London looking for a captive audience in 2022

Caroline Wagstaff, CEO, London Market Group, reveals the opportunities presented by captives in the year ahead is one London is keen to seize.

According to a recent report published by Aon, captive insurance growth is occurring at a level not seen in two decades. Increasing prices in primary insurance markets over the last several years have led captive insurance company owners to retain more risk as they look to maintain appropriate levels of coverage while controlling costs. This is a huge industry, dominated by offshore domiciles. One large broker alone estimates that offshore domiciles currently account for 41% of its captive business, which in 2018 held total assets of more than US$374 billion.

The London insurance market believes that there is a tremendous opportunity to drive growth by developing and promoting a captives’ market in the UK. Currently there are no captives based in the UK as the regulatory system has not made it a viable location. Despite being a major global hub for financial services and insurance, UK companies and public sector bodies choose to locate their captives – and the relevant capital – in overseas jurisdictions.  This is going to be a key area of focus for the London Market Group in 2022.

So, why now? In a post Brexit world, the government is looking at all the legislation that was brought onshore from the EU and is undertaking a review of Solvency II. We believe that this activity offers the UK an opportunity to develop an attractive regime for captives.

As part of our research the LMG has spoken to captive insurers and their corporate parents about  what drives their location decision-making and they have four key asks:

  • A proportionate, risk-based solvency regime that takes into account the lower-risk nature of insurance business they are undertaking;
  • A stable and committed regulatory environment that understands and is responsive to captive insurance enquiries;
  • Access to a competitive range of professional services such as captive management, accountancy, legal, actuarial, tax, banking and asset management;
  • Substantial insurance infrastructure and expertise with economic substance.

If we can work with the government and the PRA to create a regulatory model for captives that combined a proportionate risk-based solvency regime with London’s global reinsurance market, we think that this would make the UK a unique and attractive location for captives. A UK captive domicile would offer an extensive financial services ecosystem; London-based global brokers with extensive captive consulting experience, an unrivalled range of local banking and asset management options and the world’s largest and most sophisticated reinsurance market.

It is a tremendous opportunity to grow the reach of the UK’s insurance offering, one which should provide new business and new jobs in captive management. Look out for more on this in the first half of 2022.

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