Captive Review Isle of Man Report 2012

Featuring

Aon / Barclays Wealth / Deloitte LLP / Insurance and

Pensions Authority / Isle of Man Captive Association

/ Isle of Man Government / KPMG / LCL Services /

Lloyds TSB / Marsh / Thomas Miller / Tower Insurance

i s l e o f m a n r e p o rt 2012

rePutatiOnHow the Isle of Man has

developed and maintained

its premier status

regulatiOnIntel l igent and active

governance ensures a well-

managed insurance sector

VarietYAn abundance of captive

insurance options satisf ies

today’s f lexible market

R E V I E W

Empower Results

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Aon has unmatched expertise and knowledge in risk and captive management, reinsurance and human resources.

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ISLE OF MANREPORT 2012

3

A rich tapestry

A world class domicile

Freedom to fl ourish

Decisions, decisions, decisions

Sneak preview

Captive accounting update – IFRS Phase II

4

CAPTIVE REVIEW EDITOR

Matthew Broomfield

Tel: +44 (0)20 7029 4095

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REPORT EDITOR

Jon Yarker

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PRODUCTION EDITOR

Claudia Honerjager

SUB-EDITORS

Rachel Kurzfield, Eleanor Stanley

CHIEF EXECUTIVE Charlie Kerr

EDITORIAL DIRECTOR Gwyn Roberts

PUBLISHING DIRECTOR

Nick Morgan

Tel: +44 (0)20 7029 4091

[email protected]

PUBLISHING EXECUTIVE

Jo Cole

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SUBSCRIPTIONS

Ryan Nash

Tel: +44 (0)20 7029 4065

[email protected]

CIRCULATION MANAGER

Fay Muddle

Tel: +44 (0)20 7029 4084

[email protected]

Captive Review is published monthly by

Pageant Media, 1 East Poultry Avenue,

London, EC1A 9PT

For subscription information:

Tel: +44 (0)20 7029 4094

ISSN 1757-1251

Printed by The Manson Group

© 2012 All rights reserved.

No part of this publication may be

reproduced or used without prior

permission from the publisher.

As a former Treasury and Economic Development Minister I am well aware of the value of the cap-

tive insurance sector as an established component of the Isle of Man’s fi nancial services industry.

Now that I have the honour to serve as the island’s Chief Minister I remain personally committed to supporting the sector and to building on its considerable success so far.

The Isle of Man provides a secure an-chorage for captive insurance in a number of ways. Our constitutional position, as a self-governing territory attached to the British Crown but outside the United Kingdom and the European Union, provides us with the fl exibility to offer tai-lored solutions to global businesses. The island has a separate, dedicated regulator for insurance and pensions activity.

At the same time the Isle of Man has a solid reputation as a responsible juris-diction which adheres to international standards in the fi elds of regulation and taxation. Our growing network of tax co-operation agreements around the world, including double taxation treaties, has been recognised by the OECD amongst others.

But the real secret of the island’s suc-cess is our responsive, business-friendly approach – summed up in our national ethos of “freedom to fl ourish” – and our

specialist expertise in delivering quality serv-ice to international cli-ents. This has given us a diverse and dynamic economy which has continued to produce real growth in the dif-fi cult global climate of recent years.

Our policy of remaining economically attractive and internationally responsi-ble includes the retention of a competi-tive taxation regime and is refl ected in the creation of a new Department of Economic Development, of which I was the fi rst Minister when it was established in 2010. As Chief Minister, I have made the protection and promotion of the economy the number one priority for the Isle of Man Government.

In these constantly challenging and changing times, corporate organisations are looking for a stable operating environ-ment which understands what they need to survive and prosper. The Isle of Man has achieved remarkable success by pro-viding such a platform for international business, and it will continue to do so.

Hon Allan Bell, member of the House of

Keys (MHK) was elected Chief Minister

by Tynwald on 11 October 2011. Prior

to this, he was Minister for Economic

Development, one of the newly created

Departments of Isle of Man Government.

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isle of manreport 2012

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a rich tapestry

T he Isle of Man’s insurance and pen-sions sectors have fared well against a background of ongoing uncertainty in international financial markets. They

are important contributors to the island’s broader financial services sector and their diversity is a particular strength.

Captive insurance business is a long-standing and integral part of that diverse insurance indus-try, which also includes thriving life assurance and international pensions sectors. The island has some 225 licensed entities, including insurers, insurance management companies and insurance intermediaries and over 1,400 authorised pension schemes. The business has a total annual premium income of £10bn, with over £56bn in total assets under management.

The Insurance and Pensions Authority (IPA), as the regulator of these sectors, recognises the diver-sity of the market and the different risk profiles of our insurers and pension providers and adminis-trators. We understand that captive and other spe-cial purpose insurance business has a long history of innovation and that it is therefore important for the regulator to be accessible and ready to discuss those new ideas at an early stage.

In addition, the IPA adopts a sectorial approach

David Vick, of the Insurance and Pensions Authority, discusses how intelligent governance and an active regulatory presence ensures the diverse insurance community of the Isle of Man is effectively managed

david vick

This iniTiaTive for growTh is Taking place aT a Time of considerable change in inTernaTional sTandards for The regulaTion of insurance”

DAVID VIck is chief executive of the Insurance and Pensions Authority (IPA). An associate of the Chartered Insurance Institute (ACII), David is a chartered insurance practitioner and is a past president of the Insurance Institute of the Isle of Man.

in the regulation and supervision of businesses here and regulated entities deal with individuals with specialist knowledge of their industry in all aspects of the supervisory process. This approach allows the IPA to maintain a close understanding of the sector as a whole, including the ability to focus on issues in each area as they emerge.

The recent introduction of the Incorporated Cell Companies Act 2010, which provides for the forma-tion and operation of incorporated cell companies (ICCs) on the island, ensures that our framework for captive insurance business remains up-to-date and forward-looking. We will continue to work with the industry and the island’s Department of Economic Development to identify and implement further measures to enhance the island’s position as a leading centre for captive business.

This initiative for growth is taking place at a time of considerable change in international standards for the regulation of insurance business and these changes will, of course, have an impact on our regu-latory framework.

As an example of this, the International Associa-tion of Insurance Supervisors (IAIS) has recently updated its Insurance Core Principles (ICPs). The updated ICPs are directly relevant to the IPA and the Isle of Man because they are the standards by which the International Monetary Fund (IMF) assesses the island’s regulatory framework for in-surance business; it is important therefore that the island continues to be able to demonstrate a high degree of compliance with the ICPs.

The most recent IMF assessment, published in September 2009, commented that: “The IPA is commended for its proactive stance in establish-ing and enforcing high standards for supervision, which have contributed to the maintenance of the Isle of Man’s good reputation as an international financial centre.”

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captivereview.com

Solvency II impactAnother development in international regulatory standards that is likely to have an impact on the Isle of Man is the implementation by the European Union of its Solvency II framework for insurers, with its concept of ‘equivalence’ for third coun-tries’ regulatory regimes.

Implementation of the directive will require a considerable enhancement in the regulatory framework of most European insurance regulators, and attaining an equivalent position for the island would also entail significant initial and ongoing investment in resources, both for the IPA and for the island’s insurance market. Furthermore, there remains considerable concern within the captive industry internationally that the framework does not yet provide a proportionate regulatory model for such business.

The IPA therefore continues to monitor the development of Solvency II and its implications for the island in conjunction with the Isle of Man government and the insurance market. Our view remains that it would be premature for the island to commit to seeking ‘equivalence’ under the direc-tive at this stage.

However, we will continue to ensure that our framework develops in a way that will enable us to maintain our current high level of compliance with international standards, as assessed by the IMF. In doing this we will take account of the diversity of the business here, including the particular needs of captive insurers, and I believe that this busi-ness is well-placed to meet developing regulatory standards and continue to make a major contribu-tion to the island’s economy, as it has done for so many years.

An example of our ongoing commitment to this strategy was the introduction with effect from 1st October 2010 of the Corporate Governance Code of

The IPA wIll be Able To Assess comPlIAnce wITh The cGc on An onGoInG bAsIs ThrouGh our sTAndArd suPervIsory frAmework”

Practice for Regulated Insurance Entities (CGC). The CGC formalises corporate governance require-ments that were in many cases already accepted practice for insurers on the island.

The CGC is principles-based, requiring the adop-tion of a risk-sensitive approach rather than com-pliance with detailed prescriptive requirements. It thus allows directors and managers of individual businesses to maintain a governance framework which is appropriate to the nature, scale and complexity of their particular circumstances and exposures.

The IPA will be able to assess compliance with the CGC on an ongoing basis through our standard supervisory framework, which combines desk-based analysis and on-site inspection visits.

In the case of on-site visits, each one is under-taken by the supervisory team with responsibil-ity for the day-to-day supervision of the entity concerned, thereby ensuring continuity and consistency of approach in assessing the indi-vidual business, the corporate and management structure, and the activities and the risks to which the company is exposed.

The CGC is a very significant development in the Isle of Man’s regulatory framework for insurance businesses and will play an important part in our ability to continue to demonstrate compliance with international standards.

The positive way in which all sections of our insurance industry have addressed the introduc-tion of the CGC demonstrates again the maturity and expertise of the industry. These qualities will stand it in good stead as we continue to enhance our framework.

In conclusion, there will be a number of chal-lenges to be addressed by industry and regulators over the coming months and years and the Isle of Man will not be alone in this. Nevertheless, I believe that the IPA and the businesses it regu-lates will be able to meet those challenges, thereby ensuring that the important contribution that the island’s insurance and pensions sectors make to its economy will continue and, indeed, develop further and maintain the island’s reputation as a modern, innovative and responsible international centre for insurance business.

david vick

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HOW MCDONALD S USES CAPTIVES TO PROTECT ITS NAME

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7

a world-class domicile

T he Isle of Man is a self-governing dependent territory of the British Crown (a ‘Crown Dependency’) but it is not and never has been part of the

UK, nor is it a member of the EU. The Isle of Man enjoys a high degree of political stability and its parliament, Tynwald, is the world’s oldest legisla-ture in continuous existence.

The Isle of Man Captive Association (Iomca) is an organisation representing the interests of the captive sector in the Isle of Man. Iomca has 40 members, including major captive managers on the island, banks, accountancy practices and legal firms. Iomca works in partnership with the Island’s Supervisor and government to ensure it remains at the forefront of captive innovation. In addition to developing the captive strategy for the island, Iomca also provides quarterly educational seminars for its members to ensure that all of the industry’s stakeholders are current in terms of changes within the industry.

