Solvency II – A Burden or an Opportunity for Captives?

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The reality of Solvency II is now dawning on the whole insurance industry. After years of speculation and, in the case of many, millions of euros of expense and additional regulatory capital, insurance company owners are bracing themselves for pillars 2 and 3.

Both pillars will provide additional challenges for management in terms of both commitment and resource—including additional cost.

Many financial institutions take these changes in their stride—having faced many over the past few decades—and have resources at hand to address such changes.

Captives’ Mixed Response to Pillars 2 and 3

For many captive owners this is all new territory, and they are relying on their managers to provide solutions and expertise.

Many owners’ first reaction has been to look at ways of avoiding these requirements: “Should we re-domicile or should we simply shut down our captive?”

But why have a different strategy for your insurance company to that of your main business, where owners continually strive to be the best? So captive owners are beginning to understand the need for change and embracing it.

The conversation soon changes to, “What else can your captive do for your organisation?” Should the captive be looking to write additional lines and limits or even become a profit centre in its own right by writing 3rd-party risk, thus driving maximum benefit?

Explaining this to fellow executives, many of whom may have been reluctant to have entered into the insurance business in the first place, will be a challenge. With the help of advisors this should not be insurmountable and will improve the profile of risk management within an organisation.

Compliance with Solvency II should be seen as an opportunity rather than a burden!

 

About Paul Owens

Paul Owens is Chief Executive Officer of Willis’ Global Captive Management practice, based in London. He has been…
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