Insurance Captives

As a part of Beale & Co’s Special Risks Week we are looking at Insurance Captives (a method of self-insurance where the policyholder owns the insurance entity).

This is a particularly apt topic as the UK has just closed its recent (re)insurance captives’ consultation. The consultation investigates whether, and how, the UK government should develop a regulatory framework to encourage a dedicated onshore captive regime in the UK.

The results of the publication are yet to be published but the strategic intent behind the consultation has been broadly welcomed by legal experts as the UK strives to enhance its competitiveness in the global captives’ market.

It also comes at an interesting time in the insurance life cycle. Insurers have grown much more selective about their exposure, leading to an increased reliance on overseas captives. Companies that have previously used captives only for more traditional risks (such as property damage and business interruption) are increasingly turning to captives for additional types of cover, like cyber. This creates a gap in the UK domestic market that might effectively be filled by the establishment of an attractive onshore captive regime.

There have been some queries about the specifics of any new regulation, and some big questions are still to be decided. It appears that there will likely be limits on what captives can write, with life insurance and compulsory lines probably excluded. It is also likely that regulated financial firms dealing with financial services and pensions (including insurers) will also be excluded from creating their own captives (to avoid ‘regulatory arbitrage’).

Article: Captives in the spotlight around the world – Insurance Day

In an article first published in Insurance Day, we, along with other members of the international insurance law firm network, Global Insurance Law Connect, take an in-depth look into captives in the UK, Ireland, USA, France, Germany and Luxembourg. It suggests that if insurance captives take off in the UK, there will be significant competition from parts of the EU, perhaps taking advantage of the recent ‘war against captives’ in the US.