Global Reinsurance: The Cayman Islands and Guernsey are both successful captive centres, despite their geographical distance. What key differences exist between the islands?

Global Reinsurance: The Cayman Islands and Guernsey are both successful captive centres, despite their geographical distance. What key differences exist between the islands?

Nick Leighton: Having worked as a captive manager in both locations, I have first-hand experience of the differences and they are many and quite surprising. I suppose one key difference is in the constitution of the client base. Guernsey captives are primarily UK-sponsored, typically banks, retailers, manufacturers etc. They are generally public companies and client introduction is through the brokerage network. Cayman captives, on the other hand, come from a much more diverse group of sponsors and introducers. Obviously there are medical malpractice captives, HMOs etc, but a number of captives are owned by private companies, association captives, agency captives and the like. As a result, the whole structure for reporting, budgeting, client meetings, policy renewals and all the other aspects of captive management are quite different.

Global Reinsurance: In what respect?

Nick Leighton: In Guernsey, for example, the insurance managers tend to run the board meetings. They prepare the board papers, act as Secretary and, in a number of cases, sit as directors. The insurance managers deal with the majority of issues in the meeting, under questions and guidance from the board, a number of whom will be non-executive directors.

In Cayman, the insurance managers take a less direct role, with the clients being far more involved in the running of the company, to the extent possible without falling foul of onshore tax requirements. Their organisations, such as Vermont Captive Insurance Association (VCIA) and Captive Insurance Companies Association (CICA), have a huge influence on the direction of the industry, whereas there is no direct comparison in the UK. The Guernsey managers are more hands-on. This seems to be borne out by the numbers working in the industry. I would estimate that Cayman has 170 people looking after 520 captives, whilst Guernsey has 200 people looking after 380 captives.

Tax is also a big differentiator. I know that it shouldn't be, but in practice no astute financial controller is going to ignore the tax consequences of forming a captive. The UK position is fairly straightforward: 90% of taxable profits are remitted back to the parent company 18 months after the financial year-end. The US position is far more complicated. You have to ensure that there is risk transfer and risk diversification under any contract, consider the ownership structure extremely carefully so as to ensure that brother/sister premiums are deductible and, for an association captive, that you do not fall foul of the related party income rules. Another interesting discrepancy is that cell captives do not work for UK companies from an accounting perspective, whereas for US companies they do not work from a tax perspective unless there is risk distribution within the cell.

Global Reinsurance: How do you see the growth potential for each domicile?

Nick Leighton: No matter how well both jurisdictions grow, we have to concede that Bermuda is the market leader and will remain in that position for a long time. Cayman needs to be more innovative and responsive in attracting new business, and from what I have seen that is starting to happen. The Segregated Portfolio companies (SPCs) are growing at an astounding rate, and from the half-year figures it looks as if 2001 could be a record year. There is, however, no room for complacency. I see Vermont as our key competition and if they continue to close the gap, we will have a credibility issue.

Cayman also needs to be more global in its marketing. For example, this year Caledonian has formed one captive for a Japanese corporation and is currently working on a mutual insurer for a group from South Africa. The US is obviously our biggest market, but in today's technological world it is important that we realise that global boundaries are no longer a hindrance to doing business.

I don't believe that Guernsey will continue to grow as quickly as Cayman. The UK market is almost at the saturation limit. We have seen this with the Isle of Man, which is slipping down the domicile chart. Guernsey must market itself more effectively in Europe, but with the OECD pressure, and competition from Malta and Gibraltar, this is going to be a difficult task.

Global Reinsurance: What about quality of life? Do you have a preference?

Nick Leighton: Obviously anyone working in the captive industry is incredibly fortunate, as it is a dynamic and interesting industry to be involved in. To work in any offshore location is even more rewarding, given the high standards of living, low unemployment and low crime rates in these areas. Guernsey is a great place to live, with excellent restaurants and bars, friendly people and an easy pace of life, but it does get a little claustrophobic. Cayman has superb beaches, scuba diving, and golf, plus all the advantages of Guernsey, and the weather is a lot better. When directors visit Guernsey for a meeting, they tend to stay for half a day. When they visit Cayman, they bring their family and stay for a week. I guess that answers your question.