FX for captive insurers and captive managers

We manage a Guernsey captive for a US parent: how should we handle currency and check we get a fair rate?

List every flow for the year ahead by currency, agree with the board which currencies the captive holds, convert only what that leaves and record each conversion against the market mid at the time it was dealt.

For a Guernsey captive of a US group a common picture is capital and premiums in US dollars, claims in the currencies of the group's subsidiaries, and the captive manager's fees, audit and regulatory costs in sterling. Each of those flows has its own timing and its own place where a conversion can happen.

The rest of this page takes each flow in turn, then sets out the evidence the board and the parent's auditors need.

How should a captive be funded when the parent reports in another currency?

Agree the currency of the captive's capital with the board and the regulator first. Then price the conversion, if one is needed, as the large one-off trade it is rather than leaving it to a standard bank rate.

Initial capital, and any top-up after a heavy claims year, usually comes from the parent as share capital or a capital contribution. In Guernsey an applicant for an insurer's licence evidences its solvency with documentary confirmation that share capital has been received, or that letters of credit or subordinated loans are in place. A capital conversion can therefore sit on the path to the licence, and its timing matters as much as its price.

Some groups convert at parent level through group treasury, which may already have keen pricing. Others send the parent's currency and leave the conversion to the captive. Either way the conversion should be priced against the mid and recorded, because the captive's board approves the capital and its auditors will test it.

Illustration only. A USD 10 million capital injection converted at a markup of 30 basis points to mid costs USD 30,000. At 5 basis points it costs USD 5,000. The arithmetic is amount × basis points ÷ 10,000. The markups are assumptions, not a view on what any bank charges.

Cell companies need one extra step. In a protected cell company each cell's assets and liabilities are kept separate, and in an incorporated cell company each cell is a company in its own right. Conversions, accounts and records then have to sit with the right cell, and a quote for one cell is not a quote for another.

Still deciding whether to set up a captive at all? First Captive covers captive set-up. The FX questions on this page start once the captive is licensed and funded.

How do premiums from the parent and the fronting insurer reach the captive?

Directly from group companies where the captive writes the cover itself, or from a fronting insurer as reinsurance premium net of its fronting fee where local rules need a locally licensed insurer to issue the policies. The policies set the currencies, not the captive.

A captive behind a multinational programme may receive one reinsurance premium in a single currency, or a series of payments in local currencies. Each arrangement puts the conversion somewhere different: with the fronting insurer, with the captive or with the group companies paying the premium. Whoever converts carries the markup, so it is worth knowing which it is before renewal rather than after.

Questions for the next renewal:

• Which currency does the reinsurance agreement with the fronting insurer settle in, and on what dates?
• Who converts local premiums into the settlement currency, and at whose rate?
• Can the captive receive and hold premium in the currencies it later pays claims in?
• Are premiums paid in advance, in instalments or after the period, and does that line up with when claims fall due?
• Does the captive's investment policy say how long premium can sit in a currency before it is invested or converted?

How should a captive pay claims in other currencies?

From a balance in the claim currency where the captive holds one, and otherwise by converting close to the payment date at a priced rate. Set the charges so the claimant or the fronting insurer receives the full amount.

Captives pay claims in two main ways: directly to group companies or claimants, or by reimbursing a fronting insurer that has already paid local claims. Reimbursements are often settled through periodic reinsurance accounts, or by cash call for a large loss, in the reinsurance settlement currency. Direct claims tend to be in the subsidiary's own currency. A large loss can mean one large payment at short notice, which is the worst moment to accept a standard rate.

• Agree payment dates with the fronting insurer or the subsidiary so the conversion is not done in a rush.
• Use OUR charges or a local payment system so the amount received matches the claim.
• Verify bank details for any new payee by phone, on a number from the captive's own records.
• Keep a confirmation of the rate, the charges and the amount received for the claim file and the auditors.

Our page on paying insurance claims overseas covers local payment systems, charges and records for the claim file.

What evidence should the board and the parent's auditors see for each conversion?

A record of each conversion with the time it was dealt, the market mid at that moment and the markup in basis points. With that a board can see what it paid and an auditor can test it.

A bank statement shows the rate and the amount but not the markup, so a board cannot tell from the statement alone what a conversion cost. The board evidence pack fills that gap.

Timestamped mid rates come from a licensed market data source agreed before the first pack is produced. Where only daily reference rates are available, such as those published by the European Central Bank and the Bank of England, the pack says the markup is an estimate and shows it as a range.

The pack is built from the provider's confirmations and statements. We aim to deliver it each quarter in time for the captive's board meeting. The year view is also where rate creep shows up: a markup that widens quarter by quarter on the same currency pair and size.

Should a captive use a bank in its domicile or a specialist provider?

Either can work, and some captives use both: the domicile bank for the accounts its regulator and auditors already know, and a specialist provider for conversions and overseas payments where it prices them better. Compare them on the same trades, not on reputation.

Banks in captive domiciles offer accounts, deposits, custody and FX, and the captive manager usually runs those relationships day to day. Specialist providers are usually payment institutions or e-money institutions offering multi-currency accounts, conversions and payments. We do not name banks or providers on this site.

Money held by a payment or e-money institution is safeguarded rather than protected by the FSCS, and the FSCS does not cover payment or e-money services. The FCA's new safeguarding rules for those firms (CASS 15, set out in policy statement PS25/12 published on 7 August 2025) took effect on 7 May 2026. Argentex LLP, a non-bank FX provider, entered special administration on 21 July 2025.

Questions before a captive opens an account with any provider:

• What do the captive's licence, business plan and investment policy allow, and does the regulator expect to be told about a new account?
• Is the provider authorised where the captive is, or only in the UK, and does that matter for this captive?
• How does the provider hold the captive's money: as a bank deposit or safeguarded, and with which bank?
• Can the provider report in a format the captive manager can load into the captive's accounts?
• Does the provider's approval process match the board's signing mandate and authorised signatories?

Should a captive match the currency of its assets to its liabilities?

That is a question for the captive's actuary, its board and its regulator, not for an FX introducer. Once the policy is set, we can show what each conversion it needs will cost.

Regulators in captive domiciles set solvency and capital requirements and expect boards to manage the risks to them, which can include a mismatch between the currencies of assets and liabilities. In Guernsey the Guernsey Financial Services Commission licenses insurers, including captives, under the Insurance Business (Bailiwick of Guernsey) Law, 2002, and applicants must meet its solvency rules. How those rules treat currency for a particular captive is for the captive manager, the actuary and the GFSC.

Questions for the actuary and the board:

• In which currencies are the captive's technical reserves, and in which are its assets invested?
• How far do assets match liabilities by currency today, and what does the solvency calculation do with any mismatch?
• What does the investment policy say about holding currencies other than the reporting currency?
• How often is the currency position reviewed, and by whom?

Can a captive manager refer its captives to InsuranceFX?

Yes. The captive stays your client and its board makes the decision. We run the blind quotes and the cost review, and the board evidence pack is set out so you can table it at the next board meeting.

We deal with each captive on its own account and never share one captive's prices or data with another. We do not offer captive management, and nothing we do changes your role. If InsuranceFX pays a captive manager anything for a referral, the captive is told in writing what is paid and how before it decides.

Read how referrals work and how InsuranceFX is paid, or start with a live requirement for one of your captives.

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