The world’s leading captive managers, Aon, Marsh and Willis have a presence on the island. In addition to the big three, the island hosts a number of independent captive managers such as (Castle-town Insurance Services, Isle of Man Assurance and Thomas Miller). All captive managers are long established in the Isle of Man and provide captive

owners with an exceptionally strong and credible choice of manager.

The Isle of Man is a renowned international insurance centre. In addition to its captive insur-ance sector, it is a major hub for life companies. The insurance sector is well-established, having been in existence for over 30 years, and has built up an envi-able track record in terms of the quality of clients which it has attracted. Assets under management for the insurance sector are in excess of £50bn and annual gross written premiums are approximately £10bn. The insurance industry is a major employer within the island’s finance sector and there are in excess of 2000 people employed; with a significant number in the sector being professionally qualified. Although some captive domiciles find it a challenge to attract and retain talent, the Isle of Man has no such issues as there is a pragmatic work permit process in operation and it does not operate a split housing market, which can prove to be a challenge elsewhere. The presence of an experienced work force combined with the low-cost base of running a business on the island has attracted many major global insurance organisations to the Isle of Man.

Rules of attractionThe Isle of Man is very proud of the blue chip cap-tive and insurance clients which it has attracted to its shores. Its success in attracting a high calibre client-base sector selects is based, inter alia, on:

• Proportional capital regime, tailored to cap-tives and the risks which they present

• Internationally responsible country, which is borne out by 30 Tax Information Exchange Agreements which it has signed to-date

• OECD ‘white’ listing (it went straight on the white list rather than have its starting point as ‘black’ or ‘grey’ as was the position of some of its competitors).

• AA+ sovereign rating• Zero corporate tax rate• PCC/ICC structures• Loans back to parents are acceptable subject to

approval by regulator• Redomiciliation legislation• Ease and speed of incorporation and exit• Plentiful and reliable air links to leading UK

airports Despite the soft insurance market and the

economic downturn, the Isle of Man captive sec-

Gaynor Brough, chairman of the Isle of Man Captive Association (Iomca) explains just what it is that allows the island to stand out from the competition

GAynor BrouGh is chairman of the Isle of Man Captive Association (Iomca) and managing director of Aon Insurance Managers (Isle of Man) Limited.

all capTive managers are long esTablished in The isle of man and provide capTive owners wiTh an excepTionally sTrong and credible choice of manager”Gaynor BrouGh


8

iomCa will be exhibiting in 2012 at Captive live, biba and aiRmiC.

Gaynor BrouGh

Captive owneRs take a gReat deal of ComfoRt in the stability pRovided by the isle of man”

tor reported a 4% growth in terms of new captive formations in the last 18 months. In 2010 Iomca formed a sub-committee to formulate and drive the growth of the captive sector. Already this in-vestment is reaping its due rewards and there was unprecedented interest in the Isle of Man captive sector at the recent Ferma conference.

The advent of Solvency II, a proposed EU regulatory framework for both insurance and reinsurance business, continues to dominate the insurance headlines but this will not have a major affect on the Isle of Man or its client base. Solvency II has primarily been designed to address the risks inherent in the commercial insurance and reinsurance sector and these risks are not relevant to the majority of Isle of Man-domiciled captive

insurance companies. The Isle of Man is not an EU member state and as such is not required to meet the requirements of Solvency II. After much consideration by the ‘island’, the Isle of Man has confirmed that it is not planning to seek equiva-lence at the current time. Given the profile of the Isle of Man’s captive sector, it is believed that the adoption of the requirements of Solvency II will not provide any advantage to the island’s existing client-base and may restrict the island’s ability to attractive new business. As a leading international insurance centre, the island is committed to main-taining a regulatory framework that is consistent with international standards and in a manner that is appropriate for the businesses located here. The main focus for the Isle of Man continues to be the core principles of the IAIS and it is these that principally inform the evolution of the islands regulatory framework for its captive industry.

A versatile environmentThe Isle of Man legislation continues to offer captive owners a wide range of captive structures, including single parent captives, group captives, association captives, rent-a-captives, protected cell company (PCC) captives, limited liability part-nership captives, and captives writing controlled third-party business. The Isle of Man recently introduced incorporated cell company legislation to further add to its versatility.

The Supervisor has the ability to allow 100% of a loan to be treated as an admissible asset when calculating the captive’s minimum solvency re-quirements. This change has already had a positive

impact. In addition, the IPA further amended the solvency regulations such as that certain financial liabilities of an insurer, such as subordinated debt, may, with the written approval of the insurance regulator, be added back to shareholders funds for the purposes of calculating the insurer’s margin of solvency. A further advantage offered by the Isle of Man is the relatively straightforward incorpora-tion and licensing process and the accessibility and responsiveness of the Supervisor.

As the Isle of Man is outside of the EU, captive insurance companies based in the island cannot currently write business directly in to the EU (there are some exceptions, for example non-UK statutory risks) and this situation will remain unchanged. However, an Isle of Man captive is able to write EU risks on a reinsurance basis. For a significant number of captive owners, the benefits of the Isle of Man’s competitive capital solvency requirements and more flexible regulatory envi-ronment in the Isle of Man outweigh fronting costs and the corresponding collateral requirements, resulting in a more efficient solution than domicil-ing a direct-writing captive in the EU.

Offering stability In an environment which has experienced over 25 consecutive years of economy growth, captive own-ers take a great deal of comfort in the stability pro-vided by the Isle of Man. The island has a sovereign rating of AA+. Global captive managers have strong presences on the island, as do independent manag-ers. In addition, the Isle of Man has a number of self-managed captives. The captive sector is also well supported by a variety of experienced and knowl-edgeable service providers, including international banks and financial institutions, major accountancy practices firms and leading legal firms.

The Isle of Man is situated at the heart of the British Isles and has extensive air links making it a surprisingly easy place to get to. There are eight daily flights to and from both Gatwick and London City, as well as daily flights to 14 other regional airports in the UK and Ireland.

The Isle of Man’s financial sector is primarily based in the island’s capital, Douglas, which is a mere 15-minute drive from Ronaldsway Airport. Most of the captive managers and service provid-ers are conveniently located in a central financial district, ensuring that it is easy for captive owners to meet their captive managers, the IPA, their bankers, their auditors, their lawyers, their non-executive directors and others in a single trip.

Iomca is confident about the future of the Isle of Man captive sector and firmly believe that it is well-positioned to take advantage of new captive forma-tions and any redomiciliations. The Isle of Man has already received many new enquiries from compa-nies that have captives currently based in Bermuda or the EU and a number of these organisations have formed ‘lifeboat’ companies on the island.

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10

freedom to flourish

i t hasn’t been many years since the Isle of Man launched its ‘Freedom to flourish’ campaign in an effort to attract entrepre-neurs and investment to the island. With

increasing pressure on taxation globally, including in the UK, as governments work to fill fiscal defi-cits, public interest in locations such as the Isle of Man with zero corporate tax and low personal tax rates naturally increases.

Much of the interest in the Isle of Man emanates from the UK for reasons of proximity; however, investment from further afield is also evident and has been becoming more varied in recent years.

But why the Isle of Man? The Isle of Man is truly differentiated by its proactive and economically competitive policies, its flexible yet internation-ally responsible approach to doing business and by nurturing close working relationships between the government, regulators and business own-ers. This mix of attributes creates an openness towards more innovative business structures such as captive insurance companies and, particularly, protected and incorporated cell companies.

Cells and their advantagesCell captives were an evolution from the older rent-a-captive concept and have developed signifi-cantly since the introduction of specific protected cell company (PCC) legislation in Guernsey in 1997. Today there are a number of jurisdictions

offering cell company legislation, including most major captive domiciles with several hundred indi-vidual insurance cells in existence. The Isle of Man introduced PCC legislation under the Protected Cell Companies Act (2004). There are currently in the region of 70 live PCC vehicles (including non-insurance and insurance PCCs) registered on the island.

A protected cell company provides a facility in which organisations not necessarily related to the PCC owner can establish a segregated under-writing account, or ‘cell’ which has access to the pre-existing infrastructure of the PCC. A PCC, therefore, effectively operates in two parts – the core and its cells. The PCC, including its cells is, however, one legal entity and cells are not legal entities in their own right, although each cell’s assets and liabilities are segregated from those of the other cells and the core. PCC cells, particularly within sponsored PCCs, are often used by small- to medium-sized companies wishing to have access to a direct-writing or reinsurance captive facility without the need to establish a separate insurance company or, alternatively, large parent companies that may wish to segregate portfolios for a specific risk financing need.

An Incorporated Cell Company (ICC) is a devel-opment of the PCC concept which was introduced in 2006. Aon became the first company to form an insurance ICC in September 2006 in Guernsey. The Isle of Man introduced ICC legislation this year and is one of the few domiciles currently of-fering both PCC and ICC legislation.

An ICC differs from a PCC in that it has a core entity in relation to which cells can be incorpo-rated as subsidiaries. This means that ICC cells are categorised as legal entities in their own right and can therefore contract with other ICC cells. This legal segregation not only provides a stronger de-gree of certainty and protection on the segregation of cellular assets and liabilities, but also creates greater flexibility in cell uses.

ICC cells can contract with one another; this leads to much wider scope in structuring innova-tive insurance programmes, including the potential ability to place reinsurance contracts across or between cells or, in certain cases where appropri-ate, between cells and the core. ICC cells can also act as an entry point for parent companies wishing to enter the captive market without the same level

Gaynor Brough, of Aon, delivers a perspective on the impact of cell company legislation on the risk and insurance market in the Isle of Man

gaynor brough

The isle of man is Truly differenTiaTed by nurTuring close working relaTionships beTween The governmenT, regulaTors and business owners”

GAynor BrouGh is managing director of Aon Insurance Managers (Isle of Man) Limited and chairman of the Isle of Man Captive Association (Iomca)

11

captivereview.com

of commitment for a standalone captive, taking advantage of the pre-existing infrastructure of a sponsored ICC.

