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The Lure of Liechtenstein Post Magazine in Domicile Comparisons, Domiciles, Research on 26th October 2015

This article originally appeared on


Liechtenstein has more companies than citizens, but are UK insurers keen to join its corporate club?

The Financial Market Authority Liechtenstein recently reported interest from insurers in setting up in the German-speaking principality, and a Liechtenstein market source told Post that two large UK insurers, including Aviva, were considering a presence there. So is it ‘Goodbye London’ and ‘Guten Tag Liechtenstein’ for Aviva? A spokesman for the FMA said: “We do not comment on specific insurance companies. Once [an insurer] holds a licence from the FMA Liechtenstein, its name is published.” Well, Aviva’s name was absent from that list in August, and a spokeswoman said: “Aviva has no plans to establish a presence in Liechtenstein.”

Through its membership of the European Economic Area and its Direct Insurance Agreement with Switzerland, Liechtenstein offers insurance undertakings direct access to both the European Union and Switzerland. According to the FMA’s 2014 report, the principality’s insurance sector collected 3.5 billion Swiss francs in premiums, with non-life insurance breaking through the billion-franc mark for the first time.

Meanwhile, Gibraltar’s Financial Services Commission’s listings suggest the British Overseas Territory is a popular domicile for the insurance sector. While pass-porting rights only apply within the EEA, special arrangements apply to Gibraltar.

Direct access to UE and Swiss markets

Apart from Liechtenstein being the only insurance centre that offers direct access to both the EU and Swiss markets, how do the two compare?

Stephen Netherway, a partner and head of CMS Cameron McKenna’s financial institutions insurance sector group, notes Liechtenstein “provides unique access via pass-porting, and by not having to set up and operate subsidiaries in times where capital and regulatory demands have increased manifold since the global financial crisis”.

Tom Stephenson, head of underwriting management and business development at Robus, which advises on insurance company setup and management in Gibraltar and Guernsey, explains that the choice of domicile depends on a number of factors. “Some regulators are more experienced than others in certain types of company, or classes of business,” he says. “For example, Gibraltar has a reputation as a leading domicile for motor insurers, whereas Luxembourg tends to be more reinsurance-focused. Practical considerations are also relevant, such as language, law and currency.”

Not just about taxes

Are the benefits of going offshore mainly about tax efficiency? According to Stephenson, tax is rarely the primary reason for establishing an insurance company in Gibraltar or similar jurisdictions. “Far more important is the accessibility and professionalism of the regulator,” he says. “In smaller jurisdictions, the regulatory body is not a faceless bureaucracy. Business plans can be personally presented to senior regulatory officers, which fosters a more open and grownup relationship between the regulator and the firm. Insurer setup is generally much quicker. In the case of non-EU offshore jurisdictions, such as the Isle of Man and Guernsey, there is a more obvious tax benefit.”

Successful house purchases are based on ‘location, location, location’, but does location matter with the domicile of insurance companies? On a psychological level, Liechtenstein has a base in the heart of Europe, Netherway notes, but it’s more than just location because beneficial tax treatment can also be a driver.

“As offshore dealings have come under the microscope, and tax efficiency and tax benefits have become pejorative terms, that plays against what Liechtenstein has been about,” he says. “That is a disadvantage for Liechtenstein, where some businesses based in other countries are looking at re-domiciling in a way 10 years ago might not have been the case.”

Yet, when it comes to a fiscal, regulatory and banking-acceptable wrapper that meets international business demands, Netherway argues that Liechtenstein’s financial sector has been more robust than other European banking sectors, with improved core capital, higher fund ratios and better liquidity buffers.

When it comes to regulation, Stephenson comments, “smaller EU jurisdictions may seem very similar at first glance, particularly now that Solvency II has truly harmonised capital requirements”.

As to whether regulation has become tighter, Liechtenstein’s revised insurance supervision law partially came into force on 1 September 2015, with full implementation scheduled for 1 January 2016. It has transposed Solvency II into its national law, including the Omnibus II Directive, which grants further powers and competences to the European Insurance and Occupational Pensions Authority.

The GFSC has stated that it takes its obligations to implement Solvency II seriously, and will be interacting with licensees regarding their state of preparedness for the final deadlines. “The increased regulation that all countries, including Liechtenstein, have imposed or agreed must be respected,” says Netherway, adding: “Liechtenstein is no different in this respect but what matters is that all jurisdictions have done it, or are doing it.”

Less regulatory zeal

Some could be a bit overzealous. Adrian Williams, a partner in DAC Beachcroft’s insurance advisory team, remarks: “Jurisdictions such as Gibraltar can be attractive to EEA insurers because their regulators impose very little ‘gold plating’ on the minimum standards of Solvency II. Regulators in bigger jurisdictions are seen by many in the market to be adding unnecessary additional requirements, particularly around reporting. The situation is not helped by EIOPA, which reportedly has issued 700 ‘guideline’ statements, many of its own initiative. These have been adopted wholesale as rules by many of the large regulators [and] this has added an estimated 1100 pages to the (already substantial) Solvency II/Omnibus II directives and official delegated regulations.”

As to whether the UK potentially leaving the EU would change the popularity of some offshore jurisdictions among British insurers, Stephenson says: “This is a huge unknown, and any answer is merely speculative at this stage. There are undoubtedly risks to jurisdictions such as Gibraltar, whose EU membership is tied to the UK’s membership. That being said, most Gibraltar insurers trade in the UK and I can envisage some sort of bilateral agreement between Gibraltar and the UK to maintain the domicile’s access to the union. We could also see the growth of domiciles such as Malta and Ireland as EU-fronting becomes a necessity for UK insurance groups.”



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