Senior figures in the insurance industry have expressed concerns that the UK is losing ground in the expanding market for captive insurance, where companies establish internal entities to manage corporate risks.
London’s specialized commercial insurance and reinsurance sector, a vital component of the City’s economy, is currently experiencing robust growth with record employee numbers and increasing sales. However, at the recent FT Global Insurance Summit, David Howden, founder and CEO of Howden, highlighted the need for London to innovate more effectively in response to the rising popularity of captive insurers among large corporations.
According to Howden, as much as half of the insurance needs for some major companies are now met through captive insurers rather than traditional external providers. This shift prompts the industry to ask, “How do we ensure London remains a leader in this evolving market?”
Caroline Wagstaff, CEO of the London Market Group, echoed these concerns, emphasizing that London cannot afford to be complacent about its dominant position in specialist insurance and reinsurance. She noted government plans for new regulations aimed at promoting captive insurers in the UK, although delays in implementation have left the industry in a state of uncertainty.
Captive insurance involves companies setting up their own insurance arms, often with the assistance of brokers, to cover risks such as management liability. These entities typically purchase reinsurance from external providers, offering advantages in periods of high commercial insurance prices and potential returns from investments and underwriting. However, they also expose businesses more directly to the costs of risks.
London’s competitive edge in this sector has diminished in comparison to jurisdictions like Bermuda and Guernsey, which offer lower taxes and lighter regulations, thereby attracting a significant number of captive insurers globally. Industry estimates suggest there are approximately 7,000 captive insurance companies worldwide.
Research by the London Market Group indicates that regulatory adjustments, such as reducing capital requirements, could attract nearly 700 captive insurance entities to the UK, potentially bolstering London’s employment and economic prospects.
Dame Susan Langley, UK chair of Gallagher and a key figure in London’s financial governance, acknowledged that London is perceived as “very traditional” in recent international discussions, contrasting with the innovation-driven growth seen in rival centers like Bermuda and Singapore.
In response to these challenges, Lloyd’s of London reported substantial interest in captives from multinational groups, with one Lloyd’s syndicate recently announcing a new captive syndicate arrangement with a global client.
A significant driver of growth in London’s insurance market has been the escalation in reinsurance prices, particularly for property catastrophe coverage, which safeguards primary insurers against severe weather-related losses such as hurricanes. Patrick Tiernan, head of markets at Lloyd’s, emphasized at the summit that the restructuring observed in 2023, driven by years of capital underperformance, is likely to persist, ensuring stable pricing dynamics in the foreseeable future.
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