15 November 2012

CRE: Captives still in the dark over Solvency II

"Everything is still uncertain." This is probably not what you want to hear at the start of a captive insurance conference session. But given that it was on 'Solvency II—An update on current developments', it is not altogether surprising, comments Tony Dowding.

However, despite uncertainty being a theme during the Solvency II discussions at the European Captive Forum in Luxembourg, the other message was that this does not mean that captive owners should be complacent or adopt a wait and see approach. And the view from the Forum from all sides—regulators, insurers, brokers and buyers—is that the current delays to Solvency II are an opportunity to push for changes and clarification, particularly in relation to captives.

So where are we currently with Solvency II? According to Marc Paasch of Marsh, Pillar 1 is currently waiting for the approval of the Omnibus II Directive that modifies the Directive. As far as Pillar 2 is concerned, implementing measures are being drafted and EIOPA has issued guidelines on Pillar 3, he added. Indeed several domiciles, such as Malta, have already issued guidelines and so things are moving well from the domiciles’ point of view, he said.

He explained that the latest quantitative exercises showed that captives usually have a high capital requirement for cat risk, concentration risk and counterparty default risk. He added that while there were some simplifications for captives in Pillar 1 on the principle of proportionality, there were no simplifications for Pillar 2.

Hans-Jürgen Allerdissen, from Deutsche Bahn, said that it is still possible to find a special shape for Solvency II for captives and there are three reasons for that:

• Firstly, he explained, captives are niche and they know more about their business than the insurance industry or brokers.
• Secondly, they are not of a size that if a captive fails it would have an effect on the general market.
• And thirdly, nearly all captives are not active in third party risks, or if they are active in third party risks they are not relevant for the public sector.

Not everyone was supportive of a special treatment of captives, at least not on all aspects of Solvency II. Oliver Baete, Member of the Board of Management of Allianz SE and current Chairman of the CFO Forum, pointed out that one of the most important roles for a captive has been to provide capacity for risks that the insurance industry either would not provide or for the wrong price.

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