Brexit will likely require insurance companies to relocate to ensure access to their preferred market, Ned Holmes explores Nigel Feetham’s post-Brexit solution for Gibraltar and UK insurers
Brexit will likely require insurance companies to relocate to ensure access to their preferred market, Ned Holmes explores Nigel Feetham’s post-Brexit solution for Gibraltar and UK insurers
It has been 23 months since Britain voted to leave the EU, and while it appears that the UK government is still struggling to formulate a unified plan for life after Brexit, the financial sector has been actively ensuring that it is ready for whatever Brexit brings.
Nigel Feetham, partner at Hassans International Law Firm, is one such zealous arbiter. Having worked with some of the biggest names in the financial market, the Gibraltar-based lawyer has a strong international client base and has been a driving force in the protected cell company sphere, both in Gibraltar and internationally. In March the UK government confirmed that Gibraltar-based financial services firms would be guaranteed access to the EU markets until 2020, regardless of the Brexit deal.
This announcement confirmed what Feetham had long predicted, that Brexit would not affect Gibraltar-based companies that only write UK business, which constitute the majority of companies licensed in the region, but would mean that companies looking to ensure post-Brexit access to the UK market would be forced to redomicile.
For the last 18 months, Feetham has been working on a Brexit contingency plan for these companies that write EU business and will need to relocate should the UK leave the single market.
He explains: “I’d been looking at EU solutions for Gibraltar insurance companies that would be affected by Brexit, in other words, a post-Brexit European solution.”
“There are a number of businesses in Gibraltar that either write EU business exclusively or a large part of their portfolio is EU business. These companies need an EU solution and I have spent a lot of my time over the last 18 months exploring options.”
The two-way strategy
Due to its similarities to Gibraltar, Malta emerged as an early option.
Feetham says: “I visited Malta on a number of occasions and I realised very quickly that it was a very similar jurisdiction to Gibraltar. The prudential regime is very similar, it’s has a benign tax environment, the application process is similar, and it has an approachable regulator.”
“It seemed clear that Malta was a viable solution for Gibraltar insurance companies that needed a European solution.”
Insurers domiciled in Malta can currently write insurance in Britain and Europe, however, in the event that Britain leaves the single market those operating from Malta, while having continued access to European markets, will no longer be able to sell insurance into Britain.
Consequently, Feetham developed a “two way Brexit strategy” in which Malta-based companies looking to continue to work in the UK market would move to Gibraltar and visa versa. This provided insurance companies based in both domiciles with a post-Brexit solution.
He expands: “I have been working on the basis that Gibraltar companies need an EU solution, therefore, Malta is a viable option for them, Maltese companies need a viable UK solution, Gibraltar is a viable option for them because Gibraltar companies will be able to continue trading in the UK post-Brexit.”
The redomiciliation of the UK-focused motor insurer St Julians Insurance Company in January was evidence of his strategy, and that there was likely to be traffic between the two domiciles as Brexit approached.
A eureka moment
In late 2017 Feetham had what he described as a “eureka moment”. Travel between Malta and Gibraltar, a journey he had made on multiple occasions while researching his strategy, was not easy.
Every time he made the journey it would be via the UK or another European destination and on occasion, it would be a whole day’s travel.
In addition to travel time was the issue of relocating a company with a large infrastructure. Originally, Feetham had considered an outsourcing arrangement, in which the company was redomiciled but the company services were outsourced back to Gibraltar.
However, a recent public document published by the European Insurance and Occupational Pensions Supervisors aimed at UK companies looking for Brexit solutions said that a company that relocates to the EU mainland would not be allowed to outsource everything back to the UK. Clearly, this creates a similar limitation for companies outsourcing from Malta to Gibraltar.
So, Feetham asked himself whether there is a closer place, which doesn’t require a high level of travel time, and is easier for companies with an existing infrastructure in Gibraltar.
The La Linea solution
The answer to that question was La Linea de la Concepción, a Spanish town just across the Gibraltar-Spain border.
Feetham explains: “In my eureka moment I asked the question: ‘can I not redomicile the Gibraltar insurance company 200 metres from where they currently located, across the border, move it physically and constitutionally into Spain, but keep the Gibraltar infrastructure?’”
