Back to basics-Comment

As a non-member of the EU club, Guernsey does not have to adhere to Solvency II’s strict requirements that have many captive managers and owners scratching their heads currently about how to react and justify their captives, post implementation. At the same time, in this post-credit crisis world, it is important that places like Guernsey adhere to the highest standards offered by the IAIS to help European captive owners justify running their captives outside of the Solvency II club. They cannot be seen to offer captive owners an easy option to the onshore domiciles with dangerously light capital requirements or ways of dodging tax. In such situations it is always very tempting to present the environment as a clear-cut competitive situation whereby rival domiciles are fighting each other tooth and nail to win business from each other in a neat and simple way.hideBut of course this is far from a neat and simple situation. The reality is that the final requirements of Solvency II for captives remain far from clear at this stage and they will be subject to a potentially high degree of local interpretation by local regulators anyway if the principle of proportionality is adhered to. Thus if Guernsey has decided to take a totally different path to Malta, Luxembourg or Dublin then so be it. For captive managers and owners it simply means that they have an array of options that can be mixed and matched to suit their differing needs. So long as the options are underpinned by equally robust and risk-based supervisory standards then diversity can surely be made to work. One has to sympathise with those in the market, however, trying to make sense of all of this and advise the risk managers accordingly. The final opinion and guidelines on captives under Solvency II and how the principle of proportionality could and should be applied remains far from set in stone and the lawyers and accountants will no doubt be doing increasingly well by providing alternative scenarios for their customers to consider while it all remains rather up in the air. The news from the European Commission that large chunks of Solvency II could well be delayed as far as 2023 is of course great news for those smaller and niche insurers that genuinely feared for their survival if it was all rigidly applied in 2012. The EC obviously has good reasons to potentially introduce such a delay for chunks of the rulebook, not least its ongoing effort to ensure that the European insurance industry is not unnecessarily disadvantaged against rival regional sectors such as the US companies by taking too big a step, too early. But this again adds to the uncertainty that risk managers, whether in corporates and thinking about captives or insurers themselves and trying to work out their strategic and capital response, could do without. The task is made all the more complex by the spectre of new accounting standards for insurance contracts that appear to be bedevilled by even more controversy and disagreement than the solvency project. If nothing else the whole market could do with a clearer and simpler communication effort from the EC [not to mention the IASB on accounting standards] as the Solvency II project nears the final stages to help it digest and explain the changes and their effects to their increasingly nervous stakeholders. Yes the European insurance industry needs a more robust, consistent and long-lasting method of supervision but only if it makes raising and keeping capital easier not harder. Otherwise corporate risk managers are going to find it even more difficult to secure adequate quality risk transfer capacity for essential business risks than they do now.

Back to basics-Comment

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