Guernsey Captive Sector Healthy Despite Growing Competition

by Jason Gorringe, Tax-News.com, London

25 June 2003

Despite increasing competition from the likes of Vermont, the Cayman Islands, Bermuda and the British Virgin Islands, a recent report from insurance ratings agency AM Best appears to show that the Guernsey captive insurance market is as healthy as ever with much potential for further growth.

According to AM Best's figures, Guernsey has captured 10.6% of new captive business compared to a 9.7% share for the BVI, 15.2% for Vermont and 17.1% for Bermuda.

Captives have become an increasingly popular vehicle for many firms in the UK and the US, which have found themselves facing soaring insurance premiums in recent years. According to recent reports, businesses routinely have to accept excess levels of between £2 million and £3 million whilst facing a double whammy of premium levels, which in many cases have risen by up to 500%. To illustrate the sector's rapid growth, recent figures published in The Times show that $7 billion flowed into Vermont's captive market alone last year, up $2 billion on the previous year. In all, 462 captives were formed in 2002, continuing an upward trend which saw 316 new captives in 2001 and 245 in 2000.

However, as Paul Sykes, president of the Insurance Institute of Guernsey noted in a recent Guernsey Press and Star report, the expansion of the captive sector means that most UK firms suited to such arrangements now have them in place. Despite this, Guernsey retains much growth potential due to the island's development of protected-cell companies which offer mid-sized companies a low-cost alternative to captives, according to Sykes.

Testament to the growing popularity of PCCs is the Financial Services Commission's revelation that thirteen new insurance company licences were issued last year, whilst 38 new cells were formed.

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