Gibraltar: Gibraltar Insurance Companies

Gibraltar is within the European Union (EU) and has fully implemented the 2nd and 3rd EU directives on insurance. It is therefore possible for Gibraltar established insurance companies to cover risks in any EU Member State. The Insurance Companies Ordinance 1987 allows for the setting up of Gibraltar insurance companies, both third party insurers and captive insurers, and also the licensing of foreign insurance companies wishing to carry on business in Gibraltar. Insurance business is supervised by the Gibraltar Financial Services Commissioner (the Commissioner), supported by the Insurance Supervisor, to UK Standards.

The cost of incorporation will depend on the amount of authorised share capital (stamp duty is 0.5%). Despite there being no minimum share capital included in the legislation, the Commissioner will expect a solvency margin of 18% of the gross written premium (reduced by up to 50% where there are Outwards reinsurance arrangements). NB. There is a minimum guarantee fund requirement (after calculation of share capital and retained earnings) of 200,000 to 400,000 Euros depending on the business written.

The Commissioner will only issue a licence if he is satisfied that:

• The company will carry on the business with integrity, prudence and with professional skills necessary for the range and scale of business undertaken.
• The company’s shareholders, directors and managers are "fit and proper"
• The company has a coherent business plan, adhering to EU requirements including solvency levels
• The company has proper reinsurance arrangements in place.
• The initial fee on applying for a licence is £500 and the annual fee, thereafter, is £2,000.

The Commissioner requires a licensed insurance company to:

• Maintain at all times a place of business in Gibraltar and maintain its insurance and accounting records there
• Run its business in a sound and prudent manner
• Submit financial statements within six months of the end of its financial year end
• Maintain solvency margins and minimum guarantee funds at all times
• Obtain approval for any changes in directors, managers and controllers of the company.

• Gibraltar insurers are able to cover risks in any EU member state as a result of Gibraltar being within the EU and implementing the EU insurance directives
• Favourable establishment and operating costs
• Use of Gibraltar Tax Exempt and Qualifying companies to reduce corporate taxes
• Local insurance, legal, accountancy and banking expertise
• No insurance premium tax in Gibraltar.

These are limited purpose insurance companies specifically for financing risk emanating from its parent group or groups, occasionally extending to customers of the parent. Typical types of risk are:

• Property damage
• Employers liability
• Public and products liability
• Motor
• Professional indemnity
• Medical aid expenses
• Employee benefits

The captive’s exposure may be limited by use of reinsurance.

• Conventional insurance may not meet the needs of major corporations in terms of price, service, cover and capacity
• Able to gain access to the reinsurance market. Reinsurers operate at lower expense ratios and offer better value for money.
• Able to underwrite business on a direct basis. Some other EU jurisdictions only allow reinsurance captives.
• Gibraltar is outside the EU Customs Union and therefore a VAT free zone.

• Lower cost of insurance
• Improved cash flow
• Stabilisation of costs
• High rate of return on capital
• Formalisation of loss reserves
• Focuses decision-making on cover and risk control
• Flexibility in design of risk financing programme
• Benefit of improved loss experience
• Diversification into financial services