Existing outside the EU, how will the Reinsurance Directive impact on the Isle of Man's captive market?
The Isle of Man has become a well-established operator within the international captive insurance company market. With some 130 captives currently active on the island, the jurisdiction compares well to its larger European captive domiciles, such as Dublin and Luxembourg. But how will the EU Reinsurance Directive impact this profitable sector?
Existing outside of the European Union, the Isle of Man is not beholden to the requirements of the Reinsurance Directive. “We are not bound to implement things which in some cases will not be relevant as far as our own market is concerned,” explains David Vick, chief executive of the Isle of Man Government's Insurance and Pensions Authority. “Therefore we don't automatically have to consider implementing certain aspects covered in the directive which are not necessarily relevant to our sector.”
However, he is adamant that a selective approach to the implementation of the directive should not be seen as a move to sidestep international standards in relation to best practice. “Implementing legislation developed for markets elsewhere, which may or may not be relevant, is rather different from having a fundamental commitment to applying standards as they develop which are appropriate for your market.”
In November 2003, the International Monetary Fund released the findings of a review into the regulatory and supervisory framework in the Isle of Man as part of its financial centre assessment programme. In its executive summary, the body concluded that, “The financial regulatory and supervisory system of the Isle of Man complies well with the assessed international standards.” The summary commended the authorities for the efforts taken to upgrade the financial regulatory and supervisory system to meet international supervisory and regulation standards in areas such as insurance and anti-money laundering.
For a jurisdiction such as the Isle of Man, one of its greatest assets is its reputation, particularly when dealing with an international clientele. “For small centres like ourselves [reputation] is what we have to trade on. Reputation means as much to us as it does to any other centre, perhaps more,” says Vick, adding that, “Many of the captives which we have on island are subsidiaries of major international organisations, which are themselves highly conscious of their own reputation.”
As Richard Drinkwater, joint managing director of Castletown Insurance Services, explains, the Isle of Man is also operating within a regulatory environment which has been solely geared towards the establishment and supervision of a captives market. “The Insurance Act 1986 was written specifically to deal with captives,” he says, “it wasn't designed for general insurance companies and then altered to include captives. In the UK, for example, a captive has to operate within the general insurance regulatory environment, which is not going to be necessarily appropriate for captives.”