UK motor business still driving ahead
Insurers in Gibraltar were last year responsible for an estimated record £5.19bn in premiums, almost all being from UK customers and the annual total is expected to rise significantly with the prospect of new markets post-Brexit, including from the Far East, writes Ray Spencer
In anticipation of the UK – and by association also Gibraltar – no longer forming part of the European Union (EU) single market, insurers have been moving businesses into and out of Gibraltar; others have set up new insurance enterprises in the jurisdiction and there is also movement out of the UK to The Rock.
Chairman of Gibraltar Insurance Association (GIA), Shaun Cawdery remarked: “Gibraltar companies already insure at least 1-in-5 UK cars and I believe there is a great opportunity for us to increase writing business there, especially in other lines.
Rock-based businesses increased their share slightly above 20% of the UK motor market in 2018 and saw total premium income from the circa 6m cars they insure rise by around 7% to reach £4.56bn over the previous year, according to market analysis by accountancy firm, Deloitte presented at the Sunborn Hotel at end-September.
“The Gibraltar share of the UK market is still robust, despite Brexit uncertainty”, declared Daniel Delgado, a Deloitte (Gibraltar) partner. The research is based on insurers with mostly motors business, so the total premium income will be greater. The firm believes Gibraltar’s share will hold up even as there are signs that UK car insurance costs are falling in a highly competitive market.
The predominance of UK motor insurance business has marked Gibraltar out as different, and paradoxically owes its existence primarily through dissatisfaction at rising costs after changes in the 1990s with Lloyds of London, the world-leading insurance underwriting centre, of doing business in circa 2000 causing a number of Lloyd’s motor syndicates to consider they were not competitive with non-Lloyd’s UK motor insurers.
Faced with an 18 to 24 months licensing process, some turned to Gibraltar which at the time offered new insurance companies authorisation in around 6 months, subject to meeting all EU requirements.
Only one decamped
Markerstudy was the first motor insurer to be incorporated in Gibraltar in January 2001 and was quickly followed by a number of others as local lawyers, operating under the Gibraltar Order 2001, were able to confirm Gibraltar’s EU passporting rights for financial services and began to suggest businesses consider establishing in Gibraltar rather than the UK.
Today there are around 45 insurance companies, comprising non-life entities, two life companies, some captive insurers and, of course the most being motor based. Largest amongst them at present are Admiral, Advantage (part of Hastings Group), Qatar Reinsurance – 2, Zenith and Markerstudy.
With Brexit uncertainty, most companies that also had European business made alternative arrangements, with only Slovakian-owned insurer, Premium managed by Artex Risk Solutions – one of five Gibraltar insurance managers. – relocating in May to Artex in Malta.
Gibraltar’s Robus Insurance, an independent insurance management, fiduciary and financial advisory group, which is also in Guernsey, opened a Malta office in November 2018, and Sovereign Insurance Services, established in Gibraltar in 2012 by Sovereign Trust as a corporate and international insurance broker, opened a Malta office in May.
As Cawdery observed: “The Single Market arrangements are uncertain for portfolio transfers, establishing new businesses, or re-domiciliation. While Gibraltar and British businesses must do something by Brexit day in the event of a hard Brexit, those in the EU writing business into the UK can sit and wait and see how things go for up to three years following as a result of the UK’s Temporary Permissions Regime, which is not reciprocal.
EU portfolio transfers
“This also means that insurers moving into Gibraltar [from Europe] to service the UK market have been slower than might have been expected,” the GIA chairman noted.
Admiral Insurance, Gibraltar’s largest insurer with 10% of its business in home insurance and the balance in motor business, arranged a portfolio transfer of its European book into Spain in January, at a reported cost of £4-5m, including transfer of several hundred thousand policyholders also from the UK.
Whilst some of Gibraltar’s EU insurance business have sought to move to Malta, others, such as Red Sands (RS) with operations in five European countries and one of the fastest growing whole-life insurers in Eastern Europe, have faced difficulties in doing so.
RS found Malta’s position in respect of licensing altered after starting its application in May 2018, including a change in risk appetite for Gibraltar-based insurance portfolios and required three rather than five key locally-based personnel supported by a number of established local outsourcing arrangements.
Cawdery, who is also RS managing director, explained: “After discussions with the Malta regulator, it seems they still have a number of issues with Gibraltar transfers, possibly as a result of pressure in the background from the European Insurance and Occupational Pensions Authority, which oversees EU regulators, and has expressed views on the substance of UK and Gibraltar transfers into the EU post-Brexit to ensure that they are not simply letterbox arrangements.”
It was a reputational risk issue around past failed Gibraltar and UK insurers, he declared and “although perhaps understandable in the past – say 15-20 years ago when there may have been less substance to some businesses in Gibraltar- that perception is outdated and unjustified”, Cawdery emphasised.
