Friday, 3 May 2013
Captives owners need to up ahead of SII - Swiss Re
Solvency II is pushing captive insurance company owners into a harsher new world where they will face greater scrutiny and tougher questions, according to Roy Baumann from the Strategic Solutions team of Swiss Re Corporate Solutions.
Mr Baumann is a speaker at the 2013 Airmic annual conference, which takes place in the seaside resort of Brighton in early June.
Speaking ahead of his session at the conference, the captive expert told the UK risk management association's newsletter that things will never be the same for captives when Solvency II comes into force.
"Senior executives are going to take more interest in the captive and they will ask more searching questions. Captives are going to be under the spotlight as never before," said Mr Baumann. "The stakeholder environment will be a lot broader and more demanding," he added.
CFOs and treasurers will be among those colleagues of risk managers who have not previously shown much interest in the subject but will do so in future, he told Airmic news.
The much discussed and delayed Solvency II is now due to enter into force in 2016. But many organisations are already gearing up for its implementation.
Airmic stated that for many members the new capital adequacy and reporting regime may mean they have to reassess 'fundamental aspects' of their captives, including where they are domiciled, lines of business and indeed their whole purpose.
As a result of this Mr Baumann said that risk managers will have to raise their technical knowledge and be able to discuss, for example, the value of their captives and their appropriate cost of capital.
He acknowledged that Solvency II is a measure designed primarily to regulate conventional insurance companies and thus is not entirely appropriate for captives.
This has been a central point made by the European Captive Insurance and Reinsurance Owners Association (ECIROA), the body founded specifically to lobby Brussels on behalf of the captive community.
On its part, the European Commission has repeatedly assured ECIROA and Commercial Risk Europe in interviews that the different nature of captives will be recognised through the news regime and a lighter and more simplified application of the rules made possible for regulators.
The problem is, however, that as the Commission, European Parliament, the insurance industry itself and the regulators argue about big issues such as the valuation of assets for the huge European life insurance sector, no one seems to have the time or will to come up with some clear guidelines on captives for regulators.
Mr Baumann and other experts therefore advise risk managers to effectively assume the worst, accept that Solvency II is a fact of life and will place new restrictions in key areas such as asset allocation.
The Swiss Re man told Airmic, however, that risk managers should view these new demands in a positive light and as part of a process that has value in its own right. "It does sharpen the arguments and sharpen the thinking, and that can help to make use of the captive more effective," he said.
This concurred with an upbeat speech given by Andrew Bradley, risk and insurance manager for Swiss food giant Nestlé at a recent conference in Qatar. Mr Bradley is a strong supporter of the captive model and retains a huge amount of risk via his Swiss-based vehicle.
The Swiss regulator is applying the same type of rules as the EC for the insurance sector despite not being a member state. In Mr Bradley's view, the new regime simply means that risk managers need to do the kind of homework on their captives that they should be doing anyway.
Mr Baumann will be joined at the workshop on 11 June at the Airmic conference by speakers from Clariant and Aon Global Risk Consulting, and he thinks it will be a lively session worth attending. "We all have strong views, we all have different views. We disagree sometimes. It should be fun," he told Airmic.
Workshop B8, 'Aligning the logic of Solvency II with Captives,' takes place on Tuesday 11 June from 2.15pm to 3.30pm. Commercial Risk Europe will publish daily news from Airmic again this year.