Solvency II has completely changed the way captives are managed in Europe, according to Udo Kappes, chairman of European Captive Insurance and Reinsurance Owners' Association (ECIROA).
Speaking on the ‘Challenges and Opportunities for European Risks in Captives’ panel at the Captive Insurance Companies Association (CICA) 2018 conference, Kappes said Solvency II, which was implemented 1 January 2016 and applies to all EU domiciled insurers, has presented European captives with a number of challenges.
He explained: “Before Solvency II was implemented, the Solvency calculations, the company governance and reporting was much lighter.”
This increased complexity and cost has, according to Kappes, led to the consolidation of some European captives.
He said: “For captives that have been quite inactive, costs are too high so they have been forced to close.”
An example of this is Carrefour, the French supermarket, who closed their Dublin-based direct writing captive for this reason.
The effects of Solvency II have not all been negative, in fact, Kappes suggested that the directive will leave a lasting positive impact on the European captive market.
“Solvency II is for us a driver to be better as a business to make the captive more stable and stronger, and I’m sure this the case for other captives as well.”
“Now a lot more has to be prepared and understood by each captive executive. This leads to a significant increase of professionalism but on the other hand, increases the costs of the management of a captive.”
He concluded: “Overall I would see this as a positive development.”
Another member of the panel, ECIROA vice-chairman Philippe Vienot, said the raised awareness of captive board members as a result of Solvency II was a huge positive for the market.
Vienot said: “The board being trained, fit and proper means they are more likely to listen to new risk and new opportunities. After going through Solvency II, we can say there was a lot of margin for improvement, and this is very positive to me, even though it was very expensive.”
