“THE CONVERGENCE OF TERMS USED BY DIFFERENT CAPTIVE DOMICILES CAN BE CONFUSING— THE OWN RISK AND SOLVENCY ASSESSMENT (ORSA) IN GUERNSEY, FOR EXAMPLE, SHOULD NOT BE CONFUSED WITH THE ORSA UNDER SOLVENCY II.”
However, some jurisdictions are taking a different line. The
Bermuda Monetary Authority, for example, continues to pick its way through the equivalence process in the hope of not subjecting its captive owners to the full effect of Solvency II. Other domiciles are also making changes. Switzerland has enhanced the application of its legislation to captives, and codes of conduct are becoming increasingly popular. However, the convergence of terms used by different captive domiciles can be confusing—the Own Risk and Solvency Assessment (ORSA) in Guernsey, for example, should not be confused with the ORSA under Solvency II.
Managing the challenge It is worth recognising that change may not necessarily be
bad. Regulatory challenges in a global market are common and there is now a much wider awareness of the issues associated with arranging insurance contracts in multiple countries and the operation of a captive. This increased awareness has highlighted the value of dialogue and global partners in addressing these issues. This has ensured that optimum structures can still be arranged and the value of a global insurance programme and captive, in tandem, can still be recognised. That said, managing expectation internally, through the annual renewal process, is key.
So, how can this best be achieved and what action should individual insureds and captives be taking?
• Approaching a renewal as it expires is not likely to result in the early identification of changes that have occurred since last renewal. Look afresh at regulatory matters as if this were the first time placing the structure, to ensure that nothing is missed.
• A thorough investigation with your current broker and insurer as to what is their understanding of your position and specific circumstances should identify areas of focus. Where differences arise, part of this will be interpretation as well as personal experience.
• Consider the viability of the captive if the level of insurance premium reaching it is decreasing significantly. This can have a particular bearing on the equalisation reserve provision in a Luxembourg captive—an issue where we recently helped an
insured to identify methods of restructuring. It is much better to do this before your chief financial officer asks the question.
• Manage expectations internally—last minute change, even when well intended, can lead to issues over demonstrating effective management, not to mention cost implications.
• Partner with insurers that have extensive experience on the ground in the countries where you operate. Owning the network creates a more effective embedding of the knowledge and the ability to keep up to date with the intricacies of legislation as it changes.
• Make certain your broker and insurer both understand captives. This understanding needs to be more than knowing what a captive is. Your broker and insurer should understand the mechanics of what drives its use and when are the appropriate and inappropriate times to use a captive. Crafting a solution together will ultimately prove more effective than simply buying a product.
• Liaise with your captive regulator. This is not something that can be delegated to a third party as, ultimately, it is your company. Equally, by engaging with your regulator, you can increase their understanding of your issues which can be an important aspect of managing a company within a risk-based environment.
Be prepared With regulation having an impact on captives both directly and
indirectly, keeping up to date with ongoing changes is vital. As a financial tool that has been tested in multiple arenas, including the most recent financial crisis, captives continue to demonstrate value as part of a global insurance programme. Staying nimble will ensure that this continues to be the case while opening up opportunities as markets change and harden.
Jonathan Groves is head of Chartis’s Continental European risk management group. He can be contacted at:
jonathan.groves@
chartisinsurance.com
16 emea captive 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68