10 January 2017Analysis

Captives will cope with Solvency II in 2017 but the New Year brings new risks

As the industry enters its second year of Solvency II, captives are getting better at coping with the financial reporting requirements of the regime, but 2017 may present new challenges, according to senior executives asked by Captive International to identify the  biggest issues facing the sector in 2017 will be.

“2017 will be the second year of the Solvency II regime and when any anomalies or weaknesses which have been identified in the processes can be addressed,” said Ian Clancy, practice leader at Marsh Captive Solutions.

“While the long lead-in to the regime should have helped minimise teething problems, they will nevertheless emerge and the industry must work to ensure they are resolved in a manner which respects the underlying principles but at the same time gives due recognition to the concept of proportionality of risk, particularly as it applies to captives.”

Captive International asked a number of captive executives for their opinions on what will be some of the more prominent issues facing the industry in 2017.

The consensus was that the captive insurance sector may have faced hurdles in adapting to the regime in 2016, these hurdles may be less onerous in the New Year.

Paul Owens, CEO of global captive practice at Willis Towers Watson, said: “The industry has been preparing for Solvency II implementation for many years. In 2016 we finally saw the theory being turned into reality with the implementation of all pillars, including pillar 3 on reporting.

“The captives industry has embraced this development and has been supporting the gold standards that this regime provides. Many owners at first struggle with the new framework, but soon accept the benefits, with help from their advisers.”

Clancy also suggested that the change may have proved to be a challenge for a small number of captives, as they now operate in a regime which has new methodologies to assess capital needs, more detailed risk assessment, stricter governance requirements, and more detailed reporting.

Looking forward to 2017, Clancy added: “The new world we are entering at a socioeconomic and political level may create greater risk mitigation needs in, for example, the area of credit or political risk. Another reason why a focus needs to be centred on new risk, particularly in an EU context, is the additional capital requirements which apply to several captives as a result of Solvency II.”

In total senior executives from Willis Towers Watson, Marsh Captive Solutions, the Federation of European Risk Management Solutions, the Captive Insurance Companies Association and Captive Alternatives participated in the examination of 2016 and their outlook for 2017. To read the full transcript of their thoughts and comments, please click here.