FERMA Forum 2011
Monday 3 October
Workshop (15:45 – 17:00)

The workshop on captives and Solvency II started with the basics. In fact all attendees knew the definition of a captive insurance or reinsurance vehicle, but many may not have been quite aware of its function in a complex financial strategy. Aptly, the speakers cited parallels with the role of some specific cash vehicles for the treasurer to avoid seeking a loan when money is scarce and expensive. The role of a captive for the risk manager is to avoid buying a working layer when insurance cover is scarce and expensive.

However, the topic of the workshop was the impact of Solvency II on captives. Markus Mende of AON Global Consulting and Urs Neukomm of Swiss Re Corporate solutions are not doomsday theorists, but they clearly envision three orders of consequences:

1. When the captive is a reinsurer, which is most often the case in Europe, the need for additional capital may raise the level of the fronting fees ;

2. The captive itself will need more capital and the board may question the need to invest in a “non-core” vehicle;

3. The reinsurance market may become tighter, thus posing more problems for the economic placement of the retrocession. Of course, not all domiciles adopt Solvency II whole heartily. Some are clearly shunning it (even as close as Guernsey, Jersey, and the Isle of Man), while others seek equivalence (Bermuda), but even the horizon of implementation is not sure, when EU members like Denmark or Sweden have clearly indicated that they will delay at least until 2014. Might it be that at the next FERMA forum in October 2013, the lingering question will still be unanswered?

Jean-Paul Louisot is Dean of Curriculum CARM Institute, Paris