This flexibility extends also to the vehicle structure as, if required, an individual ICC cell can be converted into a standalone captive insurance company if the parent’s risk finance require-ment changes over time. Similarly, at the end of a captive’s life cycle, a wholly owned captive can be converted to an ICC cell, which might be attractive to parents with captives in run-off, due to the lower cost of management. Finally, it is worth noting that an ICC cell offers greater accounting certainty for UK parent compa-nies and can be a normal subsidi-ary of the parent as it is possible for the equity of a cell to be owned by the cell parent, not the ICC core. It is clear therefore that such structures can have many adapta-tions. We expect to see significant growth in this area in the future as companies seek more flexible and economical options in structur-ing their risk management and financing programmes.

The unique advantages of ICCs also stretch beyond the insur-ance industry and can apply to more banking-focused activities such as securitisation, due to its stronger protection of the cell’s integrity and separation of funds. For example, separate investment funds could opt to become an ICC, sharing central resources such as

accounting. This is enhanced by the fact that the assets of the individual cells should be less prone to contamination as the cells are separate legal entities, which offers greater certainty over a PCC arrangement.

Aon is delighted to now be in a position to offer its White Rock cell facilities in the Isle of Man and will seek to work with our existing and prospective

clients to determine if a cell struc-ture could offer additional benefit to their businesses in the future. Aon also expects that this facility will continue to attract a more varied mix of investors to the island, both in the insurance sector and wider economic investment, which will build aware-ness of what the Isle of Man has to of-fer and assist the firm in building and maintaining its position as a leading captive market. This, coupled with the Isle of Man’s proactive regulatory approach and lower minimum capital requirements when compared to its EU counterparts, also places the island in a strong position to offer a value added service to clients’ tradi-tional standalone captives and other alternative risk financing structures.

At Aon Captive and Insurance Management (Isle of Man) we have seen cell captive enquiries from the UK, Asia, and the Middle East in the past year alone as companies seek out new and innovative approaches in managing their risk portfolios. We expect that this is a trend that will continue.

White Rock is a unique group of insurance and reinsurance vehicles with operations in a number of key domiciles including Bermuda, Gibraltar, Guernsey, Isle of Man and Malta.

Owned by Aon, the White Rock companies offer Aon’s clients a diverse suite of insurance solutions through utilisation of protected cell, incorporated cell, segregated account and rent-a-captive facilities. Aon’s leadership in this field is demonstrated by our innovative approach to these structures, being

• first to establish a PCC • first to establish an insurance ICC and • first PCC to provide a cell to act as

a special purpose vehicle in a life securitisation

and our tight control framework which ensures that our clients’ assets are well protected.

The WhiTe Rock AppRoAch

13

Decisions, decisions, decisions

Bespoke is the new mass market, and the cost in real terms of being your own designer for cars, computers and clothes, has probably never been lower.

A little bit of this, a little bit of thatAnother big shift in markets of late is the rapid development of niches, hybrids and crossover products. Again the motor industry is a high profile leader in this. For five years now, I’ve been driving a hybrid with well-proven petrol-electric engine technology, but now you can choose a pure electric vehicle with an electric plug or a diesel-electric variant. You can also have those diesel or electric bits in a vehicle that seems not to be sure whether it’s an off-roader or a people carrier or a luxury coupe. The taste of some of these may be question-able but the BMW X6 is a surprisingly big seller and Mercedes are about to do their version. Unheard-of niches are springing up, and will scratch the itch for some, though certainly not all – which is fine if it’s your individuality you want to express.

Manufacturing technology in many industries now allows components to be assembled in count-less combinations to do specific tasks, limited only

Jeffrey More, of LCL Services (part of Charles Taylor Consulting), discusses the great range and variety of choices the captive industry now is able to offer clients

Jeffrey More

Bespoke is the new mass market, anD the cost in real terms of Being your own Designer for cars, computers anD clothes, has proBaBly never Been lower”

Jeffrey More is CEO of LCL Services (IOM), part of Charles Taylor Consulting plc. He is a life actuary who has worked for Scottish Provident and Aberdeen Asset Management. He has been with LCL since 2005 and specialises in acquiring and consolidating international life insurers


i n the 21st century, the choice once reserved for the super-wealthy has now arrived, if not on a high street nearby, then certainly on the PC or Mac in front of you.

The mega-trend we are talking about here is mass-customisation, bespoke for pretty much everyone.

Take motoring, 1930s style. Even in the depths of that depression, the super-rich could express their art nouveau flair out on a quiet, open A-road with a custom body style and bespoke fixtures and fittings by Mulliner or Park Ward on the latest Rolls Royce chassis.

That degree of choice has returned in recent years – if you were very quick, you could have gone to Aston Martin for your very own One-77, the ‘One’ perhaps standing for totally specified by you, or the fact that prices are reputed to start above £1m, and the 77 meaning that if you were 78th in that exclusive queue, apparently you just weren’t quick enough.

Still, if you have a seven-digit sum burning a hole in your pocket, that same one and a bit million sterling could buy a Fiat 500 for each of 100 lucky friends. Such is the range of colour, options and ac-cessories, every one of those could be different, yet still leave enough choices for every human being on this crowded planet to have their own, finger-print-unique retro-hatch/fashion accessory.

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by the human imagination. For service industries based more on intellectual property and insurance contracts than on aluminium, silicon and lithium, the same is true.

A captive crossoverIn a previous Captive Review Isle of Man report, we told the story of how one unusual captive came into being. Themes there included truly bespoke solutions to meet client needs, and an eclectic approach to using structures and capabilities from across the traditional divide between captive insurance and the life industry.

The result was a true crossover – a life rein-surer that provides complex risk solutions to the issues of life for its parent on a captive basis. It brought together a client-focused approach from the regulator, leading edge financial maths from the actuaries and tailored administration services from the manager.

What next?So what might the next hybrid emerging from the captive management/life assurance crossover look like? Our themes of highly bespoke, niche and best-of-both-worlds are likely to apply.

Components could include:• Rent-a-captive ethosCaptive managers have a well-deserved reputa-

tion for being good at supplying complete solutions – a captive with all the necessary support services, ready to go.

Life groups have been reluctant to host life and investment offerings from other financial groups or distributors, other than a few broker-managed funds. That is understandable with traditional structures where the shareholder of the life company bears the risk. Total outsourcing of the administration of a life business is now possible where the owners do not want those skills in-house; what is needed for new structures to emerge is a way to host the capital and control structures of the life business in the same sort of way.

• A cell for lifeThe hurdles to entry for traditional life insur-

ers have been and remain high. However, the

Captive managers have a well-deserved reputation for being good at supplying Complete solutions – a Captive with all the neCessary support serviCes, ready to go”

Isle of Man enactment of cell company legisla-tion lowers the cost and allows more inventive ownership structures to exist. While each cell will need to stand on its own two feet as regards capital, owning a cell is more efficient, simpler and therefore cheaper than setting up a stand-alone insurer. This would be a new departure for the Isle of Man life insurers but one that is eminently doable, following where the captives have led.

• Life outsourcingTraditional captives of fairly modest size can be

run at modest cost because captive managers have staff who service a range of clients and use com-mon controls and systems to do so. The same can be done for smaller life insurers and life/captive crossovers, as well as for larger life insurers.

• Bespoke systemsLife systems may be some of the most complex

in the finance game, but increasingly the best of them are heavily parameterised and good at talking to each other – life systems to investment systems and both to general ledger packages. As a result, there is now very little that product devel-opment actuaries can throw, in terms of bespoke charging structures, at such systems that cannot be handled.

• The endgameAlthough long-term business cannot be run

off as swiftly as a traditional non-life captive, exit strategies now exist for owners of life businesses as buyers of closed books are out there. Once a block of business in a life cell insurer has served its main purpose, the in-force block has embedded value that can be realised by selling the cell to a run-off specialist, who can then run the cell on or merge it with its other business as appropriate. It would be possible to agree up-front a formula approach for any eventual exit terms, based on the mathemati-cal value of the block of business.

Putting that togetherIt is always dangerous to predict the shape of the future, as you can be pretty sure you will be wrong.

However, putting the above together, one can envisage life specialists providing a cell struc-ture that encompasses various types of insurer – perhaps one doing direct linked life business, while another reinsures some non-life elements – belonging to different owners. That innovative structure, together with the shared expense base inherent in outsourcing a life business, means that this can be done at relatively modest cost.

This allows the life insurance solution to reach into new and specialist areas in a way that meets client needs, which, increasingly, are likely to be niche, bespoke, multi-disciplinary and highly specialised.

captivereview.com

Jeffrey More

Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries. Barclays Private Clients International Limited, part of Barclays Wealth. Registered in the Isle of Man. Registered Number: 5619. Registered Office: Barclays House, Victoria Street, Douglas, Isle of Man, IM99 1AJ. Barclays Private Clients International Limited is licensed by the Isle of Man Financial Supervision Commission. Barclays Private Clients International Ltd places funds with other parts of its group and thus its financial standing is linked to that of the group. Publicly available information, including reports and accounts, is obtainable from www.barclayswealth.com/important-information.htm

FOR captive insuRance – We GO tHe eXtRa MiLe

Barclays Wealth can bring you world-class investment and banking solutions, with a dedicated, personal service that few can match.

If you operate as a Captive Insurance Company you will find that we take your specialist needs very seriously. Wherever you are based, in the Isle of Man, Guernsey, or indeed most markets across the globe, we can provide access to an expert relationship manager who will be experienced in your field. Your relationship manager will be supported by a team who can link you to the global resources of Barclays Capital and the Barclays Group, helping you to make international decisions from a local perspective.

Give yourself the banking resource your business deserves. Call Mark Willis +44 (0)1624 681927 ([email protected]) or visit www.barclayswealth.com

Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider


16

sneak preview

T he Isle of Man has developed into one of the largest and best respected offshore financial centres through being business-friendly and suitably

regulated. As a self-governing Crown Dependency of the UK, the Isle of Man is a politically stable ju-risdiction and whilst not part of the UK, its foreign relations and defence are the responsibilities of the UK Government. Whilst the UK does not interfere in the island’s domestic matters, with being only 35 miles from the mainland, the island enjoys a close relationship while being autonomous, adding to its reputation. Part of the island’s autonomy allows it to set its own tax regime, with insurance companies on the island subject to income tax at a rate of 0%.

The Isle of Man has been on the OECD ‘white-list’ since the release of the assessments and is rated AA+ by Standard and Poors, the leading rating given to offshore jurisdictions without their own currency – the Isle of Man currency is the Pound Sterling. Being self-governing, the Isle of Man has its own legal system, Manx law. The Manx legal system is based on the principles of English common law and thus is well known and familiar to most international businesses.

