Guernsey: Captive Insurance – Taking The Plunge

Last Updated: 10 July 2014
Article by Fiona Le Poidevin

Most Read Contributor in Guernsey, November 2017

Domiciles and captive managers are wise to explore the business potential emerging from frontier markets such as Asia and Latin America, says Guernsey Finance's Fiona Le Poidevin.

This year's Marsh captive benchmarking report highlighted that the most common form of new formations in the US are from midsize companies establishing small captives writing $1.2bn in premium or less.

Indeed, in recent issues of Captive Review there has been an increased focus on 'micro-captives' and in particular, Ross Elliot, captive director at the Utah Insurance Department (UID), was quoted as saying that around 85% of its licensed entities are micro-captives. These examples highlight the maturity of the captive insurance market in the US and it is a similar picture on the other side of the Atlantic in Europe.

With many of the larger organisations already having captives (or deciding that one does not form part of their risk management strategy), captive managers are seeking out new business from small and medium sized enterprises.

Of course, this in itself has been made more viable by the innovation of the cell company concept, which was pioneered in Guernsey in 1997.

Marsh's report also highlighted that captives are increasingly writing a wider range of risks. However, while diversification in terms of types of companies and types of risks might provide some short term business opportunities, if the captive industry really wants to grow over the long term then it needs to look beyond the traditional geographic markets of the US and Europe and more towards the emerging markets which are becoming increasingly aware of the captive concept.

Economic development

This is something which we are already embracing in Guernsey to ensure that our business base is truly diversified on a global basis. Yet, I will not pretend that it is always going to be a 'quick win' and in fact, our experience is that the ease with which it will be possible to attract captive insurance business from an emerging market will be largely dictated by the stage of its economic maturity.

We have been researching a number of different jurisdictions to assess where there is a potential demand for services from Guernsey's finance industry, which is broadly based on the four key pillars of banking, wealth management, investment funds and insurance. What we have found is that emerging economies tend to go through stages of development which are related to a demand for particular services. For example, an initial surge in wealth creation brings with it a need for asset protection and management and therefore, as well as traditional banking services, there is increased demand for more sophisticated tools such as trusts and foundations.

As a country becomes wealthier and more mature so there is increased realisation of the importance of planning for the future, especially saving and this drives forward the development of domestic pensions and insurance industries which, in turn, help grow an investment sector.

This is looking for ways to deploy capital which will produce a return and a major opportunity is to invest in domestic businesses and make them more efficient, which is in effect the private equity model.

So we can see how economies develop in stages and, depending on the level of maturity, then there will be a range of services which Guernsey as an international finance centre can offer either individuals or organisations from those countries. In a sense, captive insurance is like the icing on the cake because it requires the economy to be at a reasonably well-developed level of maturity and sophistication for the concept to be viable.

Challenges and opportunities

This is not just due to the need for key decision makers within businesses to have sufficient levels of knowledge and understanding about the concept but also government and regulatory officials who set policy. For example, insurance legislation is some emerging markets, such as Brazil, is still very domestically focused such that it is not possible to insure risks within the country from an international insurance company.

In other countries, such as China, the insurance law doesn't differentiate between types of insurers and therefore the capital requirements are particularly onerous for even domestic captives. That is the major reason why it was only at the end of last year that the first Chinese onshore captive was formed (following one being established in Hong Kong in 2000 and where another was licensed last year).

In addition, it is also necessary to consider any other barriers to entry, for example black lists, and what might need to be done to overcome them, whether that is simply building better relationships between governments, regulators and tax authorities or entering into formal agreements such as a Memorandum of Understanding or a Tax Information Exchange Agreement.

It might also be considered whether a Double Taxation Agreement will help facilitate business between two jurisdictions. The point is that there are emerging market jurisdictions which are more sophisticated and more open in allowing risks to be written internationally and clearly these present the most obvious opportunities in the short term. For example, 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).

However, there are also those opportunities which are less immediate and will require a longer term commitment, especially in terms of education. Indeed, it is likely that captive managers seeking business from these markets may need to work closely with their home government, regulatory, tax and industry officials as a way to educate not just businesses within emerging economies but also their equivalent domestic authorities.

Long term game

It is critically important to research the different markets so that at least an educated decision can be made about the challenges that need to be overcome and the opportunities that exist within each emerging economy and as such, which offer the best prospects.

These should then be explored in a targeted manner to ensure that the best opportunities are prioritised and maximised rather than spreading efforts too thinly and not achieving results. There may be a long road ahead in some instances, but we are already seeing that Bermuda has specifically targeted Latin America, with some success and another Bermudian captive has recently been established to insure catastrophe risk in Africa.

Guernsey has also been active within emerging markets and we believe that the outlook is positive because our educational work is generating increased interest in the captive concept. For example, as part of the pilot Shanghai free trade zone, the China Insurance Regulatory Commission is now considering introducing more flexible regulation, including potentially lower capital requirements for companies in the zone.

If this is able to be applied to captives then it may be that in the future we will be able to work with the Chinese authorities to help them establish a sustainable regulatory regime.

On the one hand this would be a positive development in that it would signal a growing understanding of the captive concept in China, but having specific domestic captive legislation would theoretically provide 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 in a similar vein 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 point is that internationally expanding firms from emerging markets globally cannot just rely on a domestic captive regime (if it exists) to cover their global risks because there will simply not be the experience and expertise that is on offer from a jurisdiction such as Guernsey where the first captive was established in 1922.


As this year's Marsh captive benchmarking report also highlighted, captives are not established for tax reasons but because they form part of an effective risk management programme.

If firms from the emerging markets are to manage their global risks effectively then they need to ensure that they establish a captive which has sufficient substance to perform its true role and these vehicles are only going to be available from more established domiciles.

It is therefore down to captive managers to research and seek out business from these emerging markets, educating businesses from those regions as to the reasons to form a captive and it may also require local government involvement if reciprocal agreements would benefit such business flows.

Whilst some markets will take longer than others to convert, the ultimate benefits should more than justify the initial investment.

An original version of this article appeared in Captive Review, June 2014.

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