Who's winning the captive race?

There has been quite a bit of speculation about which territories will be winners and losers in the offshore insurance markets in the future, particularly as the impact of the Islands’ differing responses to the Solvency II regulations are felt.  I thought it would be interesting therefore to see how the 3 key offshore insurance jurisdictions are faring.

Bermuda of course is the grand-daddy of them all.  Long established in the insurance market, it built an enviable position over the years to be the acknowledged leader, but recent years have seen the sector declining slightly.  In 2007 Bermuda had 1,481 insurance licences in issue, a figure which had declined to 1,230 by the end of 2011.  Although this is not an insignificant drop, Bermuda still remains by some margin the largest of the insurance jurisdictions and is still attracting some new business (with 23 new captives having been established in 2012, by the end of May).

Guernsey’s share of the market is smaller, but it appears to be growing significantly faster than that of Bermuda.  Figures from the Guernsey Financial Services Commission show that there were 739 international insurance entities licensed in the Island at the end of May 2012 compared to 687 at the end of December 2011. The number of international insurance entities licensed in Guernsey increased by 52 during the first five months of this year – more than double the growth seen by its larger rival. 

There is a crucial difference between Bermuda and Guernsey in that the former has announced its intention to achieve equivalency for Insolvency II purposes, whereas the latter has decided not to.  Whether or not the differing growth rates in 2012 between the jurisdictions reflect this difference of approach, or other factors, remain a matter of conjecture at this stage, but I would suggest that it is too early to attribute Guernsey’s success to its stance in relation to Solvency II, for two key reasons. 

Firstly, a significant proportion of the growth in Guernsey in the first 5 months of 2012 relates to new cell companies being formed in connection with the UK’s NewBuy scheme.  The NewBuy scheme was launched in March by the UK Government, in conjunction with the Home Builders Federation and the Council of Mortgage Lenders to offer prospective home owners new-build properties with 95% mortgages underwritten by house builders and the UK Government. The HBF PCC in Guernsey provides the insurance to the lenders under NewBuy as well as being the conduit for the guarantee from the UK Government.

The second indicator that Guernsey’s approach to Solvency II is not the cause for the rapid growth in 2012 lies in analysing the Cayman Islands, which has also chosen not to aim for equivalency – at least for the time being.  Cayman’s insurance industry is almost identical in size to that of Guernsey, but has been in a slight decline since 2009, when it had 790 registered entities on its books.  Although it is still registering new entities, those which are closing have outnumbered them in recent years, leading to a small net decline.

Cayman, like Bermuda, sources a great deal of its insurance business from the US, compared to Guernsey which sources the majority from the UK.  It would seem, therefore, that the most recent statistics from the three Islands reflect the levels of activity in the US and UK markets more closely than they reflect a response to Solvency II developments.  We will have to wait a bit longer to see who has backed the right horse in relation to the latter.