The Insurance and Pensions Authority (IPA) is charged with the regulation of the insurance sector. The IPA is led by David Vick, as CEO, and supported by Francesca Signorio and Alan Rowe as

heads of supervision for life and non-life insurance respectively. The IPA prides itself on being a highly experienced supervisor that is approachable and responds swiftly, enabling a swift turnaround on applications – both for new business and changes to existing arrangements.

Companies carrying out insurance business in or from the Isle of Man are required to be author-ised under the Insurance Act 2008 (the ‘Act’). The Act seeks to ensure that senior management and controlling parties of insurance businesses are fit and proper, and that the companies are financially sound. The island’s effective regulatory regime makes it attractive to high-quality business, and this has helped the Isle of Man to develop into one of the world’s leading centres for offshore life assurance and a major offshore captive centre. De-spite soft market conditions and financial market volatility, the island has continued to be success-ful at attracting new business, with total assets of £55.21bn and annual premiums of £10.11bn as at the end of 2010, representing year-on-year growth of 17% and 36%.

The IPA is committed to the continued develop-ment of an appropriate and up-to-date regulatory framework, and was one of the first domiciles to introduce legislation allowing captive insurance companies from other territories to redomicile to the island without being liquidated in the original territory. This has considerable savings for the company concerned both in time and cost. The IPA has also introduced legislation to allow the formation of protected cell companies (PCCs) and incorporated cell companies (ICCs).

As the Isle of Man is outside of the EU, it is not required to comply with the significant regula-tion proposed under Solvency II. Unlike other leading captive jurisdictions, the Isle of Man has consistently stated that it does not seek to change its regulatory system to qualify as a Solvency II ‘equivalent’ jurisdiction.

Regulatory development in the Isle of Man is closely aligned with the guidance provided by the International Association of Insurance Supervi-sors and its core principles – a gold standard for insurance supervision. The IPA have created a regulatory framework for captive insurance which is robust and tailored for the size and complexity of the insurance operations, whilst maintaining sufficient supervision to protect policyholder

Interested in a captive operation on the Isle of Man? Simon Nicholas, of KPMG, gives a qualified rundown of the tax and regulatory framework awaiting those considering a Manx address for their captive

simon nicholAs

The isle of man has been on The oeCD ‘whiTe-lisT’ sinCe The release of The assessmenTs anD is raTeD aa+ by sTanDarD anD Poors ”

SiMoN NicholaS is an associate director at KPMG LLC based in the Isle of Man and leads all captive audit and advisory engagements. Simon also sits on the IOMCA executive committee.

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interests and the reputation of the island. The Act, accompanying Insurance Regulations 1986 (the ‘Regulations’) and the Guidance Notes provide key principles (explained further below) which are the foundations of the regulatory framework rather than prescriptive rules. This allows the Isle of Man and its regulatory environment to remain nimble to the changes in the needs of captive owners and address any new risk management techniques and products as they develop.

Regulatory frameworkUnder the Regulations, there a number of classes of licence available:• Class 1 and 2: Direct long-term insurance;• Class 3 to 9: Direct general insurance; • Class 10: Long-term reinsurance;• Class 11: General business reinsurance;• Class 12: Related party business. Typically, captives fall into two categories Classes 11 and 12.

The Guidance Notes expand on the criteria required for a licence to be issued such as incor-poration of the company, the financial soundness of the entity and the fit & proper declarations of those associated with the application. All relevant documentation and information has to be provided in the formal of a licence application to the IPA supported by a business plan.

The IPA clearly defines the extent that ‘mind and management’ and key functions of the insur-ance business must be based on the island. These include:• New business processing and the determination

of terms;• The acceptance and maintenance of all insur-

ance contracts;• The processing of claims and redemptions;• Statutory reporting, financial and actuarial;• The management and collection of premiums;

and• Bank account and cash control.

It is common practice for captive insurers to utilise Isle of Man-based insurance managers who would undertake many of these activities.

The minimum requirement for paid-up share capital depends on the class of licence:• Classes 11: £100,000;• Class 12: £50,000.

This minimum capital requirement is supple-mented by an initial capital requirement which is tailored to the applicant’s business plan and often driven by expected premium volumes. The mini-mum capital requirement plus 10% of the supple-ment must be paid up in cash and deposited with an authorised bank on the Isle of Man.

On an ongoing basis, a Class 12 captive would be required to maintain sufficient capital to its solvency margin of:

As the Isle of MAn Is outsIde of the eu, It Is not requIred to coMply wIth the sIgnIfIcAnt regulAtIon proposed under solvency II”

• £50,000 • plus 10% of net premium written up to £2m• plus 5% of net premium in excess of £2m

Whilst the above are simple numeric guidelines, the overriding principle of the island’s regulatory regime is that of ensuring that the captive has sufficient financial resources to support its busi-ness, both by way of its ability to pay its insurance obligations in full and by allowing for projected expenditure and any investment losses.

Via the IPA’s transparent guidelines, capital efficient methods can be utilised under the island’s regulations, subject to approval by the IPA, where admissible assets can include letters of credit, in-dependent guarantees and related party loans can be up to 100% admissible.

TaxationThe Isle of Man operates a ‘Zero/Ten’ corporate income tax regime. Only income from banking ac-tivities, however, and Isle of Man land and property is taxable at 10%, with all other income streams taxable at 0%. As such, captive insurers located on the island are subject to corporate income tax at 0%, with there being no requirement to withhold tax from the payment of dividends and interest whether to residents or non-residents.

Although the island’s tax regime, like all offshore jurisdictions, has been the subject of scrutiny by the EU over the last couple of years, following a meeting of the EU Code of Conduct Group (the Code Group) on Business Taxation in September 2011, the island is now assured that its Zero/Ten tax regime is robust and acceptable in the eyes of the Code Group. The Isle of Man is one of the first jurisdictions to have been successfully reviewed and the Code Group is to review Guernsey’s tax regime in January 2012.

The Isle of Man is effectively part of the UK for VAT purposes, with rates and exemptions being largely identical to those applied in the UK, albeit the island has its own VAT legislation and system of collection and administration (via Isle of Man Customs & Excise). Generally, VAT expense in the island’s captives is minimal as insurance manage-ment services, often the most significant operating expense, are VAT exempt. Additionally, the island does not impose any insurance premium tax or capital gains tax, making the Isle of Man a tax ef-ficient place to do insurance business.

simon nicholAs


19

Captive accounting update – ifRs Phase ii

IFRS Insurance Phase IISince November 2008, the International Ac-counting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have been working extensively to create the first global GAAP on insurance contracts. An Exposure Draft of the new accounting standard for IFRS was issued by the IASB in July 2010; the FASB published the same document under the cover of a Discussion Paper in September 2010 where it addressed the future of US GAAP for insurance. The comment pe-riod for both papers ended on 30 November 2010 and more than 300 responses were sent to the two boards showing significant engagement from the insurance industry on this key issue. In the last few months, we have seen significant setbacks in the ef-forts of the IASB and the FASB to develop the new insurance accounting standard for both IFRS and US GAAP. The greatly reduced pace of progress, with a little more than six hours of board activity over June and July, forewarned a further delay in the target publication date for the new insurance IFRS. The release date for the new insurance IFRS has been pushed back to the second half of 2012, with re-exposure likely in the next three to six months. This extra step adds some uncertainty to the effective date of Phase II, currently estimated to be 1 January 2015.

How will the new accounting standard af-fect investors?The new accounting standard will attempt to provide investors using IFRS with a more relevant valuation of the portfolios of insurance contracts, which draws on a “fulfilment value” principle. This principle aims to represent the profit that insurers make from assembling insurance portfolios and managing the associated risks their customers have transferred to them. Transparency will be the most innovative feature of the new account-ing regime with the mandatory “three building blocks” approach to estimate future cash flows and their probabilities (block one), discount them with market rates (block two) and adjust the resulting estimate with a risk adjustment liability based on the underlying uncertainty combined with a re-sidual margin liability that captures future profits embedded in the portfolio (block three).

How will the new accounting standard af-fect insurers?The new IFRS for insurance will radically change the way insurance businesses present their profit and insurance liabilities by introducing transpar-ency, global comparability across jurisdictions and consistency with market variables whenever possible.

Cheryl Brew, of Deloitte LLP, examines the IFRS Insurance Phase II and what its arrival will mean for both investors and insurers in the industry

CheryL Brewis an audit director of Deloitte LLP based in the Isle of Man and has a number of years’ experience in auditing captive insurance companies. Cheryl was previously a finance director in a regulated financial services company

captivereview.com


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The magnitude of the change is likely to be extensive for all insurance businesses reporting under IFRS and it will become mandatory when several other IFRS’ are changed, including those on financial assets, revenue from customers and leases. The extent of the implementation could offer an opportunity to use it as a vehicle to more closely align financial reporting with the way insurance companies are run. Insurers must be prepared to introduce significant changes to proc-esses (including valuation and financial reporting processes) and upgrades to IT systems (includ-ing actuarial modelling and data warehousing) if they want to reap the maximum benefit from this reporting revolution.

IFRS Phase II and Solvency II For those insurers with business in the EU, the case for a comprehensive implementation plan is even more compelling. The insurance regulations in the EU are due to change in the same timeframe the new IFRS will be mandatory and the EU regula-tors have taken inspiration from the IASB work (the three building blocks approach) to develop the valuation for insurance liabilities under the new regime known as Solvency II. It should be noted that the Isle of Man is not part of the EU and is therefore outside the scope of this regulation. The Isle of Man‘s approach to Solvency II is still to be decided.

Key challenges for insurersAlthough there is uncertainty regarding the effec-tive date of Phase II, the standard setting process is already fairly advanced and, based on that, we can comment on some of the key challenges and concepts that captive insurers will face. These are outlined below:

Cost of compliance• Target operating models that articulate the

design of insurers’ governance, operational, structural and capital priorities cannot be sufficiently developed without consider-ing the new IFRS metrics and underlying process. An effective operation with a close integration of the finance, risk, operations and actuarial functions will be required.

Training and project management• Educating both management and staff on the

changes in financial and regulatory reporting, as well as the differences between them, will require significant investment in terms of training.

