per cent in 2028-29. That means we also meet our second fiscal rule – that public-sector borrowing must be below 3 per cent of GDP. Not just by the final year, but in almost every year of the forecast …
Growth
....we have presided over faster growth than many of our major competitors including Spain, Italy, France, Germany or Japan. But all of us have faced a pandemic and energy shock. As a result, last autumn the OBR forecast a recession in which the economy was expected to shrink by 1.4 per cent in 2023. Instead, it grew; in fact it has grown faster than the euro area. Revised numbers from the ONS now say the economy is 1.8 per cent larger than pre-pandemic.
And looking ahead, the OBR expects the economy to grow by 0.6 per cent this year and 0.7 per cent next year. After that, growth rises to 1.4 per cent in 2025, then 1.9 per cent in 2026, 2 per cent in 2027 and 1.7 per cent in 2028 …
Infrastructure, housing and planning
Many businesses say they would be willing to pay more if they knew their application would be approved faster. So, from next year, working with the Communities Secretary, I will reform the system to allow local authorities to recover the full costs of major business planning applications in return for being required to meet guaranteed faster timelines. If they fail, fees will be refunded automatically with the application being processed free of charge …
Foreign direct investment
… we will put in place a concierge service for large international investors modelled on the best such services offered by our competitors and will increase funding for the Office for Investment to deliver it …
• To view the London Market Group’s report, A Plan for the Future: The Successes Achieved and the Next Steps Forward, see Related Media
• To read Jeremy Hunt’s Autumn Statement in full, see Related Media
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