In this increasingly regulated world, the emerging risks vexing captive owners are not just those insured by the captive but those inherent in its operation. Some of these are already well established with solutions emerging, including the challenges of Solvency II and global program compliance. However, one aspect of this on which Willis is being increasingly approached is transfer pricing on captive lines.
This concern is driven not just out of the regulatory concerns of captive and operating unit jurisdictions, but those of the tax authorities at the location of risks. Here a balance is required between the sensitivities of corporate tax authorities concerned about overstating premiums as tax deductible expenses and insurance premium tax authorities concerned to get the full amount of tax in relation to local insured risks.
Market testing and desk-quoting is not really sufficient to establish the veracity of premiums. You need a robust, arms-length underwriting process and credible underwriting competence available within the management facilities of your captive as your premiums could be challenged as either too high or too low!
|This post was part of the special feature about What Risks Will Emerge in 2012? published January 24, 2012. The feature also covered emerging risks in these other fields:|
Power & Utilities
Supply Chain Interruption