• Building a governance and project manage-ment structure that covers all of the non-dis-cretionary changes occurring now and in the next few years will be imperative to ensure success and cost minimalisation.

Accounting strain and concepts• The “margin approach” to income statement

presentation that is behind the building block approach for measuring and presenting post claims liabilities will be a new concept for most captive insurers.

• The selection, application and use of ap-propriate discount rates throughout the life of an insurance liability will be a challenge, particularly with the expectation of higher interest rates that the current inflationary pressures could produce.

• The separate presentation of claims expenses and the collation of data to achieve this dis-closure will require system changes.

• Some familiar items such as gross written premiums will no longer be presented on the face of the Statement of Comprehensive In-come and insurers will need to consider how best to present volume indicators.

The Deloitte LLP approach to IFRSPreparing for, implementing and embedding the new reporting regime is a challenge that calls for a multi-disciplinary approach. At Deloitte LLP, we are able to provide insurers with the required breadth of service from accounting to actuarial, from change management to system implementa-tion, from regulatory interdependencies (crucial for Solvency II insurers) to tax. All these are offered with a depth of expertise that ensures all aspects of the new reporting requirements are complied with and that every opportunity is identi-fied and seized.

Keeping up to date with developmentsDeloitte LLP continues to report on the outcome of each insurance session immediately after every IASB meeting; you can find these summaries on our dedicated IFRS website IASPlus. A range of Deloitte insurance industry publications is also available from our website including an insur-ance industry outlook, a report on the operational challenges of claims management and a review of insights for insurers on the natural convergence of business and IT.

Deloitte LLP has an unparalleled breadth and depth of services which make it a world force in its chosen areas of business audit, tax, consulting and corporate finance. As a leading business advisory firm, we are renowned for our commitment to innovation, quality, client service excellence and for the calibre of our people. We serve a broad range of public sector departments, major international and UK corporates, mid market and high growth smaller companies and many private individuals. By harnessing talent and expertise across the firm, we deliver solutions to clients that inspire confidence in what we promise.

M anaging R isk WoRldWideDel iver ing solut ions for bus inesses anD insurers worlDwiDe

at Charles taylor, we provide management services to help insurers, reinsurers and businesses around the world identify and manage their risk exposures.

our services are delivered by experts working from multiple locations around the world providing ease of access to our clients:• risk consulting• risk funding• insurance management and administration• run-off management

our insurance management services are part of a wider range of services delivered worldwide by Charles taylor Consulting to insurers, reinsurers and businesses.

To find out more, please contact:Life company managementJeffrey More+44 (0)1624 [email protected]

Captive managementAndy McComb+1 441 278 [email protected]


22

making the most of your deposits strategy

i n the UK, Lloyds TSB enjoys a dominant position. According to John Ramage, director of liquidity and FX Solutions at Lloyds, we have approximately one third

of the savings market, 40% of the mortgage market and 40% of the payments market. This largely explains why the Lloyds Business Barometer has proved to be such an accurate predictor of future economic growth. So, while the last thing I want to do is be a harbinger of doom, it’s hard to get away from the message that, during the next three months, the UK is going to be struggling against sliding back into recession. It also pains me to say that there is little to suggest that things are going to get a whole lot better in the short term.

It’s all driven by economics. Real wages are be-ing squeezed, so it’s little wonder that consumer confidence has crashed. Consumer spending, which started falling in 2008/9, rebounded in 2010 but it is now once again in negative territory. In the circumstances, it is heartening to see that em-ployment has actually held up relatively well. And although a lot is made of youth unemployment, as disturbing as this is running at over 20%, the fact is this has been on the increase since 2004. It isn’t something that has just happened.

To measure the relative strength or weakness in the UK economy, as a performance indicator, it is interesting to analyse 2011 forecasts of the output gap. That’s the difference between what the coun-try could produce and actually is producing. The UK Treasury reckons this is -4, whereas I would say, from the data I see, the figure is nearer -2.5. The reason why I suggest a narrower gap is because the majority of people who are unemployed do not have the necessary skills that are required by the economy. Employers are storing skills, borne out by current unemployment levels. This implies that

May Hooper, of Lloyds TSB, explains how, even in a challenging market, deposit strategies can be effectively managed

there is less labour flexibility in the market, hence our view that the gap is narrower. This also has inflation implications, however.

Across the board, from households to corpo-rates, there has been a definite deleveraging of debt. People are not spending money on discre-tionary items. This process is now well under way and needs to run its course. In fact, this trend could easily continue for the next 10 years. At the same time, the UK government’s debt is going up again. Further quantitative easing has been announced on top of the original £200bn, with a further £75bn coming into the system by the middle of next year. When all is said and done, the Bank of England will have purchased about one third of the total value of gilts issued. Debt that the UK owns, again with all its inflationary implications.

So, although the Bank of England is mindful of raising interest rates to combat the inflation threat, the current economic climate is making it extreme-ly difficult to do so. As for where interest rates will go in future, it’s difficult to see a rate increase any time before the second half of 2012 at the earliest.

Meanwhile, the problems in the eurozone continue to take centre stage. It’s hard to see a resolution any time soon, with nation states reluctant to take the medicine or divided as to what the medicine should be. Countries are under severe pressure and financial confidence is evaporating. The risk is that unless the European Central Bank becomes the lender of last resort, then no one will want to buy government gilts. At the time of writing, the fact that Germany was unable to fill its most recent government gilt auction (it was about 35% unsubscribed) is potentially a very worrying sign. Having been so resistant, it will be very interesting to see how Germany now views the prospect of intervention by the ECB.

As for the UK, there is nothing new in long term, low interest rates. Japan has had similar or lower

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levels for 10 years. There are benefits. It solves the problem of defaults by business and consumers. The level of house repossessions is tiny. There are no fire sales, because no one wants to realise the loss. And SMEs can service debt. All the while, savers keep subsiding borrowers. And so it goes on. It’s a very difficult habit to break.

But despite the 0.5% base rate, the real cost of borrowing is much higher. UK first-time buyers are typically paying between 4 -5% – that’s eight times the base rate.

Meanwhile, 10-year gilts are currently selling at less than 3%, when average borrowing is at 5.39%. This translates to a negative return on your money. If this continues, then the danger is that the UK won’t be such an attractive place to invest. And if other safe havens can offer better rates then we will have no alternative but to radically reduce inflation.

Another key driver for available interest rates is the wholesale funding costs, which have tightened considerably.

There are three elements when you look at the cost of borrowing; the base rate, LIBOR and credit default swaps (CDS). The trouble is that credit rating agencies have tended to lose their gold star reputations. So traders are looking for other benchmarks – that’s where the CDS, has become an increasingly influential risk indicator and is now seen as, arguably, the key measure of the risk associated with a country and a bank.

When we look at sovereign CDS levels, the UK compares very favourably with Germany and we are much stronger than other jurisdictions. For example, at the time of writing, the UK’s CDS is just less than 89. The Spanish equivalent is 370 and Ireland now stands at more than 700. Critically, this means that as a UK based bank, Lloyds TSB is in a much stronger position than banks that are based in other European jurisdictions.

So when you are classed as a wholesale deposi-tor, how do you maximise the yields on your bank deposits? In this market of historically low rates and changing banking landscapes, we recognise that it is becoming increasingly challenging to earn an attractive income on corporate cash.

At Lloyds TSB Corporate Banking, we have developed a range of deposit products to help customers manage their breadth of cash needs. The key lies in longevity, however. The longer the term, the less capital intensive this is for the bank and as a result we can pass on an enhanced yield to you as a depositor.

The liquidity in a company’s cash flow can be categorised by three types of cash; operational, core and strategic. Operational cash would be required in the immediate term (i.e. three months), core cash in the short term (i.e. within three to 12 months) and strategic cash, which would not be required in the short term (i.e. 12 months plus).

For this reason, a portfolio approach to deposit-ing should be considered. This is where you spread or stagger the terms of your deposits, giving you regular availability of funds by placing funds to mature on a rolling basis.

Consider a fund of £10m with operational and core cash, where the customer is looking to maxim-ise interest return potential and is able to place the core element of the deposit up to three months du-ration, but with the need to access funds every two weeks to meet potential cash flow requirements.

He places six simultaneous deposits on day one. These are five equally weighted fixed term deposits (FTDs) of £1m placed on consecutive maturities relating to the access period desired (two weeks steps in this case) and one FTD of £5m placed for the longest period (three months here) in order to optimise returns. This strategy creates the stag-gered structure.

At each maturity date, the deposit is rolled over into a three-month FTD. The staggered structure is maintained going forward, thus enabling access to £1m operational cash while also maximising returns.

Among our suite of products for the wholesale market, we have also just introduced a 95-day notice deposit account, whereby you can access your funds at 95 days notice, with £50k being the minimum amount that can be placed on notice but where interest is paid monthly.

There is no doubt that we are facing challeng-ing economic times for the foreseeable future, but, even so, by working with a reputable financial institution such as Lloyds TSB, it is possible to develop an effective wholesale deposit strategy to match the customer’s cash requirements.

By May Hooper, financial Intermediaries manager, Lloyds TSB Corporate Banking, based on presentation by John Ramage, director of Liquidity and FX Solutions at Lloyds Bank

May Hooper is an experienced relationship manager with responsibility for building and enhancing relationships with financial intermediaries: trust companies, captive insurers and life assurance companies. Key to the role is her extensive knowledge of treasury products and trust and company wealth structures

• HometoanimpressivenumberofFTSE100and250companiesandmajorblue-chipmultinationalorganisations

• Proportionateandfocusedregulation

• ProportionallegislationspecificallytailoredtoCaptives

• NotanEUmemberstate

• 0%CorporateTaxRate

• OECDWhiteListed

• Redomiciliationlegislation

• Loanbackstoparentavailable

• PCC/ICClegislation

• Oftenlessthanamonthfromapplicationtoreceiptoflicense

• PlentifulandreliabletransportlinkstomajorcitiesintheUK

Forfurtherinformation,pleasecontact:

Brian DoneganDepartmentofEconomicDevelopmentIsleofManGovernmentTel:+44(0)[email protected]

www.gov.im/ded

The Isle of Man, where you can be part of a world-class captive domicile

Gaynor BroughChairmanIsleofManCaptivesAssociationTel:+44(0)[email protected]

www.iomcaptive.com


25

Who needs a captive?

i t is no secret that the tough economic climate has focused minds. Businesses are looking, arguably more than ever before, to reduce costs and for the most effective use

of hard-earned capital. For many organisations their annual insurance costs can represent a significant portion of their cost base and therefore any savings or more cost-effective solutions in this area can only be a good thing.

