Gibraltar - which has been described as the new kid on the block in captive domicile terms - is making a determined effort to attract more support. Although last year's figures are at first sight disappointing - the number of captives licensed in Gibraltar fell from 10 at 31 December 1998 to eight at 31 December 1999 - closer study shows that, out of the 10 captives at the start of the period, one was a cell captive with 12 cells which, by the end of the year, had increased to 14.
The Financial Services Commission (FSC) says that sponsors originate from the Americas (3), Middle East (3), UK (1) and Europe (1). Most of the business written by Gibraltar's captives is property and warranty protection. At the time of writing, 1999 returns had not been submitted so up-to-date premium volume information is not available.
Chris Johnson, General Manager, European Insurance Management Services Ltd (EIMS), anticipates growing interest in Gibraltar as a captive domicile in the wake of the recent government announcement that Gibraltar can now take advantage of the single European passport for insurance. “We have always had the right to passport from Gibraltar into Europe. Now, it is rubber-stamped and on the table. Any question marks on the mechanics have disappeared.”
Gibraltar's recent completion of its complex legislative and administrative programme not only puts it on an equal footing with other European captive and cross-border insurance jurisdictions but may also give it some distinct advantages. The key element is the entitlement of Gibraltar domiciled insurers, whether captives or third party insurers, to insure directly risks in European Union (EU) states, on a services or branch basis - in other words “passporting”.
It has now been officially recognised that Gibraltar's supervisory regime for insurance matches standards of supervision in the UK, allowing Gibraltar insurers to operate in both the UK and other member states on the basis of their Gibraltar licence. Under the new competent authority agreement, when insurance companies licensed in Gibraltar request notification to be made by the FSC to its equivalent body in the host European state, this notification can be channelled via the UK, allaying any doubts Spain and other member states have expressed, without compromising the FSC's position as a competent body.
Gibraltar believes that its legal and fiscal features relating to insurance result in a combination which should not only attract many new captives and other types of offshore insurers, but also lead existing companies to consider re-domiciliation Gibraltar effected its Companies (Re-domiciliation) Regulations in March 1996. A captive (or, come to that, a direct insurer) set up in Gibraltar may apply for tax exempt status paying an annual exempt tax of £225 and no more. Alternatively, it can apply for qualifying status which means it will be assessed and pay tax at a rate of between 2% and 35% on profits per annum.
The costs of incorporating an insurance company depends on the authorised capital of the company. On incorporation, the company pays duty of 0.5% of the authorised capital. Obtaining a licence from the FSC costs an initial fee of £500, with a subsequent annual fee of £2,000.
Among other benefits that the island offers are:
Mr Johnson stresses, “We can offer all of the three key benefits that people look for in a captive domicile - favourable tax rules, a low level of costs and the ability to insure directly into the EU.” Gibraltar's attractions may be further enhanced in the future as the FSC says that it is currently considering introducing protective cell legislation.
Gibraltar has been trying to establish itself as a captive domicile since 1997, when it achieved the status of having a regulatory body recognised as a competent authority within Europe. According to Mr Johnson, there have been a number of enquiries of different kinds, including pure captives (direct and reinsurance), customer insurers, taking advantage of large client banks to generate additional income, and other types of special vehicles such as portfolio run-offs, assistance insurers and so on. In common with other domiciles, conversion of these enquiries is slow.
“Commentators in Gibraltar point to the soft market and considerable merger and acquisition activity in the UK business slowing companies down from taking final decisions on captives and special purpose insurers. One very successful element in Gibraltar has been the Euroguard cell captive owned ultimately by AIG and Munich Re, who has filled a number of cells since its inception, mainly from South African contacts, but also from the UK market.”