A surge of inquiries is encouraging Gibraltar's captive managers

A surge of inquiries is encouraging Gibraltar's captive managers

It has been a while on the launching pad, but this year is showing clear signs that Gibraltar will take off as a captive domicile. Numbers are still comparatively modest, but inquiries are high, and Aon Corporation, which is one of the world's largest captive managers has set up an operation there.

Chris Johnson, manager, captive management division of Norwich Union (Gibraltar) Ltd says: "We have about 40 inquiries on the go at the moment where last year we had about four at the same time. Naturally, some are more definite than others, but I am very positive."

In geographical terms, much of the interest is coming from the United Kingdom, probably because of its long standing ties with Gibraltar, but Mr Johnson says there are inquiries from Germany, Italy and South Africa among others.

Another interesting development in Gibraltar is the cell captive organisation, Euroguard Insurance Company Ltd, owned by the Bermuda finite writer Richmond Insurance Company in which both AIG and Munich Re have shareholdings. Licensed less than two years ago, Euroguard has 12 cells and expects to write £40 million in premium income in 1998.

At present Gibraltar has 16 insurance companies of which eight or nine could be described as captives. Asked how many could be licensed by the end of this year, Mr Johnson says probably another five to 10, just because with Gibraltar being such a new domicile it will take potential sponsors a little time to think about it.

Gibraltar is a dependent territory of the United Kingdom and part of the European Union, which makes it along with Dublin, one of the only two captive centres that can offer owners the ability to write direct business throughout the EU from a single centre.

To make itself attractive as a captive domicile, Gibraltar first had to enact legislation to comply with the EU third life and non-life insurance directives which was not completed until February 1997. Gibraltar's supervisory regime for insurance had to be approved by Britain's Department of Trade & Industry (DTI). With that accomplished, Gibraltar fully meets the conditions necessary for domiciled insurers to operate in the UK and other member states on the basis of their Gibraltar licence.

Insurance regulation comes under the Gibraltar Financial Services Commission (FSC), a statutory body formed in 1989. It consists of seven members and a chief executive and a chairman, who is the financial services commissioner. The FSC applies UK regulatory standards, although it operates independently of the UK insurance regulator, now HM Treasury.

In addition to the single passport, Gibraltar sees as its main advantages a flexible tax regime and the absence of job quota requirements for insurance companies or managers. A variable tax rate of up to 35% means that captives which meet certain requirements can pay tax but at the minimum tax necessary to avoid the fiscal authorities in their parent company's country classifying it as being in a low tax jurisdiction.

Gibraltar is very liberal in terms of investments and movement of funds. Assets representing shareholders' funds must be maintained in the European Economic Area (EEA), but need not be held or managed in Gibraltar. There are no exchange control restrictions, and there is complete freedom to remit funds into or out of Gibraltar and to convert funds into other currencies.

At the same time, Gibraltar has put in place a comprehensive legal framework and rigorous regulatory system to prevent money-laundering. It has established the Gibraltar Financial Intelligence Unit (GFIU), a joint venture between the Royal Gibraltar Police and the Gibraltar Customs Service. The GFIU maintains a close working relationship with the FSC, which also ensures compliance with money-laundering legislation as part of its regulatory procedures.

A long established offshore financial centre, Gibraltar has about 30 international banks which provide onshore and offshore services. There are a number of legal firms on the Rock, including several with international connections, and four of the big six international accountancy firms are represented, plus a number of local firms to provide pure accounting or audit facilities.

Gibraltar's potential can be gauged by a comment from Willis Risk Solutions associate Tim Edwards, speaking at a seminar organised by the company this spring. "I believe," he said, "that if Gibraltar had been in its current form of operations 10 years ago, then perhaps one-third of the business now in the Isle of Man or Guernsey would not have gone there."

Perhaps with similar thoughts in mind, Gibraltar has also passed the Companies (Re-domiciliation) Regulations 1996 to facilitate captive insurers and other companies moving to Gibraltar from other jurisdictions. According to Chris Johnson, so far no insurance companies have redomiciled to Gibraltar, but more promising are mother-daughter captives. Where mature captives in other domiciles have built up strong reserves they can use some of those reserves to capitalise another or daughter captive in Gibraltar, particularly if the parent company wants to write European direct business.

Political stability is often cited as a factor in the choice of captive domicile. Britain has held Gibraltar since the Treaty of Utrecht in 1713. Spain continues to claim sovereignty over the Rock, but the British government has guaranteed that the Gibraltarian people will only become Spanish subjects if they democratically express their desire to do so. So far they have not.

Britain would clearly like to resolve the dispute which strains relations with Spain, and the British government has been holding annual discussions with Spain since 1984 on the territory's future. At the end of April for the first time, Madrid offered to talk directly to the elected administration of Gibraltar about the future of the territory. The Gibraltar government accepted the offer of talks but rejected outright a Madrid plan for sharing sovereignty under which the inhabitants of the Rock could retain British nationality, take Spanish nationality or have both.