The traditional approach is to purchase insurance from the conventional insurance market, typically assisted by brokers who seek to get the best deal for their clients from the market. The disadvantage to this approach for companies who invest time and effort in proactively managing their risk is that having made the effort (at a cost) to improve their risk profile, the rewards disappear into the insurance market. In a nut-shell, the good business risks either boost insurance company results or pay the claims of others.

Of course, most companies and Boards would feel very exposed without some level of insurance protection. In fact, certain covers are compulsory; however as demonstrated below, captives can provide a considerably more cost-effective solution to insur-ance needs and therefore warrant serious considera-tion at any point in time, regardless of the state of the conventional insurance market.

What are the benefits of a captive?The table overleaf summarises the various advan-tages of owning a captive. Broadly, these can be sum-marised in three categories:

• Cost benefits• Control of risk• Accumulation of wealth

What is involved?Let us assume these advantages are attractive and that a business has decided that it wants to find out more about what is involved. A feasibility study will consider aspects such as the existing and potential insurance/reinsurance programme, the claims expe-

rience past and projected and the financial viability of a captive. Typically this leads into the production and presentation of a three-year business plan to the Isle of Man Insurance and Pensions Authority, clearly set-ting out the financial expectations and objectives of the captive. A key aspect of this process is agreement with the regulator on appropriate level of capital funding required. The key factors considered in that regard being the nature of the risk, maximum reten-tions, anticipated claims experience and premium income.

Once there is both a clear desire and long-term commitment by the shareholder to establish a captive, there are several actions that are typically undertaken by the managers at the outset including company formation, selection and appointment of a Board, opening of bank accounts and appointment of service providers. Once established the managers are responsible for the day-to-day running of the captive.

Key points to considerCaptives are a specialist area and invariably in most cases the appointment of a dedicated captive man-ager is appropriate and adds value. When consider-ing the options it is important to know that you are receiving truly independent advice without conflict. TMRM is privately owned and purely provides cap-tive management insurance as a core competence, with no ‘bolt-on’ services such as broking. We believe that this gives us a true independence without being conflicted.

Thomas Miller practices what it preaches having its own captive for the last 18 years. This has saved the group premiums in excess of £6m that otherwise would have been lost to the insurance market.

A typical approach having set up a captive is to have manageable limits of liability that the stakeholders are comfortable with in order to protect assets in the formative years. These limits usually apply per claim and in the annual aggregate and are achieved through the purchase of reinsurance protection. Pegged at the optimum level, the cost of reinsurance is affordable, whilst giving the owners the comfort that the start-up capital is not overly exposed.

Once established quality of service is essential. TMRM has the advantage of a proven track record and a global network whilst at the same time remain-ing small and flexible enough to provide the personal service. All of our captives under management are director-lead on a ‘hands-on-basis’ supported by a small, yet effective, team.

SummaryWhilst captives have been around for some time, there are many companies that currently do not realise the benefit that ownership could bring to their business. They can add real tangible value, however as with all effective insurance solutions, it is not a case of ‘one-size-fits-all’ and careful consideration is required given the long-term commitment which captives demand. That said, they’re worth it!

Many businesses consider a captive insurance solution at some point, but what of the reality of this decision? And is a captive always the right choice? Ross Dennett, of Thomas Miller, discusses what a captive solution can mean

Ross DenneTT, director, joined Thomas Miller in 2007 and has 22 years of experience in the insurance business in broking and captive management. He qualified as an associate of the Insurance Institute of South Africa in 1993 and an Executive MBA from Henley Management College in 2005.

continued p26


26

the benefits of a captive

Reduced insuRance costs

Achieved by reduced market premiums, reduction of broker commissions or lower administration costs. Also reduces the extent to which a business is penalised by paying for the claims of others.

captuRe undeRwRiting pRofit

Paying premiums to the captive allows the owners to capture the underwriting profit that would have been lost to the insurance market.

smootheR costs

Terms and conditions in the conventional insurance market fluctuate. A captive helps smooth costs over a period of time. With a captive, premiums and investments are retained with the group.

cash flow Insurers rely on investment and underwriting profit with premiums typically being paid in advance and claims paid over a longer period of time. With a captive, premiums and investments are retained within the group.

Risk Retention Increased retentions (deductibles) will naturally lead to greater focus on risk management. These deductibles can be insured through the captive.

loss contRol incentives

Risk retention inevitably results in a different attitude towards claims settlement.

distinct pRofit centRes

Captives operate as separate profit centres. If extended to insure third party risks they can then introduce additional revenue to the group.

ReinsuRance maRket access

The reinsurance market, which operates on a lower cost structure than the primary market, is only available to insurance companies. It not only provides coverage at advantageous rates, it also provides excellent flexibility as it allows the captive to precisely determine the amount of risk to be retained by the captive and the amount to be reinsured into the market.

undeRwRiting and claims

Because a captive is owned by the parent there is greater control of underwriting (rates and coverage), claims settlements and investment decisions. The captive controller has overall control over the claims process, including settlement decisions, meaning that others cannot make a claim on the business’ insurance policies.

incReased capacity

The captives’ risk taking capacity is only limited by its capital, not by other market forces or arbitrary decisions. The size and scope of the captive can be tailored to suit the business requirements ranging from a simple deductible infill to a complex global insurance/reinsurance programme.

BRoadeR coveR Captives provide the very specific cover required by the insured that may not necessarily be available in the conventional market.

eliminate unnecessaRy coveR

Captives allow the parent business to purchase cover based on specific needs rather than the generic package typically offered by the large insurance carriers.

accumulate assets

Insurance premiums are an expense to the parent company and flow tax free to the insurance company, where they grow in anticipation of future claims. With annual premiums payable the asset base of the captive can quickly grow to a substantial level.

pRotection of assets

A captive can safely protect assets from legal attack by creditors and predators. The captive owner has overall control of the claims process, meaning that the only process that can file a claim is the parent company.

pRemium Retention

Instead of paying large insurance premiums to an insurance company, retain those funds in a captive, keeping them in the same economic family.

investment income

Premiums paid to a captive can be invested in a variety of ways at the total discretion of the captive stakeholders. The dividends realised from these investments can then be retained by the captive or distributed to the shareholders.

tax tReatment Properly structured captives are subject to different tax rules to their parent.

thomas miller began 125 years ago by providing insurance services to the international transport and professional indemnity sectors; a business which it has specialised in, and at which it has become a world leader. Today, it provides insurance services to approximately half the world’s leading ship owners, employing over 530 people across four continents. The Isle of Man office is home to Thomas Miller Risk Management, Thomas Miller Investment, and Havelock Insurance Management Limited, all part of the Thomas Miller Group of Companies.

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GOOD BUSINESS IS ABOUT ONE THING.RELATIONSHIPS.

Under the current economic conditions, our customers rely on us to provide a dependable and trustworthy service to help them grow. Lloyds TSB have considerable experience in providing banking services for the Captive Insurance Industry and with strong relationships at the core of our values we are best placed to support your business long-term.

To find out how we can help your business, call us on 01624 657848 or visit lloydstsb-offshore.com/corporate

To ensure security for our customers and staff and to help maintain service quality, some calls may be recorded and monitored. Lines are open weekdays between the hours of 9am - 5pm.

Issued by Lloyds TSB Offshore Limited. Registered Office: PO Box 160, 25 New Street, St. Helier, Jersey JE4 8RG. Registered in Jersey, number 4029.

The Isle of Man branch of Lloyds TSB Offshore Limited is licensed by the Isle of Man Financial Supervision Commission and registered with the Insurance and Pensions Authority in respect of General Business. Business Address: PO Box 111, Peveril Buildings, Peveril Square, Douglas, Isle of Man IM99 1JJ. Business Address: PO Box 111, Peveril Buildings, Peveril Square, Douglas, Isle of Man IM99 1JJ.

Lloyds TSB Offshore Limited is a Jersey registered company that is a wholly owned subsidiary of Lloyds TSB Bank plc. Lloyds TSB Bank plc is incorporated in the United Kingdom, regulated by the UK Financial Services Authority and is part of the Lloyds Banking Group. Lloyds TSB Offshore Limited places funds with Lloyds TSB Bank plc and thus its financial standing is linked to that of the group. Depositors may wish to form their own view on the financial standing of Lloyds TSB Offshore Limited and its parent based upon publicly available information. Lloyds TSB Offshore Limited’s latest annual financial statements are available on our website at www.lloydstsb-offshore.com


28

iom: ideal for insuring employee benefits and captives

i nsuring, or more commonly, reinsuring, employee benefits into a captive is not a new concept. However, despite this first being done a number of years ago, the

concept has been relatively slow to gain traction and to grow. On the one hand, this is surprising given the numerous advantages that can arise from reinsuring employee benefits into a captive and the increasing emphasis on enterprise risk management and “total cost of risk”. On the other hand, it is perhaps not so surprising given the fact that the risk management department is normally responsible for conventional insurance and the gatekeeper to the captive, while the HR depart-ment deals with employee benefits. Unfortunately, in many large organisations, these two disciplines often have little interaction with one another.

Typically, the type of employee benefits written by a captive includes group term life insurance, long-term disability, medical benefits and personal accident cover. Increasing interest is now being shown in captives insuring the parent’s defined benefit pension plans. For example, Coca-Cola has recently reinsured some of its pension liabilities into its captive.

The advantages of insuring or reinsuring employee benefits into a captive are similar to the advantages of insuring conventional risks

into a captive, including lower costs – reinsuring employee benefits into a captive can save up to 25%, compared to conventional insurance. The employer can then choose to pass on some or all of this cost saving to its employees.

Claims from an employee benefit programme tend to be reasonably predictable and reinsuring into the captive has the dual advantage of increas-ing the captive’s revenue stream while at the same time lowering the captive’s overall volatility of risk. If the captive is concerned about catastrophic risk or concentration of risk, then the captive can purchase reinsurance protection.

Another advantage is the efficiencies that can be gained from a consistent, coordinated ap-proach in terms of employee benefits. In addition, the group can benefit from improved cash flows by either paying premiums to the captives in instalments (which the market might not agree to) or by loaning excess captive funds back to the parent.

