Risk managers in Spain urged to act on captives

"I urge all of you who do not have a captive yet to go back to your offices and create one," said Daniel San Milán, the president of IGREA, one of Spain's risk management associations, during an event in Madrid. Mr San Milán made the statement during the annual meeting on insurance market trends organised by IGREA. More than 150 risk professionals attended the half-a-day event that took place in early November. Captives are not yet used by many Spanish companies. Alfredo Arán, the head of Mapfre Global Risks, told the audience that there are over 30 captives owned by Spanish companies in the market today, out of more than 400 for the whole of Europe. But the international drive pursued by many groups in recent years have drawn the attention of many risk managers to this kind of arrangement. "The world of captives has evolved a lot in recent times," Mr Arán pointed out. "As of today, around 60% of the premium collected by Mapfre Global Risks is channelled via captive companies."hide"I see captives as a fundamental tool for risk managers," said Mr San Milán, who is risk manager at construction and concessions group Ferrovial. "When I first set out to create a captive, I met some resistance from my board, as this is something that has little tradition in Spain. Some people even saw them as a somewhat obscure vehicle for tax purposes, and not as a risk management tool, which is the real nature of captives." He added: "It is sometimes said that captives are useful because they enable companies to be more demanding when they are purchasing insurance. But my experience shows that some other virtues of captives are more important. For example, they help us and of other companies that are going abroad to bid in projects like public-private partnerships, where risk managers have very little margin to operate due to regulations. Captives help us to participate in such projects while respecting our retention strategies." Captives can be fun Mr San Milán added that captives provide stability to insurance programmes and enable buyers to improve their relationship with underwriters. They can also help at the time of making claims, taking small, frequent losses that complicate the relationship with insurers out of the equation. He went as far as stating that managing a captive, in addition to a very useful task, "is a lot of fun". The use of captives is also recommended for companies who do not want to be taken by surprise by a change of the cycle in the insurance market, the audience was told. "As the market is soft today, we advise our clients to build up provisions in their captives. Once captives have more capital, they enable buyers to generate capacity in the market," said Georges Michelena, the head of Spanish companies at consultancy 2RS Luxembourg. "This capacity can be employed when a hard market comes along - which will happen at some point. The soft market will end, and when the hard market comes, companies' balance sheets will suffer." Mr Arán said that captives are especially useful for companies to optimise the transfer of non-traditional risks, such as cyber risks. "It is a very good opportunity to take advantage of the current market cycle to allocate premium to such risks, which companies hold in their balances, but sometimes do not give them enough importance to because they tend to focus on traditional risks." Transfer non-traditional risks Mr San Milán said that he uses his captives to transfer risks for which the market has not yet been able to provide satisfactory solutions. Mr Michelena, for his part, added that for a company to have access to reinsurance markets in order to transfer non-traditional risks, it needs to make use of a captive. Mr Michelena also remarked that the captive sector has gained in stability since 2007, when EU countries introduced into their national laws the correspondent European reinsurance directive. And that the sector is unlikely to take a hit when the Solvency II directive begins to be implemented, in 2016. "I believe that 100% of existing captives will comply with the directive," he said. Interest in captives has increased in Spain as businesses encounter new risks when they expand their footprint abroad. In the first panel of the meeting, for example, experts led by Manoel Garrote Prieto, the manager of the Risk Management Department at OHL, discussed the challenges faced in the very promising market for infrastructure public private partnerships in North America, especially in the United States. There, the experts said, European companies that take part in such projects are heavily exposed to liability risks and need policies that take into account the threat of explosive litigation costs, something that their policies contracted in Europe do not necessarily contemplate.

Risk managers in Spain urged to act on captives

Want to read this article?

Read Next

Helvetia restructures for international growth, adds risk management to board

Switzerland’s Kessler rolls out ESG ratings to pension funds

Alstom becomes latest firm to register French captive

Amrae names new board members

Favourable aviation insurance market for now, says WTW

Helvetia restructures for international growth, adds risk management to board

Switzerland’s Kessler rolls out ESG ratings to pension funds

Alstom becomes latest firm to register French captive

Amrae names new board members

Favourable aviation insurance market for now, says WTW

Want to read this article?

Read Next

Helvetia restructures for international growth, adds risk management to board

Switzerland’s Kessler rolls out ESG ratings to pension funds

Alstom becomes latest firm to register French captive

Amrae names new board members

Favourable aviation insurance market for now, says WTW

Related Articles