McGill's Cross backs UK captive opportunity

By Rebecca Delaney

April 14 - (The Insurer) - McGill and Partners would consider applying for a UK captive management licence provided the proposed regulatory regime is proportionate and cost-effective enough to repatriate vehicles from other European domiciles, founding partner Stephen Cross told The Insurer.

"As a broker, we don't do captive management. The one country I said that we would do it in would be here, if they can get the legislation together and if it's cost-effective," said Cross, who also serves as head of strategy and innovation at McGill and Partners.

"If it's efficient, proportionate regulation, we'd be probably the first to apply for a captive management licence. We don't see that as competing with other captive managers, we see that it will be a tool in our toolbox to help our clients on a more direct basis to manage their risk."

Proportionate regulation may mean a bifurcated approach between the Financial Conduct Authority's oversight of commercial insurance companies and a separate regime for captives, particularly for those that primarily write own-party risk.

Cross pointed to Bermuda as an example of a domicile that has established different categories for captives to distinguish between smaller single-parent vehicles writing own-party risk and those writing large covers for third-party risk that require tighter regulation.

However, he added that Bermuda "erred" in moving too slowly to introduce legislation to capture the U.S. medical malpractice market back in the 1960s, causing the jurisdiction to lose its leading position to the Cayman Islands.

Other domiciles that have moved quickly to seize captive opportunities include Dublin, which grew its underwriting and broking capital in the 1990s following the establishment of the single EU market and European Economic Area.

"Vermont was the first location to establish onshore, it cut out its niche and its uniqueness. You absolutely could do that in London," Cross continued.

"I don't see any reason why London, over time, couldn't repatriate a lot of the captives that are in Guernsey or the Isle of Man or Gibraltar. They can absolutely be onshore back here over time, but you need to build the infrastructure. You don't flick a switch and everything happens overnight, you build your reputation over time."

London stands at an inherent advantage owing to the concentration of underwriting, broking and service capabilities located in the Square Mile. Cross added that the pool of industry veterans means there is a line-up of potential independent directors for future captive insurance companies.

"If they pass the legislation and people get their heads around the economics, we think that London has the potential to very rapidly reach critical mass in terms of capital management and capital facilities," he said.

"In a post-Brexit environment, you have to start rebuilding confidence in the City and re-engage. How do we regenerate the City? How do we start to get more people into the City? How can we tap into the ecosystem that exists and add more?"

Cross underlined the need for the UK government and regulators to take a long-term view when crafting the new regime, given that captives serve as long-term risk management and capital optimisation vehicles, particularly in the macro landscape of evolving risk.