ABI Warns Of Flight Of UK Insurers Abroad

A more competitive and business-friendly environment is needed to ensure the UK does not lose more insurance firms based there, the Association of British Insurers (ABI) has warned.

It comes as new figures showed insurers paid only 8.4% less corporation tax in 2008/09 than the previous tax year, against a 39% fall for the financial services sector as a whole in the same period. Despite this fall, insurance firms still pay the fourth highest corporation tax of any sector.

In total, the insurance industry contributes a total of GBP8.2bn to the Exchequer. The ABI also revealed that the insurance sector has an average wage of GBP42,000, compared to the national average wage of GBP25,000. This is good for the Exchequer as, on average, insurers pay GBP18,667 in employment taxes per employee.

A PricewaterhouseCoopers study carried out for the ABI found that insurers paid GBP3.2bn in combined business taxes in 2008 and collected a further GBP5bn for the government, making a total tax contribution of GBP8.2bn. As well as its importance in tax revenues, the insurance industry employs over 313,000 people in the UK overall, with ABI members employing 175,000 people who generate employment taxes of GBP2.6bn.

The figures were published as the ABI warned afresh of the competitiveness problems facing the UK. The new 50% higher rate of income tax, the reduction of pensions tax relief, and the perception that higher rate payers will continue to be targeted to mend the public finances have all led to a fall in the attractiveness of the UK for senior people. Research by the ABI last year showed that 80% of insurance executives felt there would be a drop in the number of insurance firms based in the UK if the government failed to improve competitiveness.

Peter Vipond, Director of Financial Regulation and Taxation at the ABI, said:

“Today’s figures are further evidence that the insurance sector has come through the crisis in a much healthier state than the banks. This reflects the diversity and depth of the insurance industry in the UK, as well as the problems the banks have faced, and emphasizes the need for regulators to differentiate between the two, as they look to respond to the crisis."

“The real danger for UK plc is insurers deciding to locate away from the UK. This is not just about who offers the lowest tax rate, though that remains an important factor. Financial centers, such as the Netherlands, Ireland and Hong Kong, have emphasized their friendly attitude to business. Just as importantly they offer stability in their tax systems over the medium term. The UK cannot afford to stand still as other financial centers become more attractive."

“As well as a threat, there is also an opportunity to build on the UK’s reputation as a world leading center for insurance and attract high quality and well paid jobs to the UK. Insurance is one of the few sectors where the UK is a world leading player, and a more competitive environment could lead to the sector growing strongly.”

Solvency II, which will change the way insurers are regulated across the EU, will make it easier for insurance companies to relocate within Europe and the global clampdown on tax havens means insurers from non-EU jurisdictions may be looking for new homes.

Earlier this month, XL Capital, an insurance and reinsurance group based in the Cayman Islands, announced it was moving its legal domicile from Bermuda, and chose Ireland rather than the UK as its new home.

UK insurers who have moved offshore recently include:

Hiscox plc (to Bermuda in September 2006);
Omega Insurance Holdings Ltd (to Bermuda in September 2006);
Kiln Ltd (to Bermuda in March 2007);
Hardy Underwriting Bermuda Ltd (to Bermuda in February 2008);
Beazley plc (to Ireland in February 2009); and
BRIT Insurance Holdings plc (to the Netherlands in December 2009).