A further advantage, primarily for captives owned by US entities, is that the Internal Revenue Service (IRS) typically views employee benefit programmes as third-party business, which assists the captive in being deemed an insurance company and results in premiums being tax deductible. The US Department of Labour’s streamlined approval process for benefit programmes makes it easier for captives to write US benefit risks, although cap-tives need to be either domiciled in the US or as a US branch of a non-US domiciled captive.

Despite the relatively slow growth in captives being utilised to reinsure employee benefit pro-grammes, Marsh manages a number of captives, which have successfully added employee benefits to the captives’ existing insurance programme, including Standard Chartered Insurance Limited (SCIL) which is owned by Standard Chartered Bank (SCB). SCIL, which is managed by Marsh in the Isle of Man, was incorporated in 1986 and ini-tially wrote the property and casualty risks relating to SCB.

In 1988, SCIL began writing medical benefits risks for SCB employees. Such employee benefit risks were deemed by the Isle of Man regulator to

Derek Patience, of Marsh, explains the advantages of using the captive insurance path when dealing with the issue of employee benefits

reinsuring employee benefits into a captive can save up to 25%, compared to conventional insurance”

Derek Patience has 20 years’ captive experience with Marsh in Bermuda and in the Isle of Man. Derek was chairman of Iomca from 2006 to 2010 and also represented the captive industry on the Finance Steering Group

Derek Patience

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be risks associated with the parent and thanks to this pragmatic regulatory approach, SCIL was able to write these risks without changing its existing captive licence.

SCIL now writes medical, life, personal ac-cident, death in service and critical illness cover. Virtually all of SCB’s 85,000 employees world-wide are protected by some or all of this coverage. Key to the success of the captive’s employee ben-efits programme is the extensive interaction be-tween the HR and risk management departments within SCB. Also SCB subsidiaries can choose from a range of local insurance providers. This is also critical to the success of the programme, as subsidiaries can choose the provider, which offers them the best service locally, helping greatly in ensuring local management buy-in to the captive programme.

Although larger companies typically tend to benefit most from the cost savings and efficiencies of using a captive for employee benefits (as well as other covers), it is not just large multinationals that use their captive to write employee benefit risks. In the Isle of Man, Marsh also manages Diamond Insurance Company Limited, which is owned by British Midland Limited. Diamond has successfully and cost effectively written employee benefits since 2001. Starting with just pilots’ loss of

The Isle of Man’s Insurance regulaTIon Is approprIaTely TaIlored for capTIve and recognIses The unIque naTure of capTIve busIness”

licence cover, Diamond then also wrote permanent health insurance, personal accident cover and medical benefits for the staff of British Midland.

Before a captive can write employee benefits, there are a number of stakeholders who will need to be involved. Internally within the parent, these stakeholders will include the risk management department and HR, and possibly also finance, treasury, legal and tax. External stakeholders will include fronting companies, reinsurers (if the cap-tive is buying catastrophic protection), the board and managers of the captive and the insurance regulator in the captive domicile.

The Isle of Man is an ideal domicile for captives wishing to write employee benefits. The Isle of Man is not part of the EU and therefore captives will not be encumbered by the impending Solvency II requirements. As most employee benefits covers are written on a reinsurance basis, the issue of ad-mitted covers is irrelevant as the fronting company meets this requirement.

The Isle of Man has a well established insur-ance industry, including captives, life insurance, employee benefits and pensions and extensive infrastructure supporting the industry.

The Isle of Man’s insurance regulation is ap-propriately tailored for captive and recognises the unique nature of captive business. The pragmatic regulatory approach enables captives to be estab-lished swiftly and efficiently, while at the other end of the life cycle, the liquidation process is smooth and not unnecessarily burdensome.

There are significant benefits in using captives to write employee benefits and I expect that the number of captives writing such risks will continue to grow as companies take a more holistic view of their overall insurance cost. In addition, I would anticipate that more and more companies will look to their captive to write their defined benefit pen-sion liabilities.

Derek Patience


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all the world’s a stage... but choose your domicile with care

T o be or not to be, that is the question: Whether it be nobler in strategic planning to suffer the slings and ar-rows of Solvency II, the thumb screws

of corporate governance, and the whiplash of ever changing IAIS? Or to take up arms against this sea of troubles?

It’s a challenging situation and I would not be surprised if you were confused and struggling to make a decision. If you are responsible for your company’s captive programme then it is probably fair to say you have a lot on your mind at the mo-ment. Especially if your captive is based in Europe.

You might perhaps be worried about declining returns on the assets your captive holds or the increasing cost of its capital? Is it the combined affect of both reducing your ability to write the programmes you want to write that is troubling you? Are you concerned about the additional capital costs that Solvency II may bring? Do you have a contingency plan in place to keep your cap-tive programme running and its finances in good health post January 2013? Are you up to speed with corporate governance and changes in accountancy rules? The list goes on and changes frequently.

Fear not, Horatio. A hard market is on its way, just look around and you can start to see the signs.

It may well, therefore, be worthwhile holding on to your captive, despite the current and potential challenges that we have on the horizon. Captives should be viewed as a long-term strategy. While you can dip your toe in and out of the water with all sorts of shorter term and cheaper options from PCC, ICC, self-retention and others, the real ben-efits of having an in-house focus on your own risk management come with time as you start to gather data on your own specific needs. Your captive will be invaluable in the years to come.

So how can banks help? The environment may be challenging at the moment but there are steps you can take with the help of your bank to keep your captive alive through the hard times:

1. Maximise returns on your captive’s as-sets – while ensuring appropriate liquidity and absolute safetyConsider your bank’s rating and the rating of its parent company (if it has one). Is it dependent on government funding, and how reliable would that funding be in the event of sovereign failure? Are you allowing your old perceptions of certain finan-cial brands to define your current decisions? There can’t be room for complacency here. Markets move fast. Choose the right bank and sleep at night.

Does your bank offer a liquidity management service? It’s a simple concept but one that’s often overlooked in preference of keeping everything ‘short’. Often at the expense of returns. Do you re-ally need every last penny on one weekly call?

Are your bank’s rates of return fair value for their brand attributes? If it looks too good to be true, it probably is, and reflects a high level of risk. Don’t risk losing cash or having it tied up in a bank that’s in receivership. Diversify to safe havens if you have any doubts.

Assess letter of credit fees and associated col-lateral requirements. Some captives tie up cash backing letters of credit for several years but keep the tenor of security deposits as short as a month unnecessarily. Some keep security in daily liquidity pools. Effectively they pay for liquidity that’s not always needed. If your bank properly understands captive business, it will be able to take a view on

Mark Willis at Barclays Wealth takes a look at how banks can help captives through these uncertain and difficult times, and explains why he believes the Isle of Man is well placed to help owners realise the full potential of their captives

Mark Willis

if you are responsible for your company’s capTive programme Then iT is probably fair To say you have a loT on your mind aT The momenT”

Mark Willis manager, Barclays Captive Insurance, has 25 years’ experience providing letters of credit, the past eight for captive Insurers. He is an associate of the Chartered Institute of Bankers, executive committee member Iomca and member of the Institute of Financial Services Isle of Man Committee

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each case possibly allowing longer term fixed deposits to be made with letter of credit security funds. This will enhance yield considerably.

2. Control costsExplore with your bank whether Security Trust Agreements could replace any letters of credit you have. It’s a fine balance but if the trust require-ments are kept simple the costs could be cheaper than letters of credit.

3. Use your captive for insurance letters of credit rather than parental facilitiesI have seen parent companies in the US, UK, Eu-rope and Asia carrying insurance letters of credit on their own balance sheets rather than using their captives. More often than not these were with the parent under unsecured lines but have since become cash-secured in recent years. They are now at significantly higher cost (60 to 100bp) than they would be if they were issued via the cap-tive (typically 20bp). Ask a bank that specialises in providing letters of credit to captives to provide a quote. You may well be pleasantly surprised. For a number of reasons, prices for offshore cap-tive letters of credit are significantly lower than onshore parental facilities.

4. Drive more value through the captiveEnhance its worth to the group by considering new lines of business. Could you be using your captive to hedge commodity/FX risks instead of doing this at parental level or not at all? Does your bank have a specialist captive insurance team that under-stands these risks? Do they have the appropriate treasury services available to offer the appropriate solution and service efficiently and competitively?

Of course an enhanced specialist banking service is just one part of the picture. There is no doubt there are other options available to the captive owner in overcoming the challenges ahead.

In my opinion, this could include adjusting your regulatory environment to one that’s more propor-tionate to your needs. After all, it’s your captive, not a third-party writer. One small step towards a redomiciliation feasibility study could well prove to be a huge leap forward for the survival of your captive post-implementation of Solvency II.

There are finance centres outside Europe with solid, reliable and professional world class infra-structures that already have well established cap-tive communities. They may not be based in some of the world’s larger more well-known cities, but size is not always a factor. Small can be effective, especially in times of change.

I have had the pleasure of working with many of the world’s finance and captive insurance centres but the Isle of Man in particular stands out for me as a world class domicile. Don’t take my word for it, though. Just a simple look at the stats shows that it has shown itself to be a popular choice for captives over the past 25 years. Many stock exchange quot-ed parent companies from all over the world have chosen to domicile their captives there. But why is that? In my opinion, it has a number of strings to its bow that are not easily found elsewhere. You may find some in other jurisdictions but, in my experience, it’s rare for all factors to come together in one solid package as well as they do in the Isle of Man.

So let’s take a look. The Isle of Man is a financial-ly sound jurisdiction (AA+) with an approachable regulator operating a proportionate regulatory system with bespoke risk-based capital require-ments. That system is not seeking to change (i.e. it is a non-Solvency II equivalent jurisdiction and has no plans to become one). It’s one of the largest offshore insurance markets in the world and is sup-ported by leading global advisory, legal, manage-ment and finance firms. They are all based on the ground in the Isle of Man providing an infrastruc-ture that many countries would be envious of. The legal system here is based on English law and is also tax efficient – EU acknowledged 0% corporate tax rate. It is starting to sound compelling, isn’t it? Tie the above into a proven reputation for swift speed to market for set up and you have what is, in my opinion, one of the best domiciles for captive insurance in the world.

