Fiona Le Poidevin, Chief Executive of Guernsey Finance, explores the reach of Guernsey's captive insurance expertise.
Technological advancement means that the world is feeling ever smaller and this provides the basis for business to be conducted on a truly global scale.
It is a trend which has been given a further boost by the fact that while the developed part of the globe has seen an economic downturn the 'emerging' markets have continued to be drivers of increased private and corporate wealth.
Financial services firms from the UK, US and Europe are now looking at how they can provide an offering which meets the needs of these clients.
Guernsey has a broad based financial services industry which has four key pillars: banking; wealth management; investment funds; and risk management. The Island provides a wide range of risk management services but it is particularly renowned for captive insurance.
Guernsey's first captive insurance company was established in 1922 and this heritage has helped the Island grow significant experience and expertise. Today, the Island is the largest captive insurance domicile in Europe and number four in the world.
Our client base includes some 40% of the FTSE 100 companies which have a captive. The UK is a major source of business although traditionally Guernsey has also attracted captives from parent companies based around Europe. However, international insurance business in Guernsey is increasingly coming from much further afield. Indeed, Guernsey already plays host to captives from parent firms based in the Middle East (e.g. Saudi Arabia), Africa (e.g. South Africa), Latin America (e.g. Colombia) and Asia (e.g. Singapore).
Yet, while some of the emerging economies are sufficiently sophisticated and open enough to allow risks to be written internationally, others represent more long-term opportunities. It is likely that significant work will need to be undertaken with businesses in those jurisdictions and their domestic authorities to unlock the potential of providing captive insurance services to those markets.
Guernsey is already busy in several of these centres, with China being just one example. We have spoken with the Chinese regulator about how we could help them develop specific domestic captive legislation. In doing so, theoretically we will be helping to create a barrier to entry for the traditional captive domiciles.
However, what we envisage is that Chinese firms will insure their local risks in a domestic captive but then once they have become more comfortable with the concept, as they expand internationally and as they understand the need to manage risk effectively, then it would make sense to establish a vehicle in Guernsey to cover their global risk base (ex-Asia).
This would be similar to the way large US multinationals often have a captive on that side of the Atlantic for their US risks and another in Europe for their rest-of-world risks.
The emerging markets represent significant potential to grow captive business but some are more short term while other are more long term opportunities. Guernsey is ensuring that it is well placed in these markets so that it can serve as a domicile for captives no matter whether the parents are based near or far.
An original version of this article was published by Business Reporter, August 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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