Colleen McHugh, who recently joined Barclays in Guernsey, talks about what her team can do for captives in Europe.
What is your background?
I have 13 years' investment industry and financial services experience. Nine years of this was spent working in Bermuda as an investment specialist within the asset management and private bank area. I've worked closely with high-net worth individuals, trusts and international business corporations. My final years in Bermuda saw me working for HSBC Asset Management. In this role, I worked closely with the captive, insurance and re-insurance sector in Bermuda. I am a qualified financial advisor registered with the Chartered Insurance Institute, and an experienced securities trader with NASD Series 7 and UK Registered Representative qualifications. I also hold an MBA from the University of London.
What will you bring from your previous roles to Barclays?
I have comprehensive experience across different sectors and environments with particular experience in international financial centres. As a result, I am familiar with the challenges faced by clients and I am able to quickly provide the solutions they need. Over the years I have learned that listening to my clients and truly understanding their business is crucial. My experience and knowledge gained from working with Bermuda captives will solidify the existing expertise of the Barclays captive team and allow us to deliver key solutions to the market.
What are captives in Guernsey investing in and why?
Being new to the island, this is something I am getting up to speed with very quickly. The first and primary purpose of a captive is to act as an insurance vehicle to meet its claims responsibilities. Traditionally in Guernsey, like many captive jurisdictions, cash has been king. However, as low interest rates prevail, bank deposit rates are constantly falling. In the past, the yield on cash deposits alone was often sufficient to cover the operating costs of a captive, and therefore they were self-funding. The interest rate environment is very different today. Consequently captives are actively searching for yield while trying to minimise risk. They are beginning to embrace the need to segment their cash reserves into the different classifications of operating, core and strategic.
Operating and core cash needs to be liquid, whereas strategic cash can be used to invest in longer-dated securities to maximise yield pickup while minimising volatility. Therefore, short term fixed income investments should always be part of a core investment strategy within the captive world, given the strong need to protect and preserve capital.
The current mantra continues to be 'return of capital' as opposed to 'return on capital'. Few investments fit this category better than a diversified portfolio of short-dated bonds. This short duration fixed income strategy has proved very successful for captives in other jurisdictions, and I can see it being replicated here as long as interest rates remain depressed.
How important is an investment management programme to captives – is it a luxury or something more?
In life, for many, when everything is going our way we become more confident in our own abilities and don't feel the need to engage professionals. Investment management is no different. Prior to 2008, captives could achieve 5 percent plus on 12-month fixed deposits, so there wasn't a great need to look at alternatives to cash. This is no longer the case and a quality conservative investment management programme is a necessity for captives. The prevailing low interest rate environment has encouraged captives to become much more engaged with their investment advisors as together they seek the best solutions from a risk and return basis. Captives should use these relationships that they have developed with their trusted investment advisors to help them navigate the challenging waters. A partnership approach will allow captives to become better informed of their investment options, to understand where risks are heightened, and discover how asset allocation and diversification can add to investment returns while minimising volatility.
How do the needs of Bermuda captives differ to Guernsey ones?
No matter where a captive is domiciled, they essentially have the same function, ie, to act as an insurance vehicle to meet their claims responsibilities. Consequently, many of their primary needs, such as banking requirements, credit and investment services, are the same if they are domiciled in any jurisdiction. One difference between captives in Bermuda and Guernsey is that most Bermuda-domiciled captives have US parents, whereas Guernsey captives have UK and European parents. This alone creates a difference in certain preferences. Trusts (REG 114) for instance are a much more utilised vehicle in Bermuda. In contrast, Guernsey is only now warming to the trust structure as recently launched by the Barclays captive team in 2012.
In addition, you could argue that the psychological makeup of US-owned captives are different to their European counterparts in that historically they are more inclined towards the idea of investing their surplus assets in something other than cash.
What will you and your colleagues in the Guernsey office be doing for captives in Europe?
Barclays recognises Guernsey's significance within the global captive industry. With this recognition, Barclays is committed to offering a full and complete European solution hosted and led from the Guernsey office. Recognition of certain cross-border considerations will have some limitations on this but the offering from Guernsey has been significantly bolstered over the past few years. Within the office in Guernsey, we have a head of captives business, a relationship team and dedicated support and credit writing capability. This, when twinned with local Barclays trustee and wealth advisory businesses, means that from start to finish we can field enquiries arriving from local and overseas territories and puts us in a prime position to support the wider Barclays effort in Europe. There has been considerable up-skilling of support functions taking place locally to develop a detailed and comprehensive appreciation for the intricacies of the demands of the sector.
We have resident risk, account opening and payment support teams who all have working knowledge of the sector and European territories operating in the captive industry. Training is a growing demand with the introduction of new sector concerns including Solvency II, but with a rolling, detailed, training plan in place we are well placed to accommodate these. From the Guernsey office, we can offer the full breadth of Barclays products, including banking services, letters of credit, liabilities solutions and security trust agreements.
More recently, we have started to look at specific and tailored enquiries for risk purpose trusts and commodities hedging for captives, all hosted out of Guernsey and it is our team's expertise that has enabled us to respond rapidly to new enquiries.
Barclays recently hired Simon Phillips as head of captive insurance, based in Jersey. Is Barclays planning any more expansions in the captive industry?
We are keen to ensure that we continue to provide a high level of service to our existing clients as well as expanding our client base to include new captives. We have recruited, and will continue to recruit, a team of industry experts who have real insight and experience of the captive sector, in addition to their knowledge on banking, trust and investments. It is not enough to have experts in one jurisdiction – Barclays offers a wealth of expertise in a number of key jurisdictions including Guernsey, the Isle of Man, Gibraltar, Malta, Bermuda, the Caribbean and onshore US, which are all key areas for captive work. We are expanding the team – in terms of both number and geography – to cement our position as a world-leading partner that offers services to captives and provides a level of understanding that means we can act as a consultative partner as well as a provider of the core services that captives need. Our ambition is to be seen as the go-to bank in the captive sector.
Originally published by Captive Insurance Times, March 2013
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
