Regional Review: Gibraltar

But as it suffered difficulties on one front, there have also been positives. Its motor sector has seen rapid growth – it now accounts for 16% of premiums written in the UK market.

In addition, the arrival of high-profile names – such as Catlin-backed telematics provider Insure The Box – has given the territory’s champions something to smile about.

So, as Gibraltar’s Financial Services Commission and trade bodies work to attract more big names to the territory and diversify the sector into other insurance lines, Post asked key industry players for their take on the big issues affecting the market.

What are the main attractions of Gibraltar as a domicile?
James Humphreys, chief executive officer of niche insurer Tradewise: Speed to market. If you are capable and you have the required financing you can get to market more quickly and efficiently from Gibraltar.

Albert Isola, Minister for Financial Services and Gaming: Our tax rates are very competitive, our regulator is very accessible, we’re a small jurisdiction that is ready to adapt and we’re entitled to passport our services throughout the European Union.

Gibraltar’s low tax regime – only 10% corporation tax and zero capital gains tax – has led some to question if the jurisdiction encourages tax arbitrage. How important is the low taxation?
Danny Gibson, chief executive officer of liability insurer Casualty & General Insurance Company (Europe): We came to Gibraltar because it was quicker [to set up] and we needed less money than we would have done in other jurisdictions. Tax was not the defining feature. Lower tax is a bonus – but it’s not the reason you set up somewhere.

Humphreys: This is not a tax haven anymore. There is no such thing as an ‘offshore company’ in Gibraltar. Everything’s onshore. It has lower corporation tax, and that may be seen as an advantage, but that’s the world we’re living in. There are better places [from a tax perspective] one could trade from.

Isola: We have tax information agreements with 26 countries but with effect from 1 March we have had the multilateral convention extended to us, bringing another 78 countries. We’re 100% committed to a culture of compliance.

Events over the past 18 months have seen the robustness of regulation called into question. Has Gibraltar’s regulatory regime changed in recent years?
Gibson: What the regulator has done is really strengthen the capital base of insurers. It is right on top of it. It’s driving us all mad.

Humphreys: [We’ve watched] the regulator go through the 2007 crisis and become as scared as the regulatory authority in the UK. Before, [it] had more bounce in its step – but now [seems] to want to be as brass-bottomed as the regulatory authorities in the UK, which is a shame. We’ve had a hardening on the solvency requirements, although I still don’t believe there’s a solvency margin on a calculator that makes an insurance company strong. It’s how they trade that makes them strong.

Graham Dickinson, partner at law firm DWF: The regulator takes a keen interest in what’s going on with the insurers that are setting up. [It] is much more insistent on there being a strong representative presence in Gibraltar on behalf of these different companies. Gone are the days firms could open up behind a nameplate and have one or two people getting off a plane once a month and that would suffice. That’s why you get [firms] like Markerstudy and Advantage that are doing underwriting work directly in Gibraltar – that’s a big change from five years ago.

Michael Oliver, head of insurance supervision at the Financial Services Commission: We’re always looking to improve the ways we can supervise firms. One area we’ve been looking at, which is not specifically directed at Lemma but could be applied to Lemma, is the strength of insurance companies risk management processes. Last December, the European Insurance and Occupational Pensions Authority issued interim measures for implementing Solvency II. We’ve ensured our own FSC guidance fully reflects what it is that Eiopa intends all supervisory bodies to do come January 2016. We’ve [also] been more explicit and said [to companies] there are certain Solvency II requirements, and we expect you to be able to demonstrate you’re making progress.

The collapse of Lemma has contributed to calls for the UK solicitor’s professional indemnity market to introduce a minimum rating standard. Do you believe ratings hold any value?
Gibson: For us as a company, it’s difficult to sell unrated paper when you’re up against Lloyd’s players. We looked into acquiring a secure rating a few years ago – but because of the size of the company, we were never going to get an A rating. We’re just too small. We took the decision that we would stay as we are and lose out on business, but it keeps us liquid and fluid. If we get bigger then one day we might investigate it again.

Humphreys: I can’t think of anything that was protected [during the financial crisis] by having a rating. You need to know who is strong, but how about looking at which reinsurers we have and how strong that panel is? If [you’re] going to be forced to take ratings where the rating is to some degree reflective of what you pay, then it’s ludicrous to say that that is the way to protect the public. If there is going to be a rating system it has to be government-led, which may have a hope of working.

Oliver: We don’t rely on external credit ratings ourselves. We do our own analysis and if we think action needs to be taken or a firm needs to strengthen its controls we would take that action. Companies have to consider the value of getting a credit rating and take into account what counterparties operating in their market want of them.


How do you expect Solvency II to impact on Gibraltar-based insurers?
Mohammad Khan, partner at PWC: The introduction of Solvency II should harmonise the capital requirements. If you’re in Gibraltar right now, you’re on Solvency I. The UK is also on Solvency I, but you have the Prudential Regulation Authority regime.

Gibson: I thought with Solvency II someone was going to come in and clean up. But [the outcome] depends how long people are grandfathered in on the capital requirements. But it’s nice to think that someone’s going to come in and give us all a big cheque.

Chris Johnson, director of insurance manager Robus and chairman of the Gibraltar Insurance Association: Some companies may find the capital levels required are beyond what they were gearing up for. There are probably going to be ways around capital levels – there’s been talk of risk-sharing for diversification, because one of the features of Solvency II that is least favourable to smaller firms is that it penalises mono-line companies. Another solution is to consolidate. None of our clients as far as we know have been party to any discussions, but people are alive to the possibility.

Why have Gibraltar-based insurers been so successful in the motor market and can that growth be replicated in other business classes?
Johnson: In 2001 we passed the protected cell company regulation. That and the hardening market made people wake up a bit to Gibraltar. In seven or eight years Gibraltar went from a dozen insurance companies to 50 or so. London’s level of regulation and the contribution to the central fund made it an expensive place to do business, so motor insurers looked around and Gibraltar was there in waiting. It’s difficult to predict what the next wave will be, but we’re getting all sorts of enquiries.

Dickinson: The motor market was the inevitable opportunity in the early days because it coincided with the growth of the comparison website market. Taking away the broker relationships, which can be very personal in the UK, and using websites to price was ideal for these companies. Now Gibraltar has become that bit more experienced and has good quality people doing the underwriting, people are saying there are other business lines we can work within. There’s household and pet insurance now being written out of Gibraltar and that’s something we wouldn’t have seen a few years ago. It’s no longer a small number of former UK individuals in an offshore tax haven to write some cheap and cheerful UK motor business.

Isola: We’ve been extremely successful in the motor market. Although that’s great, it’s disappointing that other areas are not doing as well. One of the big efforts Michael [Ashton, GIA senior development executive] is making this year is to diversify our insurance base. There are a number of products we’d like to develop, but in the meantime we’ve been consulting people involved in the industry to see how we can strengthen our regulatory regime to ensure that everything we do is sustainable.

Khan: You can see Bermuda as a bit of a case study. What Bermuda did was build an infrastructure around [the industry]. In Bermuda you don’t just have the pool of insurance talent; you also have the lawyers, the accountants and the actuaries all around them as well. Gibraltar is starting to get that with the benefit it’s seeing from the motor insurers, and if they continue to [build infrastructure] there’s no reason why they couldn’t do it.