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Merise Wheatley, chairman of the Guernsey Insurance Co. Management Association in 2006 and managing director of Heath Lambert Insurance Management (Guernsey) Ltd. explains why many captive insurers are heading to the largest of the Channel Islands.
Q: Who are your main competitors?
A: In terms of other captive domiciles, the Isle of Man is directly comparable in many aspects, such as regulatory approach, tax regime, being non-E.U. and its proximity to the United Kingdom. But it has not developed the same level of infrastructure as Guernsey. Guernsey is second to none in terms of the captive management expertise, and the experience that we have. In addition, there is the excellent banking, asset management, legal, accounting and actuarial services available, which have great depth and breadth of experience in captives. Bermuda was the traditional choice for U.K. insurers before Guernsey developed, but we have seen significant migration to Guernsey from Bermuda. Bermuda is shrinking as a captive domicile, and the emphasis there is now much more on catastrophe insurance and reinsurance capacity.
Q: How can Guernsey stay competitive?
A: By being aware of what the clients' key issues are on capital, taxation and regulation, and ensuring that we develop our offering, in line with worldwide standards, to remain the preferred choice of domicile. For example, we are moving to zero corporate tax next year and we ensure that the regulation is of a high standard, but exercised with a light touch. We need to be alert to the need for new legislation and to changes in existing laws, as we were last year with the new ICC [incorporated cell companies] legislation and changes to the PCC [protected cell companies] legislation.
Q: What impact do you think Solvency II will have on Guernsey?
A: We will have to see how it pans out in reality. We are ahead of the game in Guernsey with our risk-based approach, which already features a solvency capital requirement that has to be justified by the insurer, combined with a minimum capital requirement as a safety net. There are no plans to change the minimum solvency requirements or Guernsey's approach, although if there are issues relating to insurance and reinsurance that would have a further impact on our ability to operate within the European Union, we would need to reconsider.
Q: What are the main challenges for captives?
A: They need to ensure that they regularly review the strategic reasons for having a captive and monitor its performance to ensure that it is meeting its objectives. At each renewal they need to look at whether they are using their captive to best effect and for the benefit of their company's risk financing strategy. What works one year may not work so well the next, depending on market conditions. There are lots of opportunities for captives--for example, insuring increased self-insured retentions imposed by insurers on long-term liabilities, participating on a quota-share basis in the higher levels of property insurance in hardening markets, and PCC structures for trade associations.
Q: What did you make of the Marsh Inc. report "Fit for Purpose? Benchmarking the Continuing Contribution of Captives," which found a shift away from Bermuda in favor of Guernsey?
A: In relation to U.K.-owned captives, gone are the days when captive boards went to Bermuda for some sort of jolly. Onshore U.K. companies increasingly want their captives in the same time zone and they want easier access to it. Guernsey has become more attractive as it has grown. We have seen a number of situations, such as British Petroleum P.L.C., particularly through mergers and acquisitions, of companies with multiple captives migrating to Guernsey having evaluated the different domiciles.