Airmic urges government to create graded UK captive regulatory regime

Airmic has told a government consultation that it wants a class-based or graded regulatory regime for captives in the UK, similar to Bermuda or Singapore, that offers proportionate treatment depending on the level of risk. Its proposal includes the introduction of a reinsurance and insurance captive definition that would be deemed very low risk and therefore face minimal regulation. In response to HM Treasury’s consultation on captive insurance that closed on 7 February, the risk and insurance management association went on to argue that if a graded classification system for captives is adopted in the UK, additional categories, such as captives that write related third-party business, could be created that face different regulatory oversight. So a captive that writes third party risk would face more oversight than a captive simply writing its own risk, but neither would face the same regulation as a commercial insurer. Airmic CEO Julia Graham said that the UK must clearly define what would qualify as a captive (re)insurer and offer a “proportional, risk-based regulatory regime that facilitates a range of uses”. “After consultation with our members, we urge the government to design a regulatory regime that is fit for the growing ambition of captives.” said Airmic. “From the outset, there needs to be straightforward, responsive, fast and cost-effective regulation and servicing to reduce the barriers to entry. Airmic also offered to work with UK regulators to identify ‘best in class’ initial applications to ensure that the approval process for captives works effectively before any regime went live. The association believes that a UK captive option would further strengthen the hand of its members and offer them more choice as they implement increasingly sophisticated risk-financing strategies. UK Chancellor Rachel Reeves announced the long-awaited captive consultation at her first Mansion House address on 14 November. The move follows lobbying from various stakeholders, including the London Market Group (LMG), which represents London’s commercial insurers. The LMG and Airmic have been in discussions with the Treasury, as well as regulators the Prudential Regulation Authority and the Financial Conduct Authority, about what a regime might look like. The LMG also supports proportionate treatment for captives in the UK. The consultation said the final rules will be decided by regulators but set out approaches that could be considered, including differentiating between direct-writing captives and reinsurance captives. It also suggested excluding certain activities and types of firm, such as financial services, from setting up a captive and limiting lines of business, excluding life and compulsory line of cover. The moves in the UK follow the launch of a captive-friendly regime in France. Ferma told Commercial Risk last week that it believes the new French captive regime has “clear potential to be replicated in other countries and by other [European risk management] associations given its success”, and is working to share the experience of Amrae and spread expertise to help bring this to fruition. Richard Cutcher, captives ambassador for Airmic, said the global captive domicile landscape is an “increasingly competitive place as we enter a new phase of evolution, with large industrial nations, such as France, entering the fray”. “As captives continue to go mainstream, the UK is in a unique position to offer a fit-for-purpose regulatory regime alongside the world’s largest and most advanced commercial insurance market,” he said. Following the UK government’s captive consultation, Marsh McLennan’s UK CEO Chris Lay said any new framework must be built with “appropriate and proportionate regulation and capital requirements”. “If a new UK regime is to compete with other established domiciles, and new emerging locations, it needs to offer the flexibility, scope, and speed of licensing to provide an internationally competitive alternative for captive owners and prospective owners,” he said. In its submission to the consultation, Marsh McLennan said the UK captive framework should offer the following. A speedy and efficient application process. Capital and reporting requirements that are fair, proportionate and reflective of the low-risk nature of captives. Costs that are competitive but allow for sufficient resources to support effective regulation and oversight. Regulation that is scaled to ensure it is fit and proper for the captive market. Sufficient flexibility to allow the UK captive market to develop and expand.

Airmic urges government to create graded UK captive regulatory regime

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