Guernsey is expecting to see an increase in new formations after significant interest late in 2020, which Mark Rogers, client services director at Artex Risk Solutions (Guernsey) says will be driven by the hard market.
The Guernsey Financial Services Commission licensed three new captives and four new cell companies last year.
Speaking on We Are Guernsey’s Captive Briefing Webinar, Rogers notes that people have found that the capacity within the market has caused issues with them placing their insurance.
Rogers states: “A lot of financial lines seem to and the carriers seem to have gone down there which is the increase in insurance costs. And so what we're seeing now is we're seeing a lot of firms that you haven't kind of captured are now coming forward.”
“A lot of firms have got a very good loss ratio, and why spend all that premium in the market when you can actually put it into your captive vehicle to retain some of those profits which, in years to come, as you'll see through a captive, is that you can retain your retention levels, and actually move that forward.”
Drivers for formations
The UK is still the main major driver of captive vehicles in Guernsey and that trend continues, according to Christina Bell, executive director, head of underwriting at Aon.
Last year, a lot of buyers in the UK experienced difficulties with their programmes and really the hard market firsthand, because of this, Bells says there has been a massive increase in feasibility studies and those are now being translated into new formations.
The drivers of captives are also expanding. Bell explains: “Multinational organisations are reevaluating their whole risk strategies, they're looking at their own top 10 business risks and are evaluating those.”
“I think that this is also driving the differing rationale for setting up a captive then we've seen before. So I think the aspects of why set up a captive is very much broadening,” She adds.
Reinsurance market
While the industry has experienced a hardening insurance market in primary layers, there has also been a hardening in reinsurance.
Tom Richardson, group insurance director at Associated British Foods, believes the reinsurance market is something the market should keep a really close eye on.
The reinsurance market is a source of capital for captives, and it's one that the reinsurance market seeks to directly access, but Richardson explains that it's also important to understand what's going on within the reinsurance market to understand how that is going to drive the underwriting decisions are the primary carriers that are involved in our programme as well.
He notes: “Some of the restrictions and terms and conditions that we've seen over the last 12 months have been absolutely driven by what the retail insurers have had imposed on them by their reinsurance. One of the interesting things that we found is that there is quite a lot of noise out there in terms of what reinsurers are actually doing.”
“There have been a couple of scenarios where insurers have told us they can't do something because of their lack of support from reinsurance, but“we have been able to go back and challenge that because we found out through discussions with our brokers that they actually don't have the restrictions that they've told us they've had,” Richardson adds.
There is a real lack of willingness by underwriters to stick their heads over the parapet and write something they are not comfortable with, according to Richardson, who suggests “in many cases, we've seen them blame the reinsurers for their own underwriting lack of appetite”.
“I think it's really important for buyers to be aware of the nuances of what the reinsurers are doing and how that is likely to affect the behaviour of the carriers on their programmes,” he notes.
Brexit
Discussing the direct or indirect impacts of the UK’s exit from the European Union on Guernsey, Rogers reveals there hasn’t been much change.
He explains: “I think the fact that Brexit has gone on for such a long time before they've actually got the agreements through, that a lot of firms have actually already had things in place ready for things to happen.”
“We certainly haven't seen any increases in insurance premiums as a result of Brexit,” Rogers notes.
He adds: “Whether that will happen as things progress over the next year, possibly, but certainly not at this stage.”
