As we look ahead to 2019, Owen Williams, head of the captive centre of excellence at XL Catlin, now part of AXA XL, a division of AXA Group, considers what risk managers can expect for their international insurance programmes and captive insurance vehicles.
What are the trends in the insurance market that might affect risk managers with international programmes in 2019?
These are certainly interesting times for the insurance market. There is still plentiful insurance capacity – including increased use of alternative capital – for most risks but the dynamics of the market appear to be shifting, with rate increases and diminished risk appetite in certain products and sectors. This might prompt some risk managers to consider increasing corporate retentions either via use of captives or other structures.
There has also been consolidation on both the broker and underwriter side – ourselves included. This can provide buyers with stronger counterparties and access to even more expertise. Experts predict that consolidation will continue in 2019 and beyond as companies look to use capital effectively and ensure relevance; against that backdrop the value of long-term relationships will, we believe, become even more apparent.
How will Brexit affect global programmes and captives? Might we see some captives decide to redomicile?
At the time of writing, we still don’t know what the UK’s Brexit deal with the EU will look like – if there is a deal, or indeed Brexit at all. This means that we don’t know whether UK insurers and reinsurers will retain passporting rights or not. The Brexit date of 29 March 2019 is fast approaching, however.
Most of the major insurer fronting partners have contingency plans already in place to enable them to continue writing business in the UK and throughout the EU, whatever the outcome of the Brexit negotiations.
But some insurance buyers will need to check whether the fronting partners they use across the European Economic Area are still able to underwrite in the same way as they did before Britain’s departure from the EU. Clients may well need to consider some changes to their global programmes, and some risk managers may take this occasion to conduct a review of their international insurance arrangements.
We may see some captives redomicile but more likely we will see changes in structures of the (re)insurance programme that they write, rather than full-blown redomiciliation.
While the outcome of Brexit negotiations remains up in the air, it seems prudent for risk managers to talk to their insurance partners and brokers and make sure they are abreast of all the possible options for all the possible scenarios.
Regulation is always a hot topic for risk managers. What can we expect in 2019?
We certainly do not expect there to be any great reduction in the regulation of governance, risk and insurance during 2019.
In 2019, we would expect the full impact of the US Base Erosion and Anti-Abuse Tax to become clearer, which could drive structural changes for some programmes that cede reinsurance from the US, particularly those insureds parented outside the US.
Again, insurers and brokers will work with risk managers to keep on top of any changes and make sure they are prepared, compliant and on the front foot.
What about emerging risks? What are risk managers with international programmes likely to be considering as we head into 2019?
Emerging risks are near the top of most clients’ lists of concerns. And we are increasingly seeing them seek to retain and (re)insure these and other intangible or volatile risks within their captives. Risks such as cyber, environmental impairment liability, credit insurance and non-damage business interruption can be, and are being, placed into captive programmes.
As risk managers become more comfortable with using captives for these types of coverage, we expect them to increase use of their captives to write emerging risks.
Climate risk is likely to remain near the top of risk managers’ concerns in the months and years to come. Tragic events such as the recent forest fires in California, and a series of hurricanes, typhoons and floods throughout 2018 highlighted just how real this risk is for companies, wherever they are based.
Intangible risks such as reputational risk are a big concern for risk managers and their companies’ boards. Reputational risk is growing in importance as social media continues to change the speed and scale at which reputational crises evolve.
The increased use of artificial intelligence and the internet of things bring with them huge efficiencies and chances for companies, but also potential – and as yet untested and unknown – risks. Insurers and their brokers will work with risk managers to try to understand these challenges and the ways they can be managed and transferred.
Contributed by Owen Williams, head of the captive centre of excellence at XL Catlin, now part of AXA XL, a division of AXA Group