Solvency II For Captives

How are Captives Different?

Many people working in the insurance sector of Financial Services recognise that captives are different to other parts of the industry. They’re established by their customers to serve their own particular insurance requirements, meaning that they don’t sell to consumers or to businesses outside of their affiliates.This has an obvious effect on the operational drivers and structures of such companies, and their resultant asset/liability management and governance strategies have been developed for this particular type of business. Reporting requirements have also historically been an area where captives and other insurers have differed, with other insurers having, in particular, a far greater public reporting burden.

The World has Changed and Continues to do so

Recent events, such as the crisis in the sub-prime market – which led to the collapse of a number of larger banks and insurance companies (including former giants such as AIG in 2008) – has changed the Financial Services industry dramatically.Governments, regulatory bodies (and indeed the public) are increasingly looking to regulation (including Federal and State legislation in the USA) and governance frameworks (such as Solvency II) to protect the consumer and the economy from such failures in the future.There are also changes in the market place with organisations looking for alternative business models which are, in some instances, challenging the world of the captive insurer.

There are many business uncertainties, but one thing at least is certain – all parts of the Financial Services sector need to be increasingly transparent and to have more overtly demonstrable governance than has previously been the case.

What to do?

Fifth Step believes that the governance requirements cited within Solvency II Pillar 2 are, broadly speaking, a lengthy reiteration of good practice.

We do, however, also recognise the particular challenges that captive insurers could face with Pillar 2. Understandably, ECIROA continues to argue the principle of proportionality for captives, and consideration on this point clearly remains very much at the forefront of the thinking for any organisation undertaking Solvency II (and similar frameworks).

Nevertheless, ensuring that your organisation is participating in – rather than ignoring – the changing world, is going to be key to your ability to thrive. It’s worth bearing in mind that in many cases, attaining the Solvency II governance requirements need only be a matter of enhancing the good practice that is already in place, ensuring that the good work that is being done is evidenced and can be proven to your regulator.

Your Next Step

Fifth Step is an organisation that has a wealth of experience in the Insurance Sector, and in implementing good governance.

Our approach is always to work with our clients and to jointly establish the starting position (i.e. evaluate the current governance position). Then, where possible and appropriate, we seek to build upon the often good work that has already been done.

At Fifth Step, we really don’t believe in making you pay to re-invent the same wheel that you’ve already built.