Ironically, Red Sands took on 8,365 customers of now4cover, a UK home insurance intermediary that was part of Gibraltar’s Lamp Insurance, which went into administration at end-April.
In 2016, Enterprise, a motor insurer, became the largest to cease trading with a claims bill exceeding £157m, and Elite followed a year later.
Jay Gomez, a senior associate specialising in insurance at law firm Triay & Triay (T&T), said: “Failure is never good for any jurisdiction, but what we have to be conscious of, given the amount of business written from Gibraltar, is the amount of failures we have experienced is not that large: failures happen all over the world; they are bound to happen – it is a reality.”
Paul Cole, managing director of, Artex Risk Solutions, a leading insurance manager, said failures happened across Europe, and that all jurisdictions had their failures and issues, but he conceded: “In a small jurisdiction like Gibraltar it is painful.”
Red Sands has now decided to concentrate on its general insurance offering into the UK and not to proceed with Malta. The company is looking either to agree a portfolio transfer of about £25m European annual premiums from 140,000 policyholders in the Red Sands Life Insurance Company that accounts for some 10% of RS Group business, or to go into run off.
Some Malta-based insurance businesses have re-domiciled into Gibraltar: Caversham gave up its Malta license in April, and Bray Insurance did similarly in June. Earlier, St Julien, in which Markerstudy and Zenith had an interest, re-domiciled its insurance business from Malta into Gibraltar in mid-2017 and then was put into run-off as there was a local company already writing UK business.
Global advisory, broking and solutions company, Willis Towers Watson’s Gibraltar arm has also reportedly re-domiciled a couple of captive insurers, including for the UK’s Bifa Waste Management company.
Cole revealed: “We are in preparations for a new motor insurance company from the UK to be set up, along with enquiries from other established businesses that value approachability of the regulator in a proven market for the motor industry. We are assisting a reasonable size insurer to re-domicile from Malta.”
Artex has grown in Gibraltar this year and in a mature motor insurance market, Cole believes “that it is not going to grow significantly in the coming years, but given it is an established market, there still will be the odd one or two newcomers, because it remains a stable jurisdiction with passporting access into the UK in a competitive marketplace.”
Hedgehog set up this year in Gibraltar as a specialist insurance managing general agent focused on the UK motor market, and is the only private UK business to be granted 100% of the UK’s Berkshire Hathaway’s underwriting capacity.
“We are on target to write about £35m [premiums] in the next 12 months, across most of the market and looking to grow substantially over the next few years”, reported Hedgehog chief executive, Pete Storey.
He declared: “Our background is technology and our USP is that as a digital broker, we’ve built a platform specifically designed for aggregator-driven UK motor market business, and as a result can take advantage of data, scale, and processes that are available starting in 2019 without having a hangover of legacy processes, staff overheads and technological ‘debt’ that prevents moving quickly to take advantage of the market conditions.”
Storey emphasised that Gibraltar had been chosen for its “straightforward regulatory approach, leadership in the UK motor market, supply of professionals and professional service companies, and strong, UK-like legal system”.
Also new to Gibraltar is Extracover, part of the UK’s Zego, specialising in paperless cover for private hire, scooters and vans, but targeting in particular, part time drivers and riders, and Masbro Insurance is a new licensed broker this year.
Vigilis Services, a general insurance intermediary was set up in Gibraltar in 2016 initially involved in transacting commercial, ultra High Net Worth household and art/specie classes of insurance, which Minister of Commerce, Albert Isola, described as “a strong vote of confidence in the jurisdiction ahead of Brexit”.
Unexpectedly, Brexit provides an insurance boost. Gibraltar’s insurance community is getting excited over a little-noticed UK Statutory Instrument, passed by the Houses of Parliament in March that post-Brexit ensures Gibraltar can participate in Part VII transfers under the UK’s Financial Services and Markets Act (FSMA) 2000 – lucrative and large-scale insurance and pension run-off business that hitherto had been effectively out of bounds for the jurisdiction, in part because of English High Court legal uncertainties, with EU implications and high costs.
“There was a transfer from Gibraltar to the UK in 2012, when Judge Henderson found that the FSMA and the Gibraltar Order interacted to permit transfers of insurance business from Gibraltar to the United Kingdom within the scope of Part VII, but the implication was that a transfer from the UK to Gibraltar would fall outside of Part VII,” explained Michael Ashton, insurance expert at Gibraltar Finance, the government body.
Although Gibraltar’s Minister for Finance, Albert Isola, had been assured by the UK government in 2014 that such transfers of books of business could be made, subject to usual regulatory approvals, “professional services firms in the UK who advise on such transfers have remained cautious”, Ashton reported. “There has been many transactions in recent years with some very significant amounts.” Transfers include both life and general insurance. “It would be great to attract new business to Gibraltar and even a slice of the total business would be positive”, he mused.
