“We can see captives owners able to use their captives to create competitive tension in the market and influence renewals.”
Karen Shimmin, Thomas Miller Captive Management

Where is captives growth predicted to come from, in terms of geography and industry?

We have seen particular hardening of the traditional insurance market across financial lines, property and casualty and cyber risks. With premiums increasing, reduced cover and insurers withdrawing capacity, even on a ‘clean risk’, we are seeing hardening across these lines of business which makes the captive insurance prospect very appealing.

Thomas Miller Captive Management (TMCM) has seen several enquiries from independent financial advisors in respect of professional indemnity cover, which seems to be an area of significant concern for underwriters at the moment.

The Isle of Man remains an attractive domicile for captives. It has a high sovereign rating and stands as an internationally responsible country as acknowledged by the International Monetary Fund and other regulatory bodies.

The professional infrastructure on the island is well established, and one of the attractions of the Isle of Man is the breadth of its finance sector. The Isle of Man government and the Isle of Man Financial Services Authority (FSA) recognise the importance of the captive insurance sector and have recently collaborated with industry to create the website www.captive.im

Do you expect to see sustained growth in the next few years?

The traditional insurance market is hardening and we expect this to continue over the next few years. It paves the way nicely for the captive insurance market to use this as an opportunity for growth.

We’re seeing more interest and activity than ever. There are enquiries from people that are now seeing the merit and value of a captive. We are also seeing enquiries from existing captives owners looking to utilise their captives to fill gaps in their current programmes or introduce new lines of business into the captive.

As traditional market conditions become more challenging we can see captives owners able to use their captives to create competitive tension in the market and influence renewals.

What trends are there in terms of structures, industries and classes in the captives sector?

We already manage a very diverse group of captives, but from the new enquiries we are receiving this could widen further. Each captive we manage is unique in terms of structure so we are well practised in providing niche solutions to our clients. We have also seen a lot of interest in cell captives, which can be used to allow smaller companies to isolate risk without incurring the expense of actually owning a captive.

In addition to cost savings, a protected cell company (PCC) can free up management time and offer both capital flexibility and acceptance. Insurance special purpose vehicles (ISPVs) are also available to companies looking to set up a structure for an insurance-linked security (such as a catastrophe bond) or as a mechanism to gain access to the reinsurance market.

An ISPV must be fully funded by way of contractual arrangements with its participants such that the ISPV’s liability to its participants is limited to its available assets.

How is COVID-19 impacting the sector?

Thanks to TMCM’s robust business continuity plans, which have been in place for a number of years, our clients can take comfort from the fact that the pandemic resulted in no disruption of the day-to-day management of our captive insurance companies and we are therefore able to continue providing high service levels despite the current restrictions.

We have been able to hold board meetings virtually during this period so it is pretty much business as usual. We have not experienced any let-up in interest in captives throughout the period of lockdown—people are still concerned about the hard market and rate increases. Such an approach has been facilitated by the pragmatic steps taken by the FSA and Companies Registry in rapid response to the remote working needs of the sector.

However, we are seeing requirements from auditors for fairly detailed ‘going concern’ statements accompanying the financial statements for our captive insurance clients, in anticipation of potential parental difficulties as a result of the restrictions in trading during the COVID-19 lockdown period.

Shifting the focus away from day-to-day management, a big topic for the insurance industry at the moment is business interruption (BI) cover—the extent to which BI covers business closures due to the pandemic has to be determined under contract law against each specific policy wording.

The UK Financial Conduct Authority (FCA) is seeking to help insurers and policyholders in the UK gain clarity around the coverage of different policy wordings. To do this the FCA participated in a test case in the UK High Court to determine whether certain standard policy clauses, used by many UK insurers, extend to cover the COVID-19 pandemic.

What are the latest statistics on captives numbers?

The Isle of Man currently has around 115 authorised captive insurance companies.

What new legislation/regulations have there been affecting captives in the last year, or upcoming?

The FSA has a Roadmap for updating the Isle of Man’s regulatory framework for insurance business. The Roadmap was issued in June 2013 to provide an overview of a significant update to the Isle of Man’s insurance regulatory framework which is consistent with the FSA’s aims of ensuring that the island has a proportionate and robust regime for the regulation and supervision of insurance business, as reflected in developments in relevant international standards.

Last year FSA has issued the February 2020 Roadmap which provides regulated entities and other relevant stakeholders with information on progress over the past six months and looked ahead to significant work streams over the next year. A copy of the complete Roadmap can be found here

In the process the FSA undertook extensive consultation and worked closely with the Isle of Man Captive Association to ensure that the enhanced legislation is both relevant and appropriate.

Karen Shimmin is a senior account manager at Thomas Miller. She can be contacted at: karen.shimmin@thomasmiller.com

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