Guernsey: Interesting Times Ahead For The Captive Industry

Last Updated: 11 March 2013
Most Read Contributor in Guernsey, November 2017

With a plethora of legal and regulatory changes on the horizon, Ian Morris of BWCI Group takes a look ahead to what 2013 holds for the captive industry.

Famously there is a curse, often attributed to the Chinese, which says "may you live in interesting times".

Anyone involved in finance or the economy over recent years will recognise that times have been not only interesting but very challenging as well. In this article I look at why 2013 will remain interesting for the insurance sector.

Incidentally, the 'curse' relating to interesting times was thought to be the first of three. The second was "may you come to the attention of those in authority". There are a number of senior finance staff in recent years (albeit perhaps more in banking than insurance) who might wish that they had avoided the 'curse' of attention from those in authority. I will return to the third 'curse' at the end of this article.

UK legal changes

Several UK legal changes are likely to have an impact in 2013 and beyond. The Legal Aid, Sentencing and Punishment of Offenders (Laspo) Act 2012 will introduce key reforms including the abolition of referral fees and limits on fees. These changes could have a major impact on future claims costs, but it remains to be seen how the legal profession will evolve around the changes. The Ministry of Justice (or Jackson) reforms to the claims process for small claims continues and its scope may be increased. There is some limited evidence that the process has reduced the level of damages, costs and delays. However, to date the impact looks modest.

Other potential legal changes may arise from a review of whiplash claims and a review of the Ogden discount rate.

In assessing premiums and reserves it remains challenging to assess the potential impact of legal changes. While the aim of these changes is to limit claims costs, their effectiveness is as yet largely untested.

UK CFC changes

The UK has introduced a new regime for controlled foreign companies (CFCs) with effect from 1 January 2013. This will alter how UK parents of captive insurance companies will be taxed. As often with tax changes, the new CFC rules restrict certain aspects while introducing new issues and possible opportunities. Cells of protected cell companies (PCCs) will now be treated as companies for tax purposes, even if the parent does not fully control the core entity. There is also a potential tax charge on the UK parent if the captive is deemed to have excess capital.

The basis for this assessment is under review. It is anticipated that the changes will largely be beneficial for captive insurance companies controlled by a UK company. Nevertheless, the detailed tax rules are complex and assistance may be needed with certain areas (such as demonstrating that the capital held is not more that an independent company might hold).

Gender neutrality

Since 21 December 2012, rating premiums by gender has been outlawed within the EU. In 2013 it is likely that companies will be reassessing their regulatory position, to see how their gender neutral rates compare to the market. I expect most companies to keep rates under review on a regular basis as they develop an understanding of the approaches adopted by their competitors.

Solvency II

Progress with Solvency II has been a focus for the European industry for several years and was originally intended to be adopted from November 2012. However, there have been a number of delays! On 19 December 2012, the European Insurance and Occupational Pensions Authority (Eiopa) announced a long-term guarantees assessment (LTGA) to be launched on 28 January 2013. The purpose of the LTGA is to test several approaches to long-term guarantee measures. Participants in the LTGA are to report by the end of March and Eiopa is to publish a report in June 2013 for the benefit of the trilogue parties (the European Commission, the European Parliament and the Council of the EU).

The current schedule is for the trilogue parties to vote on the Omnibus II Directive on 10 June 2013. However, I expect this to be delayed until September 2013, to enable sufficient time for review of the LTGA report. It has been suggested that Solvency II will go live from perhaps 1 January 2014 or 2015 but 1 January 2016 seems more likely. Whatever the final effective date, much of the detail of the new regime has yet to be finalised.

Insurers will need to remain alert to manage the impact of the new details when established. Furthermore, there will be a lengthy period prior to the full adoption of the new regime. Each EU country will have to decide how to monitor solvency pending the full adoption of Solvency II and insurers will have to adapt accordingly.

Outside Solvency II

The developments in Solvency II do not have a direct impact on jurisdictions such as Guernsey and the Isle of Man. Nevertheless, I anticipate that regulatory authorities in both of these jurisdictions will continue to review their approaches relative to the International Association of Insurance Supervisors (IAIS) core principles and may evolve their approaches to supervision. In particular, both may consider to what extent their current arrangements for looking at solvency can be made more risk based. However, both are likely to seek a practical approach that should be manageable for the captives based in those regimes.

IFRS Phase 4

Revised accounting standards for insurance have been under review for many years. As with Solvency II, the need to seek international agreement in a technically challenging area has proved difficult. The International Accounting Standards Board (IASB) expects to publish a revised exposure draft (ED) on insurance contracts in the first half of 2013. The ED will contain a restricted set of questions focusing on the presentation proposals, measurement proposals and the approach to transition. Issues that have been already deliberated and decided since the first ED in 2010 will not be re-exposed.

The IASB expects to publish the final IFRS 4 in the second half of 2014 and the proposed effective date is 1 January 2018. Early adoption will be permitted. There may not be a final conclusion to this work in 2013. However, insurers would be advised to monitor the requirements, as much work on systems and accounting reporting may be needed to give effect to the new regime.

Low interest rates

While there may be a few green shoots of recovery, most Western economies look sluggish, struggling with high levels of debt, banks with capital challenges, significant problems in the eurozone and the fiscal cliff in the US. In these circumstances investment earnings are likely to remain low and insurers will have to rely on good quality underwriting to remain profitable, rather than relying on investment income on assets to offset any underwriting losses.

May your wishes be granted

The third curse attributed to the Chinese says "may your wishes be granted". This might seem a relatively innocuous goodwill statement rather than a 'curse' but perhaps relates to the saying "be careful what you wish for". In any event, I wish you all the best for 2013 and hope that life remains interesting but perhaps not too interesting or attracting undue attention from the regulatory authorities!

Originally published by Captive Review, February 2013

For more information about Guernsey's finance industry please visit

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions