Speaking ahead of his session at the 2013 Airmic annual conference, the captive expert told the UK risk management association's newsletter that things will never be the same for captives when Solvency II comes into force. "Senior executives are going to take more interest in the captive and they will ask more searching questions. Captives are going to be under the spotlight as never before", said Mr Baumann. "The stakeholder environment will be a lot broader and more demanding", he added.
As a result of this, Mr Baumann said that risk managers will have to raise their technical knowledge and be able to discuss, for example, the value of their captives and their appropriate cost of capital. He acknowledged that Solvency II is a measure designed primarily to regulate conventional insurance companies and thus is not entirely appropriate for captives.
This has been a central point made by the European Captive Insurance and Reinsurance Owners Association (ECIROA), the body founded specifically to lobby Brussels on behalf of the captive community. On its part, the European Commission has repeatedly assured ECIROA and Commercial Risk Europe in interviews that the different nature of captives will be recognised through the news regime and a lighter and more simplified application of the rules made possible for regulators.
The problem is, however, that as the Commission, European Parliament, the insurance industry itself and the regulators argue about big issues such as the valuation of assets for the huge European life insurance sector, no one seems to have the time or will to come up with some clear guidelines on captives for regulators.
Mr Baumann and other experts therefore advise risk managers to effectively assume the worst, accept that Solvency II is a fact of life and will place new restrictions in key areas such as asset allocation. This concurred with an upbeat speech given by Andrew Bradley, risk and insurance manager for Swiss food giant Nestlé, at a recent conference in Qatar. Mr Bradley is a strong supporter of the captive model and retains a huge amount of risk via his Swiss-based vehicle.
The Swiss regulator is applying the same type of rules as the EC for the insurance sector despite not being a member state. In Mr Bradley's view, the new regime simply means that risk managers need to do the kind of homework on their captives that they should be doing anyway.
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