First up Mr Groves gave some useful practical tips.

He suggested that risk and insurance managers really need to match the captive strategy with overall corporate strategy. “Captives rarely work if their strategy is at odds with the wider business particularly if a captive has obtained a reasonable size,” he said.

Second, be aware of accounting changes that the International Accounting Standards Board is working on, and which will change the way insurance contracts are valued on a direct and reinsurance basis, advised Mr Groves.

“You need to be aware of the impact that the time value of money will have on the valuation of those contracts,” he said.

Third, draw up a simple one page plan, said Mr Groves. “I won’t embarrass anyone by asking how many of you have a simple one page road map for 2013 or 2014 in terms of how you are going to bring about Solvency II into your captive,” he said.

“But, in reality, like all strategies you kind of have a one or two page view of the key things that you as a business really need to do and perhaps a list of the four, five, six or seven things that you need to do to make your captive compliant with Solvency II,” he added.

Example questions that may be seen as simple but are very important and need to be answered directly include:

Is it clear that you need additional capital or not?

Is it clear that you need to change your investment profile or not?

Is it clear that you plan to widen the array of risks that you underwrite or do you plan to retreat?

Mr Groves stressed that risk managers should use the help of expert colleagues in different areas of the business and accept that they do not, and should not, know it all.

“When we look at the different aspects which are included within Solvency II, some of which we touched on earlier and in particular around Pillars II and III, to a lesser extent around disclosure, perhaps one of the things we have to recognise is that we know we don’t know it all. Many of our firms have people that spend their whole time looking at process, looking at procedure, looking at the way business is done,” he explained.

Above all, Mr Groves said that captive owners cannot stick their heads in the sand and hope that it all goes away or just fails to happen even if the rules currently seem unclear. This would be a tempting but potentially job threatening non-strategy.

“We can’t push back and say, this isn’t going to happen, or we don’t want to do it. We can, from a lobbying perspective, point out why it’s not appropriate for captive owners. But, equally we have to make certain that we’re ready for it when it arrives,” said Mr Groves.

Thus, taking responsibility and ownership of the process, with the help of other functions, not least internal audit, is mandatory, according to Mr Groves.

And, equally important, risk managers must also understand that they can’t just outsource it and lay the blame elsewhere.

“It is your responsibility, possibly as the chair of your captive, certainly as the person responsible probably for the ownership of the captive, to know what is going on with it. You cannot possibly outsource it so someone else takes that responsibility. You own it, it’s your responsibility. You might sack your service provider if you’re not happy with them, but at the end of the day, it’s still your responsibility so make certain you understand what is going on within it,” said Mr Groves.

It is also important for captive owners to remember that the regulators are under the cosh too and trying to deal with the rather vague guidelines issued to date on key areas such as how to actually grant simplifications and proportional treatment to captives.

For captive owners the obvious inference is that if you make it easy and clear for the regulators then surely it will work in your favour.

“We can prepare for Pillar II—there’s a lot of guidance out there. Some of what we read is intensely wordy and can be difficult to follow. But it’s difficult for some of the regulators as well,” said Mr Groves.

“So if you follow a reasonable approach, and outline this is why you are doing it this way, in areas like ORSAs for example this could go a long way towards influencing and working with the regulator, which is what we need to do,” he added.

Mr Groves also advised captive owners to be robust and pessimistic rather than optimistic with their forecasts to help manage expectations and assure the business that they are in control.

“On Pillar III, around the disclosure aspect, other than perpetually highlighting the issues with some of the disclosure that is required of captive owners, what you can do is prepare your internal management for what may come down the line and perhaps you don’t even want to say ‘might,’” he suggested.

“Perhaps you need to take a more robust position internally and state: ‘We believe this is what will be required, let’s talk about this now.’ You might take a more negative aspect, because managing expectations internally is vitally important for all of us and therefore perhaps taking a more negative approach such as your worst case position could be the right approach?” continued Mr Groves.

“It might ultimately be more productive when you go back in and say: ‘It’s not quite like that, it’s a bit lighter. Some areas aren’t quite as bad as we expected’. This might help to justify the value of the captive to the CFO,” he added.

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