WDU 2023: Europe in focus

Analysis of captive domiciles in Europe, based on data from the 2023 World Domicile Update

 

KEY NUMBERS

2021 captives: 686

2022 captives: 689

2022 approvals: 28

2022 surrenders: 25

Net difference: +3

Growth rate: 0.44%

Surrender rate: 3.64%

2021 estimated premium: $24,135,000

2022 estimated premium: $25,856,000

Premium change: $1,721,000,000

2021 premium per captive: $35,182,000

2022 premium per captive: $37,527,000

 

The 14 Europe domiciles had a relatively quiet year for new captive formations, approving only 28 new licences between them in 2022, but it was among the region’s existing captives where real confidence was shown in the captive model.

At the end of 2021 European domiciled captives already carried the most premium per captive, and last year our estimates suggest each captive added more than another $2.3 million on average – by far the highest increase of all regions.

Furthermore, with only 25 surrenders last year this gave Europe the lowest surrender rate of all the regions, suggesting owners of European-domiciled captives are committed for the long-term.

While not typically home to the captives of larger European corporates like Luxembourg or other continental domiciles, there was a particularly strong showing in 2022 for those European countries that have embraced cell legislation in Europe.

Guernsey had the most non-cellular captive approvals of all the European domiciles, with 12, and also had another 23 new cell formations as it finished the year with 126 cells.

Malta approved four new cells in 2022, as it finished the year with 77 cells. Despite finishing 2022 with two fewer captives than at the start of the year, Malta’s captive premium increased by Є113 million ($124 million), ending the year with Є347 million ($379 million) in captive premium.

This marked a significant increase in average premium per captive, from Є9.8 million in 2021 to Є15.8 million in 2022.

And while adding no new cells in the year, Gibraltar also had a large rise in captive premium, rising from $100 million to $155 million – amounting to a change of $10 million per captive to $15.5 million per captive.

One of the key differences between European domiciles that Oliver Schofield, managing director of captive consultancy RISCS CWC, identifies is whether or not they are in the EU.

Being in the EU means a domicile is subject to the Solvency II regime, and Schofield says this means costs for small captives become more of an issue.

“Non-EU locations in Europe are not subject to have a more flexible capital structure,” he adds.

And this, along with its attractive cost-base, and fast tracking of cell applications, is what he thinks has made Guernsey so popular in the last few years, particularly among UK parents due to the time zone and proximity to head offices and shared language.

RISCS CWC non-executive chair Malcolm Cutts-Watson says that compared with US domiciles, where insurance regulation is at state level and the regulator can craft a bespoke captive proposition, in the EU what domicile regulators can do is much more limited.

“Each territory is required to implement EU directives thereby standardising any captive offering,” Cutts-Watson says. “There is some wiggle room in interpreting the directives but this is insignificant compared to the flexibility available to US states.”

However, Cutts-Watson adds that in his experience he has found that EU corporates have avoided having US subsidiaries, like captives, if possible, so as not to enter the US legal system.

There A number of EU territories have implemented captive legislation, such as France, or are interested in doing so, such as Italy, but Cutts-Watson that the challenge in developing a thriving captive industry would be in the type of regulations adopted.

“No doubt these territories can demonstrate the business infrastructure to support captive business, but the challenge is creating an offshore style of regulations that matches the existing business friendly ecosystem in place in domiciles such as Guernsey and Bermuda,” he says. “Culturally this may be a step too far for EU insurance politicians and regulators.”

He highlights that offshore domiciles are able to provide a variety of offerings including protected cell companies (PCCs), and that currently Malta is the only EU domicile that can match this.

Nevertheless, he believes that if France and other EU territories are able to successfully match the regulatory regime of offshore domiciles, then he could envision a strong stream of redomiciliation of offshore captives.

“Captive managers would quickly gear up their onshore offering and any tax advantages of being offshore have long disappeared,” he says. “However, previous attempts to create a larger onshore captive market have been unsuccessful. Looking to the US experience could provide a useful road map.”

12 August 2024
5-6 November 2025

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