Top risk manager says Solvency II is good for captives

Andrew Bradley, Head of Group Risk Services at Switzerland-based international food group Nestlé, gave this message to over 500 delegates at the Multaqa risk and insurance conference in Doha, Qatar this week and in a subsequent interview with Commercial Risk Europe for the annual Global Risk Frontiers survey. Mr Bradley said that Solvency II is indeed a 'painful process' that is 'very complex' and demands far increased reporting and the need for actuarial skills that may previously not have been required. Mr Bradley said that he had employed an actuary as a result of Solvency II, which the Swiss regulator has effectively applied as part of its Swiss Solvency Test, and is in far more regular communication with the regulator as a result.hideHe said that the additional costs are not big for an international group like Nestlé that operates worldwide and has a very active and large captive operation. But for smaller companies he can see how this can be a considerable cost, he said. But overall he said the process had been positive. "We have found that this has made the process more professional than before. It has raised the level of professionalism. It requires a greater understanding of the risks and this in turn optimises capital usage on risks. This is a strength that insurers should recognise," said Mr Bradley. "There is more dialogue with the regulators. We meet the authorities at least once a year and this has been very helpful for both parties and raises levels of transparency. Hopefully there will also be a level playing field in Europe but I am not so sure about the US and elsewhere," added Mr Bradley. "We did Solvency II, it is sorted and I believe that we came out of it a lot stronger than before," concluded the risk manager. Mr Bradley was not so positive about the overall role of reinsurers in the market during an event that focused on reinsurance to a large extent. "In my view, after 30 years in the market, I would say that there is not a very good partnership. They claim to give you large capacity and technical expertise but do they really have an appetite for what we need?" he asked. Mr Bradley pointed out that Nestlé had recently expanded into the pharmaceutical business and this is not a popular business with insurers and reinsurers currently. There are also questions about engineering and even the food business now, he added. "Also the reinsurers do not differentiate enough between clients. They don't differentiate between us and an abattoir in France," he added. This is another reason, in Mr Bradley's view, why it is so important for any risk manager to use a captive because it enables a more individual assessment of the risks, helps protect the group from the vagaries of the underwriting pricing cycle and also helps immensely towards loss prevention. "The emphasis needs to be on loss prevention and risk management in the group. You also have retained income from investments, accelerated taxation deduction, flexibility in coverage and claims payment should hopefully be quicker. Then there is data. The data from insurers is quite often appalling. This is something that the market needs to improve in general," said Mr Bradley. The risk manager said that the insurance market needs to watch the current trend towards greater retention and use of captives, among bigger groups in particular, carefully, and think about their overall approach to the corporate insurance market. Nestlé set up its captive-Intercona Re-in 1996 and moved it to Switzerland from Bermuda in 1998 and he says it has been a great success for the group. But perhaps this is not so much of a success for the insurance market. "We took CHF50m in premium income out of the insurance market and put it into the captive. We are very happy about this but the insurance market perhaps not so," he said.

Top risk manager says Solvency II is good for captives

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