“Employees can cross the border and you are not outsourcing anything. Geographically and physically we are talking about a 10-minute walk … you aren’t losing that professional infrastructure because you continue to tap into it.”
Rather than relocate to Malta, Feetham proposed a company with a large infrastructure in Gibraltar could move to La Linea, therefore keeping the infrastructure in the area as well as retaining employment, economic activity, and sharing the benefits of that activity with their neighbours in La Linea.
He says: “We are looking at the concept of a joint financial hub between Gibraltar and La Linea, based on collaboration and cooperation. Until now everybody is looking at jurisdictional competition, in a cannibalistic way that’s saying let’s take as much business away as we can.”
Feetham believes that the concept of a financial hub between Gibraltar and La Linea that takes advantage of what each other has to offer is not just limited to insurance but can be extended equally to other areas including financial services and gaming. It’s a point he has repeated previously.
Recently Spain has announced changes to the fiscal regime in its autonomous regions in Ceuta and Melilla to make these two Spanish enclaves attractive to gaming companies looking to compete with Malta for European business post-Brexit.
Malta v La Linea
Malta’s similarities to Gibraltar, its prudential regime, benign tax environment, the similar application process and approachable regulator, make it a more attractive option to many companies and will better serve their commercial objectives, but Feetham believes some clients will prefer the option of La Linea.
He says: “If a company has got an infrastructure in Gibraltar they can’t physically move that, you can’t physically move an office or take employees to Malta … so in that scenario La Linea becomes attractive.”
There is no tax motivation behind relocating to La Linea, and companies that make the move will have to pay the same level of tax as any other company in Spain. So, for many Gibraltar-based companies, it will be the choice between a more benign tax environment in Malta and retaining infrastructure in La Linea.
Additionally, Spain’s standing and level of influence within the EU may be a factor.
Feetham explains: “By choosing La Linea, they’re prioritising two things. Infrastructure and Spain’s standing in the EU. Spain is a large member of the EU, an influential member of the EU. With the UK exiting the EU, Spain’s status within the EU can only increase.”
“Therefore to the extent that you are located in Spain and regulated by the Spanish regulator, for some companies that may carry more kudos.”
Spanish regulators
Following two meetings to discuss prospective applications and the prospective interest on the Gibraltar market, the Spanish regulator has responded very positively to the La Linea/Gibraltar strategy and Feetham has been very impressed by their approachability.
“Those meetings have gone very well and been very constructive and I would expect at least one insurance application to be submitted over the next few months, which is a positive.”
According to Feetham, Spain answers the key question a company must ask themselves when choosing where to relocate to in Europe.
He expands: “Why choose one over another?”
“The answer in my book, is to ask are you sitting in front of an approachable regulator?”
“From the two meetings I have had, the answer is a big yes. The Spanish regulators have come across as being very approachable, so that is a major plus.”
On the clock
UK Prime Minister Theresa May triggered Article 50 on 29 March 2017, which according to The Lisbon Treaty gives the country two years to leave the EU.
As that March 2019 date approaches, alongside the end of the one year transitional period in March 2020, companies in the UK and Gibraltar will need to begin putting their post-Brexit strategy into place.
“Businesses that need a European solution have to make up their minds quickly over the next couple of months as to what that solution is,” says Feetham. “Malta or Spain or both, and then submit a licence application.”
London calling?
London or UK-based insurers that currently write EU business and will be looking to ensure continued access to the EU market following Brexit will have to make similar decisions to their Gibraltar counterparts, and Feetham feels the La Linea/Gibraltar option may appeal to them.
He says: “You can move the goalposts further. London has a problem, they need a solution. I can offer a solution that is Gibraltar and La Linea.”
The London insurance sector has traditionally been very close to Gibraltar, and Feetham suggests that it could continue to plug into the Gibraltar infrastructure as they have done in the past by using the La Linea option.
He concludes: “If you are dealing with UK brokers that are dealing through European distributors and brokers, being based in Spain and perhaps having an office in Madrid, even if your corporate office is in La Linea, could be commercially more attractive for the business than a location in Malta.”
“It is much easier to get to Madrid and the credibility of a larger country then comes into play.”
