LMG confident of UK captive consultation this year

The London Market Group (LMG) is confident that the UK will open its long-awaited consultation on an onshore captive regime before the end of this year, its CEO announced at Commercial Risk’s latest conference.

CEO Caroline Wagstaff believes the move is on the cards after positive discussions with the new labour government, which seems keen on plans that were interrupted by the recent UK general election.

“I am confident we will see something before the end of the year in terms of the consultation. I am hoping there is going to be an announcement,” Wagstaff told delegates at our Global Programmes Europe event in London.

The LMG proposed a domestic UK captive regime in 2022 as part of a five-point plan to bolster the London insurance market. Following a Treasury-hosted industry roundtable event in September last year, the then-conservative government agreed to launch a consultation on the design of a new regime this spring. Discussions were based around legislation for reinsurance and first-party direct captives.

But plans were delayed by the recent general election and then thrown into doubt as labour came into power. Industry players and UK risk management association Airmic remained hopeful about the prospects of new legislation, and the LMG is increasingly confident that labour will back the idea.

“We are in contact with the labour government and we had been talking to them beforehand when they were the shadow treasury team… I have had some good positive conversations with government. I don’t think we need to sell them on the idea. I think they believe this is a great opportunity. They believe it is something that businesses want,” Wagstaff said.

“We stress that if London is the centre of global risk transfer, we need all the tools in the toolkit for our clients,” she added.

Wagstaff reiterated the point that any new rules must be competitive with other jurisdiction or they simply won’t gain traction. “The point we keep making as we talk to the regulators is that if this has any chance of success, it has to be genuinely competitive. People have a choice about where they put capital and money,” she said.

Airmic backs the idea but has also stressed that a new regime isn’t worth pursuing unless it is really competitive.

“If the UK gets it right, it will be genuinely competitive but it has to get to right,” agreed fellow panellist Robert Geraghty, international sales leader at Marsh captive solution.

He noted that London has an excellent insurance and reinsurance ecosystem that provides a “brilliant starting point” to build something “fantastic” to potentially compete with the current offshore UK domiciles.

“I think it is a really exciting innovation with great potential. There is the potential to build a world class domicile in the UK… but it will only act as competition if it is competitive. It needs to be effective regulation and implemented effectively,” he added.

Wagstaff believes the crucial issue is getting the Prudential Regulatory Authority (PRA) to understand the need for proportionality in any captive regime.

“It needs to understand where risk really lies and what is the risk being posed to the system. The PRA’s primary objective is on safety and soundness, and that is where they tend to focus. We are trying to get them to understand that if these companies just kept risk on their own balance sheet, they would never cross their doorstep,” she said.

“We need to get the PRA to construct a system where they have staff who understand it, can respond in the right timeframe and understand what the real risks are. We need government support to get the PRA to move,” added Wagstaff.

“It is not about promoting a new captive domicile. It is about promoting the onshore model for captive domiciles. Risk managers are trying to ensure that companies understand captives as a strategic risk financing tool and not a technical entity based abroad,” explained Baron at the annual event.

“When I look at the possible regime in London, captives won’t be seen as a tax-saving tool or technique because they are being created at home. As a risk manager, my captive is onshore in Singapore and I can see the merit of having a tool that everybody can see and access every day.

The Global Programmes Europe event was partnered by Marsh, Zurich Insurance, AIG, Lloyd’s, QBE, Sompo, CNA, Crawford, DAC Beachcroft, Descartes, HDI, TMF Group, Wilson Elser, Swiss Re Corporate Solutions and WTW. It was held in association Airmic, the IRM and the LMG.