Bermuda has lost out to the likes of Guernsey and Ireland when it comes to attracting captives linked to UK companies.

A survey by risk and insurance services firm Marsh shows that between 1995 and 2006 Bermuda’s share of the UK-generated captive market declined from 19 percent to 15 percent, while Guernsey and Ireland increased their share of the market significantly.

The reason for the changing fortunes appears to be down to the ability to secure the same benefits in offshore jurisdictions much closer to mainland UK.

“The increased benefits and proximity to the UK of offshore domiciles, such as Guernsey and the Isle of Man, have detracted from formations in Bermuda; we believe this trend will continue. We also expect Malta to increase its number of captive formations as it benefits from its membership of the European Union,” said Jonathan Groves, head of captive consulting at Marsh.

The report on the growing popularity of captives with UK companies surveyed 94 of 350 identifiable captives owned by UK companies.

In the 11-year period used for comparison Guernsey’s share of the market increased from 42 percent to 50 percent and the Republic of Ireland’s from two percent to eight, by contrast Bermuda’s decreased by four percent, the Isle of Man’s share dropped from 31 to 21 percent and Jersey and Gibraltar remained on one percent. The two other significant jurisdictions of Vermont and Cayman both dropped from two percent to one percent in the survey.

Commenting on Bermuda, the report states: “Bermuda’s attraction has remained for its existing client base although new captive owners have opted not to establish there primarily because the same captive benefits are available much closer to home.”

Information from AM Best and the London Stock Exchange was used to supplement the Marsh report, which is entitled “Fit for Pirpose? Benchmarking the continuing contribution of captives.”

The growth of protected cell companies appears to be the reason for the growth in the number domiciled in Guernsey.

And the survey also reveals UK companies are increasingly considering captive formation to implement sophisticated risk management regimes and address the total cost of risk, and that more mid-sized companies are now making use of captives, which in the past have been dominated by larger companies.

Financial services, manufacturing and service supply industries are the three sectors owning the most number of captives.

Mr. Groves said: “The high level of captive use in certain industries is in part historic. Many financial institutions established captives to address mortgage indemnity guarantee risks during the 1990s and the majority of utilities at privatisation formed captives to manage historic liability exposures.

“Other industries, such as energy, have made significant utilisation of captives over the past 30 years given their exposure profile and variation in the capacity available in the insurance market.

“This aside, it is clear the three industries making most use of captives — financial services, manufacturing and service supply — represent less ‘risky’ industries, reflecting the need for captives for everyday property and casualty risks.”

The survey also highlighted the ‘spikes’ in the formation of captives that occurred in 1994 and 2002 at the height of the ‘hard’ market cycles.

In its report Marsh notes this pattern and comments: “Given the many strategic and financial benefits that forming a captive can bring to a company’s risk and insurance programme, a reactionary approach should not be necessary.”

It also concludes: “The proximity to the UK of offshore domiciles such as Guernsey and the Isle of Man have detracted from formations in Bermuda and at Marsh we see this as a trend that will continue.”