Interview with Gaynor Brough, Business Development Director for AON Insurance Managers (Isle of Man) Limited
By: Liz Corlett
28 February 2009
When did captive insurance become a significant sector on the Island?
The first captives were established in 1982 following the passing of the Income Tax (Exempt Insurance Companies) Act 1981. However, it wasn’t until 1986 when the Island’s Insurance Act was passed that the captive insurance industry on the Isle of Man really took off. By the end of that year, 45 captives had been formed and by 1998, this figure had reached 180. In the early days, the majority of captives formed on the Isle of Man were owned by UK Companies but today the attractions of the Isle of Man appeal to a much larger global audience and only about 50% of the IOM domiciled captives are UK owned. The captive management industry on the Isle of Man is supported by the major broking/captive management houses e.g. Aon, Willis and Marsh and there are also a number of independent captive managers.
What makes the Isle of Man a competitive domicile for international captives?
The Isle of Man has been a leading captive domicile for many years. It has a sound and respected regulatory regime and offers a stable political environment. The Standard & Poors triple AAA sovereign rating is also an advantage.
Unlike some other jurisdictions, the Regulator and the Isle of Man Government are very receptive to new business and promote a ‘can do’ attitude. Incorporation and licensing are processed efficiently and within a short time frame. Capital and solvency requirements are competitive.
The Island’s law is based on UK law; it shares the same time zone and has easily accessible geographical proximity. We have a solid infrastructure with strong support services – such as a good choice of legal and accountancy firms (including the “big 4”) – and a pool of qualified talent.
With a landmass of 227 square miles, the Isle of Man is far larger that some of its offshore rivals and this capacity for growth mean that it does not have to contend with the physical constraints which challenge its peers.
Finally, the sensibly administered work permit application process and the lack of discrimination in the housing market means that the Isle of Man does not encounter the difficulties faced by other jurisdictions in attracting professional qualified individuals to its shores.
Does the Isle of Man market these strengths to a wider platform?
The Isle of Man Captive Review Group – which comprises of Members and Associates of MIMA (Manx Insurance Managers’ Association) and Isle of Man Finance – is responsible for raising the Isle of Man’s captive industry profile and promoting its capabilities. The Isle of Man has always stood shoulder-to-shoulder with other captive domiciles; however, its possible only failing has been to hide its light under a bushel. I’m pleased to say that this is changing and it is exciting to be part of the reform.
To this end, we held our first captive conference in Canary Wharf in October 2008 and it was a great success. We also hold an annual captive seminar in April, which is an educational piece and instrumental to the development of innovations which keep us ‘ahead of the curve’.
Looking forward, what are the challenges and prospects facing captive insurance?
The current economic climate will translate into a very interesting time: captive formations don’t fare so well in the soft market and there is a correlation between the number of captives formed and the positioning of the insurance market. After a number of years of soft market pricing, we’re heading into a hard market, which results from the contraction of underwriting capacity and increased premiums as demand exceeds supply – also, insurers are no longer able to underwrite for investment income and it is crucial that they get there front-end pricing correct.
Risk Managers will endeavor to keep down the cost of insurance, maintain the breadth of coverage and will look for other efficient mechanisms to finance risk. For this reason, I think we will see a renewed interest in captive formations and increased use of Protected Cell Companies. One of key benefits of a captive is they act as a ‘smoothing mechanism’ over the medium-term, giving stability of costs and coverage during volatile periods. From a captive owners perspective and protection of their balance sheet, we advocate the three ‘C’s i.e. prudent and utilisation of a captive brings i) continuity of coverage ii) capture of underwriting profits and iii) control of costs.
Clearly emerging economies such as India and China also represent possibilities and the Isle of Man are well-placed to take advantage of new opportunities that will undoubtedly arise.