Captive News

AM Best report examines captive market The European captive industry has weathered the global economic downturn well, although the forthcoming implementation of Solvency II remains among the biggest challenges for the sector, according to a new report from AM Best Co. The report, entitled, 'Europe's Captives Ride Out Economic Storm, But Regulatory Changes Loom', sets out Best's views on the potential impact on captives of the three pillars of Solvency II. A.M. Best believes that many captives may find Own Risk and Solvency Assessment (ORSA) compliance particularly difficult under Pillar II as there is no specific ORSA model to follow. Meanwhile, Pillar III's further disclosures, increased transparency and improved benchmarking are generally welcome though difficult for captives.hideThe report added that while some captives will struggle to comply with the new directive, others will find opportunities. "Those that focus on risk and capital management and maintain well-diversified or defensible niche strategies are well-prepared for Solvency II. By maintaining sufficient capital levels, they will be able to take advantage of opportunities to expand their roles, should they arise," the report said. In terms of exposure to sovereign debt, a captive's exposure is generally lower compared with a conventional insurer, although the captive may come under pressure to increase loans back to a parent that has been negatively affected by the financial uncertainty, said A.M. Best. Yvette Essen, report author and Director of Industry Research, Europe & Emerging Markets, A.M. Best, added: "Parent companies continue to have a wide choice of jurisdictions for their captives. Cells are being formed, although the soft market and uncertainties regarding Solvency II's final specifications and implementation date could result in delayed decisions to form captives in onshore jurisdictions." Anandi Nangy-Kotecha, Associate Director, Analytics, A.M. Best, said: "Direct captives are likely to be more heavily impacted by the current form of Solvency II than reinsurance captives. Small captives, which lack risk diversification and have high counterparty exposures, are expected to need capital increases to meet regulatory requirements. Given the more onerous regulatory environment and the costs involved, some parents may close dormant captives and run off existing vehicles." As for the European captive market, the A.M. Best report points to the lack of any overall hardening of the market in general. "Consequently, in the continuing absence of significantly higher rates across the board, there has been less incentive for European captive formations. To an extent, Solvency II has also created uncertainty for onshore jurisdictions, which can result in delayed decisions to form captives," said A.M. Best. The report went on: "Viewed globally, there are marked variations in the roles that European captives play in corporate risk management programmes. Whilst the European captive sector has continued to expand, in many respects captive usage remains less developed, particularly when compared with the United States. The United States is still the location or origin of the majority of the world's captives, whilst in Europe captives are used widely in only a few countries." A.M. Best said the reasons for this contrast are varied and complex, and include the closer relationships between insurers and industrial groups, the role of captive brokers, and a more cautious approach to risk retention. The report concluded that the underdeveloped use of European captives suggests that there is considerable potential for further captive participation in corporate insurance programmes. Guernsey signs tax agreements with Singapore and Brazil Guernsey has signed a Double Taxation Agreement (DTA) with Singapore and a Tax Information Exchange Agreement (TIEA) with Brazil. Fiona Le Poidevin, Chief Executive of Guernsey Finance, said: "Signing a DTA with Singapore is a very positive development for the future of Guernsey's finance industry. For several years we have been raising awareness of Guernsey in the Far East, including Singapore. We have built a good understanding with both the Singapore Stock Exchange and the local regulator, the Monetary Authority of Singapore (MAS)." She added: "The DTA means that individuals or companies with 'home' as one jurisdiction but with interests in the other jurisdiction will not be taxed by both sets of authorities on the same income. This clarity and certainty on matters of taxation makes it more attractive to conduct business between the two jurisdictions." On the signing of a TIEA with Brazil, Ms Le Poidevin said: "The economic growth in South America means that there is huge potential for Guernsey's finance industry to attract business from both high net worth individuals and expanding companies in the region, especially in the more developed countries such as Brazil." Guernsey has also signed a TIEA with Mauritius. CICA joins Coalition for Captive Insurance Clarity The Captive Insurance Companies Association (CICA) has joined the Coalition for Captive Insurance Clarity (CCIC) which was formed to push for legislative language that would clarify that the intent of the new federal Non-admitted and Reinsurance Reform Act (NRRA 2010) in the US. NRRA 2010, a subsection of the Dodd-Frank legislation, has caused some confusion over whether it is applicable to captive insurance. This newly formed