So, why look to take arms against a sea of trou-bles and move your captive to an offshore centre that is as reputable as the Isle of Man? Because, despite the ever changing dynamics of the finance and insurance industries upon this mortal coil, you can give your captive a stable home with freedom to flourish. Take one small step to finding a strong, stable bank with the expertise to make a difference and ask your captive manager for a re-domicilia-tion feasibility study. Then at least some of your worries will be alleviated and you could start to sleep at night, maybe even perchance to dream about the captive that could be.

© 2011 Deloitte LLP. All rights reserved.

IFRS is the new reporting standard that you simply can’t afford to ignore, providing benefits such as greater transparency

and comparability of financial information across countries. Deloitte can help you understand what’s involved and develop clear,

actionable plans Move on at www.deloitte.co.uk

Accounting has moved on. Welcome to IFRS


33

a towering force

T ower Insurance Company Ltd is a Manx registered company, providing insurance for the needs of local resi-dents and commercial interests.

The company was established in 1928 by a group of Manx businessmen. It was substantially a mo-tor insurer for 20 years until it became part Royal Insurance in 1948, which merged with Sun Alliance Insurance in 1996 to form the RSA Group. It is an autonomous subsidiary regulated by the Insurance and Pensions Authority.

Since then the Tower has grown into a major local insurer, writing most classes of general insurance business. With policies providing insurance protec-tion to homes, motor vehicles and commercial en-terprises, Tower also has plans and hopes to expand its offering to be able to offer insurance on family yachts and small craft this coming year.

Tower’s offices are located at Jubilee House, Victoria Street, overlooking the famous Tower of Refuge, which was built by Sir William Hillary, founder of the Royal National Lifeboat Institution, from which it takes its name. With a talented and committed staff of 27, Tower looks after the require-ments of local insurance brokers and customers and provide access to a full range of underwriting serv-ices and claims handling. Tower, through its staff, is deeply involved with the Isle of Man community, being a serious contributor to various local charities and also provides considerable community event sponsorship.

Having been a member of the Manx Insurance Managers Association since its inception, Tower has supported the development of the Manx insurance industry over the years. It has participated in cap-tive company management business to the extent of supporting RSA Group clients, although in the totality of its book of business, captive management remains a small part of the overall operation.

The business infrastructure in the Isle of Man, which has been developed with the cooperation of government and the private sector, has created a vibrant financial community with a high reputation well-known through the business world. This is a key strength of the island and evidenced by the busi-ness activity seen in Douglas and the other major towns. There is a high level of support provided by government and officials, as well as a wealth of valuable service providers, so there is always a welcoming atmosphere to companies considering adding an Isle of Man postcode to their business. The government and officials are always prepared to meet potential new customers to the island with a view to seeking ways to provide the right conditions to encourage business development across all sec-tors of business including the insurance sector.

The island is constantly looking to diversify its business opportunities with recent examples being the film industry, the shipping and aircraft registers. Unusual as it seems, Tower has even expanded its business lines in a true ‘out of this world’ way, with satellites and space having also featured in recent years. This diverse and innovative approach, cou-pled with the many capital projects introduced over the last 10 years, such as new schools, the hospital and other infrastructure, all contributes to the island being a good place to do business.

In the meantime, Tower will continue to use its local presence, together with the support of its parent, the RSA Group, to develop its position as the major Manx general insurer as the island’s overall economy continues to flourish. It is proud to be a part of the island’s award winning setup and a con-tributor to its business community.

The Isle of Man is a superb place to live and do business. We at Tower know – we have been here for 83 years and are here to stay.

Peter Gallagher of Tower Insurance explains how having an Isle of Man base has been a key to success

The business infrasTrucTure in The isle of manhas creaTed a vibranT financial communiTy wiTh a high repuTaTion”

PeTer GallaGher joined Tower Insurance in 2009, having worked in a number of other countries for the RSA Group. A fellow of the Chartered Insurance Institute, he is now managing director of Tower Insurance

peter gallagher

captivereview.com

services directory

34

Thomas miller risk managemenT (isle of man) limiTed level 2 samuel harris house, 5-11 st georges street, douglas, isle of man, im1 1aJ / ross dennett, director / 00 44 (0) 1624 645234 / [email protected]

Thomas Miller Risk Management (Isle of Man) Limited (TMRM) is one of the Isle of Man’s largest independent captive insurance managers offering a suite of servic-es expected of a true global player. TMRM is a wholly owned company within the Thomas Miller Group with a 125 year history of insurance management. Our team are skilled professionals with considerable experience in captive design and management. Being outside of the EU, the domicile benefits from realistic and competi-tive solvency requirements, a flexible regulator and zero rate of taxation. The Thomas Miller Group is privately owned by its employees, ensuring the desired culture.

marsh managemenT services isle of man limiTed rose house, 51-59 circular road, douglas, isle of man, im1 1re derek Patience, head of office / 01624 630523 / [email protected]

MMS Isle of Man, part of the Marsh Captive Solutions Group, has provided captive management services for 30 years to a number of captive clients whose parents are drawn from a wide range of industry groups and a diverse geographical spread. Our services include captive formation, licensing, ongoing management and captive strategy reviews.

lloyds TsB offshore limiTed corporate Banking, Po Box 328, victory house, Prospect hill, douglas, isle of man, im99 3Jymay hooper, financial intermediaries manager / +44 (0) 1624 638205 / [email protected]

The recently formed Lloyds Banking Group brings together the combined heritage of Lloyds TSB and Bank of Scotland – that’s almost 600 years of dedicated service to island businesses. In today’s business world, you need a bank that is not only moving with the times, but one that can help you plan for the future. We’re ideally placed to deliver support to businesses, from fast-growing entrepreneurs, SMEs and well established companies, to global corporations.

kPmg llcheritage court, 41 athol street, douglas, isle of man, im99 1hn simon nicholas, associate director / 01624 681002 / [email protected]

KPMG Isle of Man is the largest and one of the Island’s premier professional services firm. The Douglas based office has nine directors and over 100 staff the firm provides audit, tax and advisory services to an extensive range of Isle of Man and international insurance clients. KPMG Isle of Man is a local partnership and provides a full suite of services locally with a specialist insurance experienced team.

isle of man finance, deParTmenT of economic develoPmenT, isle of man governmenTst georges court, Upper church street, douglas im1 1eX, British isles / Brian donegan / +44 (0) 1624 686400 / [email protected]

The Isle of Man provides a secure anchorage for captive insurance in many ways, for example the Island has a separate and dedicated regulator for theinsurance and pensions industry. The Isle of Man has a reputation as a solid responsible jurisdiction which adheres to international standards of regulationand taxation. The Island is a self governing territory attached to the British Crown but outside the United Kingdom and the European Union and as such, offers flexibility in the provision of tailored corporate solutions.

The isle of man caPTive associaTion iomca, c/o aon insurance managers (isle of man) limited, Third floor, st georges court, Upper church street, douglas, isle of man, im1 1ee / gaynor Brough, chairman / +44 (0) 1624 692400 / [email protected]

The Isle of Man Captive Association (Iomca) was formed with the purpose of representing the interests of captive firms on the Island. Iomca is active in developing the profile of the Isle of Man as an attractive domicile for captive business. Iomca represents the Isle of Man internationally through its support of key captive conferences such as Captive Live, AIRMIC and FERMA.

deloiTTe llP Po Box 250, The old courthouse, douglas, isle of man, im99 1X sarah sanders, partner in charge / 01624 641230 / [email protected]

Deloitte has an unparalleled breadth and depth of services which make it a world force in its chosen areas of business – audit, tax, consulting and corporate finance. As a leading business advisory firm, we are renowned for our commitment to innovation, quality, client service excellence and for the calibre of our people. We serve a broad range of public sector departments, major international and UK corporates, mid market and high growth smaller companies and many private individuals. By harnessing talent and expertise across the firm, we deliver solutions to clients that inspire confidence in what we promise.

charles Taylor consUlTing Plc Burnaby Building, 16 Burnaby street, hamilton, hm11, Bermuda, 2nd floor, st george’s court, Upper church street, douglas, isle of man, im1 1ee / andy mccomb / +1 441 278 7700 / [email protected] / Jeffrey more / +44 (0)1624 683699 / [email protected]

Charles Taylor Consulting plc is a leading provider of insurance services. It manages mutual insurance companies, advises insurers on complex insurance losses and provides administration and consultancy services to insurers and insureds worldwide. It also own life and non-life insurance companies which are closed to new business.

Barclays WealTh 1 churchill Place, london, e14 5hP / general enquiries / +44 (0)1624 684481 / [email protected]

Barclays Wealth is a leading global wealth manager, and the UK’s largest, with total client assets of £170bn. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients, providing international and private banking, investment management, fiduciary services and brokerage. Barclays Wealth is the wealth management division of Barclays. Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 145,000 people.

aon insUrance managers (isle of man) limiTedThird floor, st. george’s court, Upper church street, douglas, isle of man, im1 1ee ms. gaynor Brough, managing director / 0044 (0)1624 692400 / [email protected]

Aon Corporation is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting and outsourcing. With more than 59,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions delivered via more than 500 offices in over 120 countries. Visit www.aon.com for more information on Aon and www.aon.com/unitedin2010 to learn about Aon’s global partnership with Manchester United.www.aon.com

www.barclayswealth.com

www.ctcplc.com

www.deloitte.co.uk

www.iomcaptive.com

www.gov.im

www.kpmg.co.im

www.lloydstsb-offshore.com/corporate

www.marsh.com

www.thomasmiller.com

marshcaptivesolutions.com

Partnering for impactSM

Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman.

Success does not come from eliminating risk.

SUCCESS COMES FROM MANAGING RISK FOR GROWTH.When the path is unclear — Marsh Management Services Isle of Man will help your company navigate through the world of risk.

Because you can have internationalfinancial services and professionalinfrastructure to support your captiveinsurance needsWith almost 30 years as one of the leading centres for Captive Insurance, and a pragmatic approach to legislation and regulation along with a well established infrastructure, the Isle of Man is a world-class jurisdiction. Voted “Best International Finance Centre” for 6 out of the last 7 years, it is no surprise that many of the world’s leading captive managers look to the Island as a centre where they can find the Freedom to Flourish. For more information

Brian DoneganDepartment of Economic DevelopmentIsle of Man GovernmentTel: +44 (0)1624 [email protected]

www.gov.im/ded

Untitled-6 1 02/12/2011 14:39

Captive Review Isle of Man Report 2012

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Transcript of Captive Review Isle of Man Report 2012