“The new rUles will rewarD CapTives by imposing lower CapiTal DemanDs, iF CapTives DiversiFy Their risk porTFolio anD so reDUCe ToTal porTFolio volaTiliTy.”
life and non-life insurance as well as captive management services are brought together. At Zurich, this expertise is pooled in a global centre of excellence for the benefit of captive customers.
Working closely with an insurance provider that has extensive experience on a global scale is a good starting point so that when Solvency II arrives, an optimal captive strategy is in place to ensure capital requirements are as low as possible. In the last year, for example, Zurich has worked with customers to assess the positive impact of greater risk diversification and to determine ways of adding life and non-life elements into their captives’ programmes.
CRISS alternative to captives
Captives aren’t the only way to finance or reinsure a corporate risk portfolio. Following the arrival of Solvency II, Zurich expects increased
Solvency II: questions for captives
When deciding the best way to tackle future requirements under Solvency II, companies with captives need to answer several key questions:
• should i move the domicile of my captive to a country where Solvency II does not apply?
• what is the impact of adopting solvency ii in terms of operational costs and the need for any additional capital?
• Does my captive meet the solvency ii requirements?
• Do i need to change my approach to running my captive, for example, in areas such as inter-company loans of assets and retention of historic liabilities?
• who can prepare reliable actuarial studies across life and non-life risk portfolios?
• have i allowed enough time to revise the business case for having a captive and are any changes needed?
Dr Paul Wöhrmann is head of captive services at Zurich Global Corporate. He can be contacted at:
paul.woehrmann@zurich.com
interest in its Corporate Risk Insurance Sharing System (CRISS) concept as an alternative to running and managing a captive. In a similar way to a rent-a-captive arrangement, where the policyholder takes on a share of his own risk, the CRISS account is integrated into the insurance policy and into the insurer’s balance sheet.
This alternative offers companies greater flexibility with no need for
capitalisation. Companies also benefit from limited costs of running this instrument and avoid the added cost of reporting under Solvency II. Any earned investment income is directly credited to the CRISS account, where it can be used to offset losses resulting from the payment of claims.
Fine-tuning insurance structures Solvency II requires a re-think on strategy for captives to enable
companies to create a more efficient insurance structure based around its appetite for risk and its use of corporate capital. Companies need to comply with the captive capital requirements of Solvency II, while deciding upon the level of exposure to risk they want or can take. Making the right decisions on risk retention, greater diversification in the captive and how to minimise the cost of risk financing in the parent can be supported by Zurich’s Quantitative Risk Analysis. It helps companies to:
• Determine the optimal retention level, including tailored cross-class aggregates;
• Understand their insurance risks;
• Forecast expected losses and quantify volatility at various confidence levels;
• Deal with uncertainty of potential loss scenarios;
• Conduct scenario testing using alternative captive structures, such as per occurrence limits and aggregates; and
• Decide the feasibility of a captive as a risk-financing vehicle.
36 emea captive 2012
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