coalition, called the Coalition for Captive Insurance Clarity (CCIC) is seeking legislative language that will clarify that captive insurance companies are not part of NRRA. "The uncertainty created by the NRRA has already resulted in confusion across the captive insurance industry," said Dennis P. Harwick, president of CICA. "Captive owners and their tax advisors alike have been unsure on how to react. The captive insurance industry expects and desires strong regulation. Companies need to have the choice of where they domicile based on regulatory strength, not based on tax ambiguity. This fix is needed to ensure that companies continue to have a choice of where they domicile." Bermuda confirms captives excluded from SII-type regime Bermuda has unequivocally stated that it will exclude captives from any Solvency II-type regime. As the Bermuda Monetary Authority published its 2013 Business Plan, which sets out its regulatory priorities and goals for the year, Jeremy Cox, the Authority's chief executive, said: "We can definitively state that Bermuda will not apply any Solvency II-type regime to the captive sector." He described plans to implement refined reporting requirements for captives this year. "We will introduce a risk return as part of consolidated annual filing for captives that they will submit electronically, which will create efficiencies in the process for both the market and the Authority. That is the extent of our refinements," Mr Cox said. "What the risk return embodies is something that allows the regulator to get that key risk information and I think it is something the industry will be quite happy to see in place given that they were volunteering so much of this information already." He went on: "It's good for Bermuda and the market that we can make this decision based on the proven appropriateness of our regime for captives. This step, as well as the changes to our framework for the commercial sector, reflects our ability to take independent decisions on regulatory change at a pace that's right for Bermuda and according to what makes sense for our diverse market, while taking into account achieving global recognition for our supervisory regimes." He added: "We will work hard to ensure that Bermuda firms will continue to benefit from operating within a practical, risk-based regulatory and supervisory environment that fits the unique nature of Bermuda's market." Guernsey sees net growth of 50 international insurers in 2012 The Guernsey Financial Services Commission (GFSC) licensed 97 new international insurers during 2012. Figures from Guernsey's financial services regulator show that there were 737 international insurers licensed in the Island at the end of December 2012. This number comprises 242 limited companies, 68 Protected Cell Companies (PCCs), 404 PCC cells, five Incorporated Cell Companies (ICCs) and 18 ICC cells. It compares to a total of 687 international insurers licensed by the GFSC at the end of December 2011, which means there has been net growth of 50 entities during the year. In that time, there have been 97 additions, including four limited companies, three PCCs, 87 PCC cells and three ICC cells. There have also been 47 surrenders, comprising 17 limited companies, three PCCs and 27 PCC cells. According to the GFSC, a significant number of the licences issued last year relate to insurance products supporting mortgages being offered to purchasers of newly built homes in England, Scotland and Wales. They are backed by the respective governments in the UK and are managed by JLT in Guernsey. Heritage in Guernsey is also managing a scheme established for UK housing associations. Cayman Islands reports captive growth The Cayman Islands Monetary Authority (CIMA) has reported that it received 67 applications for new licences in 2012, with 52 licences granted and the remainder scheduled for approval in 2013. Since January 1 2013, one licence has been approved and another 11 have been approved in principle. CIMA said the total number of new licences accounts for an increase of more than 58% over 2011 and is the biggest year for captives since the hard market of 2004. The 52 new formations came from various sectors including healthcare, life reinsurance, P&C reinsurance, manufacturing and technology. A number of group captives were also formed as segregated portfolio companies. Total premiums written by captives were reported at $11.8bn and total assets under management climbed to $88.1bn, their highest ever levels, which grew 24% and 51% respectively. CIMA said: "With the new Insurance Law now in place, Cayman expects to welcome even more insurance business to its shores. The new law is designed to clearly differentiate between the domestic and international insurance markets in the Cayman Islands and to regulate each in accordance with its own requirements. It strengthens legislation to protect Cayman entities and brings the law formally into line with international standards. Most importantly, it embraces the concept of 'proportionality' and addresses entities based on the nature, scale and scope of risk."

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Allianz Commercial names new UK head

KCC puts US wildfire losses at $28bn

France reportedly seeks changes to scope of CSRD

New political violence and aviation war underwriters at Westfield Specialty International

Japan insurance industry to surpass $470bn by 2029

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