Here are a few thoughts on the Gibraltar insurance market as we push into 2018. Hope readers find it interesting and if you have any questions please do let me know.

Was 2017 a significant year for the Insurance market?

2017 was a very significant year for the Gibraltar Insurance sector. The topic that most dominated discussion at all levels was Brexit. The decision by the UK to leave the EU had a huge potential impact on the Gibraltar financial sector that relied on passporting arrangements. These concerns were largely mitigated by the UK Government providing assurances to the Gibraltar Government on the continuation of the Gibraltar-UK trading relationship post-Brexit. By premium volume the largest share of business written by the local insurance sector is still with the UK and primarily motor business. What form this will take, however, has yet to be clearly defined and it is to be expected this will happen in the first half of the year.

Do you see the insurance landscape changing in Gibraltar?

There is no doubt that the insurance landscape has already changed significantly over the last few years. The sector is still relatively small in terms of the number of players that comprise it (compared to other jurisdictions, that is). So it's easy to keep track of what is happening at any point in time. It is publicly available information, for instance, that a number of insurers have gone into runoff (stopped writing business), whilst those businesses that have completed a runoff of their insurance liabilities have now been able to surrender their insurance licences. At the same time, the barrier to entry is much higher since Solvency 2 came into effect than at anytime in the past and that naturally means that the prospects for growth are fewer.

If someone came along today, for example, wanting to set up an insurer from a small broking business, it may well be that they would not be able to satisfy Solvency 2 requirements; this is because Solvency 2 doesn't sit well in terms of smaller owner-managed broker-type businesses.

What all this means is that it is much more important to continuously remind the companies that are already here of the rationale for why Gibraltar plc continues to make sense. As a jurisdiction we do not take that for granted. Companies come, but companies can also go; all it takes is a strategic review at parent company level for either to happen.

Fortunately, the Gibraltar Government is conscious of the need to maintain what I call the Gibraltar eco-system - a balance that works for everyone.

Where I do see continued growth is MGAs being set up locally to access the UK, using third party capital (rather than own underwriting capital). We have already seen a number of very successful MGA businesses being established in Gibraltar over the last years and this trend is likely to continue.

We saw one company redomicile from Malta to Gibraltar in 2017, do you see more companies following?

I visited Malta on several occasions in 2017 to explore post-Brexit options. I have always said that this was two-way traffic, namely, Gibraltar companies that need an EU solution relocating to Malta and Maltese companies that need a UK solution relocating to Gibraltar. I think I now have visibility of how many companies will require either and the balance in numbers would be in Malta's favour. In other words, we will see more companies leaving than coming to Gibraltar (because of the overall numbers potentially affected) but there will be a partial offset between the two; it's a fair result.

Another potential solution to Malta (short of an EU agreement that keeps both the UK and Gibraltar in the Single Market) is for Gibraltar companies needing an EU based solution to redomicile to Spain and establish their corporate seat in La Linea which is just across the border between Gibraltar and Spain and use their existing Gibraltar back-office infrastructure; that would mean employment and taxes would be generated on Gibraltar's doorstep and would be of mutual benefit to both sides. I haven't explored that option yet in any detail but if it was available it might be attractive - it would also certainly save considerable travel time. Ultimately the Board of each company needing an EU based solution would take their own decision of where they relocate to but it doesn't really matter as long as it's within the EU, all things being equal. That decision needs to be taken shortly, however.

Whilst unrelated to EU passporting, we also saw one Gibraltar captive redomiciling to outside the EU last year.

On the subject of EU regulation, one of the questions in my mind is the extent to which the smaller domiciles within the EU (e.g. Malta, Luxembourg) will be able to retain their independence from EIOPA on supervisory matters in the future.

Do you believe that Gibraltar will grow the captive sector?

The extent to which Gibraltar (or indeed the UK) will be able to develop it's own captive industry post-Brexit will largely depend on the extent of regulatory alignment with the EU, principally, in any trading relationship with the EU would we be able to retain our ability to do things differently for captives or would we follow the same EU rules across the board? Solvency 2 has put a much higher cost for captives and in a lot of cases it is cheaper today to put in place an alternative solution. We haven't grown the stand-alone captive space in Gibraltar for a number of years and instead we have seen several captives being put into runoff. That's not going to be reversed anytime soon I think. Cells within Protected Cell Companies, however, will continue to hold attraction for certain captive users.

One of the largest risks in any business sector tends to be changes in regulation and/or sources of market disruption. Over the last years we have seen both in the Gibraltar insurance industry, namely, changes in regulation as a result of Solvency 2 and the potential disruption created by Brexit. Therefore whilst it is inevitable to focus on the prospects for growth when looking at the sector, we cannot lose sight of the fact that any one of these events would in itself have curtailed growth and changed market dynamics significantly.

Gibraltar's success in future will, in large part, rely much more on 'regulatory speed to market', when say, compared to the UK, and its ability as a jurisdiction to embrace innovation ahead of its competitors. We have certainly seen examples of this in 2017.

Finally, as we leave 2017 behind I think we should give due recognition to the contribution of those entrepreneurs that established (or subsequently acquired and re-infused with energy) some of these Gibraltar businesses, businesses which today are among the leading insurers operating in their respective markets. The industry wouldn't be where it is today without them.

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