With Brexit looming, contingency plans are being made within the captive insurance sector to minimise the damage. Nigel Feetham discusses options for Gibraltar and the UK as well as the La Linea initiative for a new captive domicile
Deal or no-deal?
Hard or soft?
Leave or remain?
Brexit and its uncertainty have been a topic on everyone’s minds since the UK-EU Referendum in June 2016, the insurance sector is no exception to this chaos.
As a consequence of the UK’s decision to leave the EU, a scenario which is yet to be confirmed but is likely, Gibraltar and UK insurance companies will lose their rights under EU law to continue to do insurance business across the European single market.
Nigel Feetham, Queen’s counsel, partner, Hassans International Law Firm, explains that there have been concerns that following a hard Brexit, UK and Gibraltar insurers will not be able to continue to service policyholders and claimants across Europe in line with applicable regulatory rules.
Feetham, who has been advising Gibraltarian insurance companies, including captives, on Brexit contingency plans, describes three Brexit-related options apart from a run-off.
These contingency options include a statutory portfolio transfer, novation and redomiciliation.
A new captive domicile
After a number of challenges presented by Brexit, Feetham explored the possibility of Gibraltar captives and insurers relocating to the neighbouring town across the border with Spain, La Línea de la Concepción (La Linea).
He describes this option as “potentially attractive” for Gibraltar companies with existing infrastructure, suggesting that it helped retain jobs and economic activity in Gibraltar, while also creating employment and generating tax revenues for La Linea as an alternative to relocating to Malta. Feetham visited Madrid on several occasions and met with the Spanish regulators. He also discussed this with the Mayor of La Linea, Juan Franco.
However, after discussing this idea with clients, Feetham explains: “For La Linea to be able to successfully compete with Malta as an EU captive domicile it was necessary for the territory to have a low/special tax regime.”
He adds: “This presented a considerable challenge as it required support from the Spanish National Government, the local Municipal Government and navigation through complex EU law issues.”
On 25 June, the PSOE-A, the Andalucian regional arm of the PSOE who are currently the political party in power at a national level in Spain, entered into an agreement with La Linea municipal authorities to “mediate, to obtain a special tax status for La Linea, to cover, amongst others, activities in the insurance, financial and online gaming sectors”.
At the time of the announcement, Feetham said: “We may be seeing a new captive domicile in the making.”
He added: “For that to happen, it was clear to me that La Linea needed to enjoy a special tax regime distinct from the rest of the Spanish mainland which has significantly higher corporate taxes than Malta.”
What started off as an idea, “has now started to gain some traction,’’ according to Feetham.
UK-Gibraltar relationship
The UK is the most important insurance/financial services market for Gibraltar, however, Gibraltar is equally important to the UK, Feetham notes, describing this as a “relationship of partners”.
Gibraltar insurers provide underwriting capacity to the UK that Feetham explains “might not otherwise be available, and fosters competition which also helps provide jobs for thousands of people in the UK”.
Brexit has made the Gibraltar partnership relationship “even more important” for both sides, taking advantage of what each other has to offer.
The recently announced single market with the UK is a continuation of the ‘Gibraltar Order’ negotiated by the government many years ago. The single market between the UK and Gibraltar will continue post-Brexit, Feetham explains.
He describes it as a “reconfirmation of the solid rock-like relationship between the UK and Gibraltar”.
The future
Although uncertainty around Brexit remains, Feetham believes the UK’s exit has changed the map of the Gibraltar insurance sector and will continue to do so over the coming years.
As a result of Brexit, Gibraltar companies will lose their EU passporting rights once the UK leaves the EU, meaning they will lose their ability to sell insurance products direct to EU consumers.
Feetham outlines those Gibraltar companies that have sold insurance exclusively or predominantly to EU (non-UK) residents have either had to consider the three contingency options previously mentioned.
Although Gibraltar is losing business to Brexit, it has also gained business and new opportunities.
Feetham explains Maltese companies that do business in the UK have redomiciled to Gibraltar.
As reported last month, Bray Insurance Company and Caversham Insurance Company have both redomiciled from Malta to Gibraltar.
He also suggests that there is a potential for consolidation in the Gibraltar market through potential mergers and acquisitions.
Finally, Feetham expects Gibraltar insurers to remain attractive to private equity investors. He says: “I see that continuing, if not accelerating, in the next few years.”
