Webinar recap: How can European captive insurance companies aim for the future?

We recently held a webinar exploring the future of captive insurance companies in Europe with a panel of industry experts. Captive insurance companies are among the smallest insurance companies regulated under Solvency II, the European insurance supervision regime since 2016, but with a Solvency II revision on the horizon – what will captive insurers look like in 2020 and beyond?

Our CEO, Typhaine Beauperin, moderated this interactive webinar, which brought together active risk managers from Sweden and Luxembourg, captive users with a specific experience in the public and private sector, to discuss the regulatory needs in terms of proportionality for the European captive insurance community with a representative of the European Insurance Authority (EIOPA).

This session provided an opportunity to gather expert insight from two of our Forum speakers – Annika Forsgren, CEO Försäkrings AB Göta Lejon, The City of Gothenburg, and Laurent Nihoul, General Manager Corporate Risk and Insurance, ArcelorMittal – and for EIOPA’s Head of Supervisory Processes Department, Ana Teresa Moutinho, to present the future development of the Solvency II revision which will conclude in 2020.

The key outcomes of the webinar were:

1. The value of captive insurance as a genuine risk management tool
2. What to expect from the Solvency II revision in 2020 as regards captive insurance
3. Insight into the state of play of BEPS implementation in OECD countries.

Typhaine kicked off the webinar with an interactive poll for our audience to take part in, followed by dialogue from our expert panel.

Are you a captive insurer?

With 51% of participants sharing that they use a captive and 4% planning to, we could see that people are eager to hear about the latest developments in the captive world, to understand how captives are used, and how they maintain compliance.

Using a captive: public and private sector

To provide more information, Annika shared a presentation on why the city of Gothenburg has a captive, explaining her mission to provide insurance solutions, claims management and risk management support to the City’s operations. Annika has been working on the implementation of Solvency II since 2011 and has vast experience and recommendations to share on its impacts and her learnings for the public sector. Some of this is shared within this webinar, and Annika will be presenting at FERMA Forum in November to provide further insight.

Laurent, who is also a member of the FERMA Board, built upon Annika’s presentation by introducing and comparing his view from the private sector, listing one of the biggest differences as financial results being the main driver for private companies. His presentation shares ArcelorMittal’s three basic rules and summarises the main advantages resulting from the use of a captive within a global risk and insurance management strategy into three dimensions: (re)insurance basics, risk control, and finance and strategy.

He touches on the future challenges of transfer pricing, BEPS, insurance market cycles and hardening rates, and regulation including Solvency II at a European level, as well as the resulting new skills and strategies for future Risk Managers. Laurent, too, will be joining us at the Forum later this year to discuss the future of the captive model further.

Does your captive benefit from proportionality measures put in place by the local supervisor in relation with Solvency II?

Most respondents did not know whether they benefit from proportionality measures, with 21% ‘yes’ and 38% ‘no’. When asked if these results came as a surprise, Laurent remarked “yes and no”. A survey undertaken by FERMA with Marsh and Aon collected data showing that almost all countries have some form or proportionality measures.

Ana confirmed that they have different applications of proportionality across Europe, and shared that it is difficult for EIOPA to streamline their analysis only for captives – which is something they are working on a solution for.

Which are the proportionality measures applied by your local supervisor to captive insurance companies?

Annika commented on these results that there are no proportionality measures in the implementation of Solvency II in Swedish legislation, while Laurent commented that these results seem proportionally correct in line with FERMA’s recent research.

EIOPA on the future of captives in Europe

Ana discussed the EIOPA Supervisory Statement which calculates sub-modules using inputs estimated and leading to prudent outcomes, the result of which may be used for the next three years to provide a true example or proportionality. Ana assured that this should not affect the compliance with any risk management requirements and detailed the need for proper monitoring of risk evolution and the quantitative and qualitative early warning indicators to be set.

Ana’s presentation also covered reporting and disclosure, proportionality and thresholds, and revealed that the first wave of consultation is ongoing now until mid-October. In this process, they are covering general issues on supervisory reporting and public disclosure, individual quantitative reporting templates, solvency and financial condition reporting, and financial stability reporting.

EIOPA is also working on supervisory convergence to work on how supervisors across Europe are supervising captives.

The webinar closed with further debate between the panel about this consultation phase and the future of captives in Europe, leading on to the last polling question and Q&A:

Are captives fit for acting as risk incubators and covering new risks like cyber or climate change?

With 81% in agreement with this statement, the panel shared their own contrasting views. Annika was in favour of captives fit for acting as risk incubators but put the onus on the owner, while Laurent argued that he would be amongst the 19% saying no; a captive shouldn’t be required to do this unless the captive is used to design a new insurance product that is retained by the captive.

Questions from the audience included:

– Can a credit rating help a captive to reduce its insurance fee?

– How can you choose a captive domicile?

– How can you reconcile diverging interest of member states on supervising captives?

– What are the qualities of a good captive board?

Find out more

Our recent webinar explored what captive insurers could look like in 2020 and beyond including what to expect from the Solvency II revision – Join our workshop with Manuela Zweimüller from EIOPA, Annika and Laurent where they will discuss the progress that has been made since our webinar.

REGISTER FOR FERMA FORUM 2019 (Free for Risk Managers!)

Watch the full webinar here:

FERMA Forum workshop – Future of the Captive Model: Showing Value Creation

In this session, FERMA members, captive managers, and tax and insurance regulation experts will discuss the current issues. How could the planned revision of Solvency II affect captives and is the proportionality principle under threat? What is the experience of the application of the BEPS measures? How do captives continue to provide value for their owners?

Register for FERMA Forum to be in the room with industry experts including Annika and Laurent.