EiFlow, a dedicated Gibraltarian legacy insurance company since 2012 with total net assets at end-2017 of €35m buys books of business that insurance companies don’t want to continue to handle and successfully received transfers of business from France (in 2016) and earlier a much larger Irish insurer.
The UK Statutory Instrument this year gives certainty, Ashton asserted. “We will be able to say to these UK legacy operators, why don’t you take another look at Gibraltar, there are compelling reasons to do so, and the UK legislation clearly states Part VII transfers are possible post-Brexit. We can make another push,” he said.
According to T&T senior associate lawyer, Javier Triay : “We believe many small and medium-sized EU insurers are still hoping that a hard Brexit does not happen and will be caught out unless they are taking the appropriate steps to continue operating under the respective ‘temporary permission’ regimes.
“Gibraltar may not have been on the radar for EU insurers, which is why the government’s new “Think Gibraltar” campaign launched in September in London may be useful in appealing to EU firms who want to continue offering their services in the UK without establishing a presence there by benefitting from the passporting permissions under the Gibraltar-UK common market. I don’t think we have shouted loud enough about the benefits of Gibraltar’s offering yet”, Triay maintained.
The Far East has for three years been a target for Gibraltar Finance making at least two visits annually to China and Hong Kong to position Gibraltar as a financial services hub that the region should consider using more often. Ashton explained: “Building contacts and relationships in the Far East takes time and certainly several visits so people get to know you and Gibraltar. We have an interesting proposition and we have started to have success.”
China moves ahead
Bruno Callaghan, of Callaghan Insurance, a broker, says Chinese business has already been gained. “We have Chinese business that we have put on the books,” he announced, after returning in October from the latest of more than ten visits there since 2016. “Now the Chinese are coming to Europe to follow up on our discussions, which is a big step forward and an indicator that they are serious,” Callaghan pointed out. “Some Chinese representatives have already been to Gibraltar and I also met in London in September with the Chinese on various insurance projects.”
Callaghan, who has 30 years experience in Gibraltar insurance, revealed: “I am working on a very large Chinese insurance project, involving huge amounts of premium income which will flow through the jurisdiction during the next six months, and Callaghan Insurance is acting as a conduit between the UK and China.”
He also catalogued another Chinese initiative. “We are working through a pre-license application for a Life Insurance Protected Cell Company (PCC) to be established in Gibraltar, and also on a third joint venture project.”
A first was also chalked up in September when Premier Insurance became what it believes to be the first small to medium-sized motor insurer in Gibraltar to be awarded independent recognition of its financial strength by global credit ratings agency, A M Best, which noted that the insurer outperforms many UK motor writers and “produces healthy underwriting results”.
The specialist insurance ratings agency assigned Premier – a niche motor insurer – a financial strength rating in September of “B++ (Good)” and a Long-Term Issuer Credit Rating of “bbb”.
The ratings evaluation helps underscore Premier’s strength at a time when industry regulators have been signalling their support for such financial indicators. Commerce Minister Isola congratulated Premier on its new financial stability report, stressing: “An insurance rating involves significant time and effort on behalf of the company to obtain and as well as a commitment to further layers of inspection and oversight to that business, which can only be positive.“
As Steve Quinn, Premier’s managing director, said: “Previously, ratings have been confined to the large insurers, but as a small provider in a crowded motor market, the addition of the A M Best ratings will enable us to be differentiated positively from other insurers.” Quinn, who joined Premier in March with wife, Liz as Financial Controller – they previously ran Gibraltar-based Artex Risk Solutions with Premier as a client – noted: “Credit ratings have gained a higher profile in recent times among UK financial services business – banks and insurers – in part because of insurance failures.”
Gibraltar Finance’s Ashton observed: “Lack of a rating, per se, doesn’t stop an insurer being well-regarded, but having a rating does assist in appealing to brokers for certain business. There is an argument that says more smaller-to-medium-sized insurers in Gibraltar should look to obtain a rating, because it provides another level of control and oversight and that is positive. However, there is another view that it is much more about demonstrating to brokers, intermediaries and policyholders that the business has solid reserves and cash flow, and that the management and controls in place are second to none.”
GIA chairman, Cawdery says in 2019 a key issue is ensuring a good relationship with the UK. “As we will be in a single market with the UK, we will understandably need to ensure broad equivalence of regulatory outcomes with those insurers in the UK – ensuring the regulatory landscape in Gibraltar achieves a similar end-result as those required by UK’s PRA and FCI.
“There is a risk that the GFSC could become rule takers from the PRA if there are greater regulatory breaches in Gibraltar than the UK, and the focus now is very much around ensuring insurers’ good corporate governance to see that they are fully aware of what they are underwriting and how they are pricing it to avoid anti-selection, given that a substantial amount of Gibraltar business is arranged at arm’s length through UK intermediaries”, Cawdery concluded.