US Captive
A tempest in a teacup? With Solvency II imminent,
US captives are watching the progress of Europe’s new
regulatory regime with interest. Some believe its implications will be significant. Some are convinced otherwise.
US Captive addresses both sides of the debate.
America’s captive insurance industry is watching from the sidelines
as Europe wrangles with the implications of the impending Solvency II directive. Whilst the strengthened regime will bring with it evident risk management benefits for European re/insurers and those opting for equivalency, it is as yet unclear what impact it will have on the continent’s captive sector. Questions continue to remain unanswered as to how far the regime will take into account the specific nature of closely held captive entities, and fears persist that Solvency II will be excessively burdensome for the non-commercial sector. Proportionality may yet be applied to the emerging regulatory system, but few captive commentators seem convinced that such an approach is a panacea to the impact of a broad-ranging regulatory mechanism, and recent results from QIS5 don’t paint a promising picture. Problems evidently remain, and unless captives are dealt with separately and appropriately, the implications of Solvency II for the captive sector—in Europe and globally—will likely be significant.
While European captives are bracing themselves for greater regulatory demands—that might, or might not, run the full gamut of Solvency II—across the Atlantic, US captives are weighing up the possible repercussions of Europe’s new regulatory regime. In the short- term, it seems likely that they will be limited—if felt at all—but looking forward, it remains unclear as to whether more prescriptive measures in Europe will translate into greater regulatory demands in the US. And speaking with a number of experts in the captive field, clarity of thinking as to the likely impact of European regulatory developments on the US captive industry remains some way off.
Will it rock the boat? Asked how—and even if—the US will respond to Solvency II, opinion
is divided between those convinced that the US will be obliged to react to the pressure of the new directive, and those that believe the US will plot its own course. Tomas Wittbjer, board member of CICA, is one of those of the opinion that the European directive will have an inevitable impact in the US. Talking with him, he indicated that whether the US liked it or not, facts on the ground would dictate further development of the US regulatory regime that would inevitably bring it in line with European standards. Captives needed to be aware of developments in Europe, he said, because before long, US captives could well find themselves complying with European standards that their domestic regulators feel obliged to conform to. And with Solvency II, a ‘quantum leap’ from Solvency I—a regulatory regime he described as “similar” to the present regulatory environment in the US—it would seem that, from Wittbjer’s perspective at least, US captives will need to prepare for significant change. Wittbjer cited the convergence of international accounting standards as a case in point, and it seems that there is some expectation that a similar coming together of international standards in insurance could be in the offing, with Solvency II the benchmark for future change.
US Captive . April 2011 23
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