Picking the Rock

The benefits of EU membership, a flexible tax system and grass roots support is seeing the insurance industry flourish in Gibraltar. Brendan Murphy and Nick Keeling report

New insurance business is continuing to move to Gibraltar, increasing the vibrancy of a growing insurance sector. Over the past three years, the number of new insurance licensees in Gibraltar has jumped from 13 in March 2000 to 35. Gibraltar government figures predict more than 40 licensees in the jurisdiction by the end of 2003, with applications from several large players in the pipeline. So, why Gibraltar? And what are the requirements to establish a licensed insurance presence?

In February 2003, addressing a mini-conference in the London Underwriting Centre, Gibraltar’s minister for trade gave a clear picture of the buoyant nature of the market. He also gave some insight into the reasons why names such as Admiral, Aon, Cox, Marsh, Willis and Zenith have all seen advantages in operating from Gibraltar.

Importantly, against a background where many users of captives in jurisdictions outside the EU are facing increasing bureaucracy and sharply increased fronting fees, a licence in a jurisdiction with EU passporting rights becomes very attractive.

As part of the EU, a Gibraltar-licensed entity has the ability to introduce business into any EU member state, usually under the freedom to provide services or the right of establishment. Often the only formal requirement is to observe the necessary notification procedure to the authority in the member state into which the licensee wishes to write business. It is worth noting that Gibraltar’s legal system is based on English law, although Gibraltar forms part of the European Community by virtue of the provisions of the Treaty of Rome. All EU directives have effect in Gibraltar and, for insurance purposes in particular, the various EU directives regarding solvency margins apply.

Among the reasons for the increasing popularity of Gibraltar, particularly for insurance, is the speed with which new licensing applications are considered and decisions made. Applicants can expect a timeframe of between three and six months from application to decision. This compares very favourably with many other jurisdictions.

Consulting with the pool of reputable insurance managers in Gibraltar will give an intended applicant a clear picture of the legal and regulatory requirements.

Also, Gibraltar has flexible tax legislation, particularly if no business is to be written to Gibraltar companies or residents. The government of Gibraltar intends to introduce a revised corporate tax regime on 1 July 2004. Under the current proposals, all financial service companies (including insurance companies) will pay corporation tax at a rate of 8 per cent (or possibly less) on retained profits. The proposed tax reform package is currently in negotiation between the government and the European Commission to ensure compliance with
EU law.

The framework for the regulation of insurance business in Gibraltar is set out by the Insurance Companies Ordinance 1987 with its amending and subsidiary legislation. The current legislation stems from the EU directives on life and non-life insurance.

The Commissioner of Insurance (who is also the Financial Services Commissioner) is responsible for the licensing and control of insurance business. The day-to-day supervision of licensees and assessment of applications for insurance licences is undertaken by the head of insurance supervision at the Financial Services Commission (FSC).

The FSC has issued guidance notes for applicants seeking to carry out insurance business in Gibraltar, which can be accessed online. They include, among others, a need for the applicant to prove they can conduct an insurance business with integrity, evidence of appropriate reinsurance arrangements and evidence that they can meet minimum guarantee fund requirements under Gibraltar law and can adhere to EU guidelines on solvency margins.

Applicants need to also show evidence of coherent policies regarding technical reserves and the proposed distribution policy, and illustrate consideration of the nature of any risk exposures and details of proposed risk retention levels. Practical requirements include an outline of personal details, relevant experience, statements of the applicant’s management, the applicant’s business pedigree if currently trading elsewhere, and the classes and the scale of the insurance business to be written or undertaken. An application fee is also payable, ranging between £500 and £1,000 for application fees and between £2,500 and £6,000 for annual licence fees.

The head of insurance supervision will assess each individual application on a case-by-case basis. He has indicated that his office is prepared to be reasonable and flexible within the constraints of the legislative requirements. There is no statutory minimum capitalisation requirement, as this will depend on the level of business to be written.

Another reason for the growth of insurance in Gibraltar is the Protected Cell Companies Ordinance 2001. This mainly boosted captive insurance and funds work. In essence, the ordinance provides for a single company with individual parts, known as cells, which are kept separate from one another. Each cell is liable for its own debts and not for the debts of any other cell within the company.

At present, Aon Insurance Managers (Gibraltar) provide potential applicants with the ability to ‘rent a cell’, and has established a licensed protected cell company for that purpose.

The terms of the ordinance can be accessed on the FSC’s website, but advice should be obtained before considering establishing or ‘renting’ a cell of an existing licensed Gibraltar protected cell company.

In conclusion, the Finance Centre Division of the government of Gibraltar continues to reaffirm its active support for the insurance industry in Gibraltar and there is a very healthy current list of applicants. The regulatory environment matches EU standards, but endeavours to be flexible and reasonable within legislative constraints.

These factors, taken together with the proposed Gibraltar corporate tax reform package mentioned above, go some way to explaining why Gibraltar has amassed a critical mass of quality insurance business and seems set to go from strength to strength.
Brendan Murphy and Nick Keeling are partners in the Gibraltar office of Denton Wilde Sapte