15 June 2023ArticleAnalysis

Keeping an ear to the regulatory ground

Staying up to date with all the changing rules and regulations that govern captive insurers can be hard—but not impossible—for non-executive directors (NEDs) of captives, as a webinar hosted by Captive International heard.

During the webinar, which was organised by Zurich Insurance Group and hosted in April by Captive International, speakers discussed the many regulatory issues faced by captives and the best way of making sure they stay aware of the latest developments.

Moderated by Wyn Jenkins, managing editor of Captive International, the panel comprised Paul Wöhrmann, senior ART manager/customer and distribution management, commercial insurance at Zurich; Andrew Bradley, the former head of group risk services at Nestlé and now an independent director to a captive; Xavier Groffils, captive manager at Solvay; Hans-Peter Wagenhoefer, director of insurance and reinsurance at German multinational BASF; Malcolm Cutts-Watson, chairman of RISCS CWC; and Françoise Carli, the co-founder of Zakubo Consulting.

Asked how independent board members might navigate these issues, Cutts-Watson said that the first thing you have to be aware of as a NED of a captive is the local company law. This typically covers things such as duty of care, good faith, duties to apply good judgement, and compliance with local laws.

However, as he pointed out, when you then start looking at insurance law, and captive regulations, they are often quite quiet on the role of the captive director, other than saying that they have to be “fit and proper”. In fact, he said, in some captive jurisdictions there’s not a requirement even to have an independent NED on the board.

Cutts-Watson explained that he has looked at various domicile captive regulations, and noted that a raft of demands are placed on a captive that normally fall upon the directors. As he put it, directors need to look at the main pillars of a board’s purpose, which include setting the vision, setting the strategy and the structure, putting in place the appropriate delegation, and accountability.

Looking at all the individual functions that the board or the directors are required to demonstrate, reveals a very long list of things, said Cutts-Watson.

“You need technical subject matter expertise,” he explained. “You need to understand insurance and captives, and the local regulatory environment. But you also need what I would call boardroom ringcraft, which is that ability to be able to manage issues, conflicts, and challenges in the boardroom, and you need some soft interpersonal skills, so that you can get things done.”

To put it in perspective he pointed out that the regulators now are increasingly monitoring the minutes of board meetings and committee meetings of captives, and they’re expecting to see challenges by the independent NEDs documented in those minutes. He added that it’s not unusual now for an independent director to be called in by the regulator and effectively grilled as to how the captive is operating, and how his or her contribution is making a difference to the captive.

So while there may not be much set down in writing, in reality, there is a lot of challenge and pressure on the independent NEDs to demonstrate that they’re performing well.

A good fit

Carli agreed with Cutt-Watson, saying that in her jurisdiction, while it is not compulsory to have independent board members, the regulator still informs captive owners that it wants the boards to have an independent board member—and that they want to be sure who that person is and how s/he fit in with the needs of the captive.

“I have seen that very recently,” she said. “I thought it was a sort of advance notice that things are going to change and be much more precise in the expectation of the regulator in terms of independent NEDs, and in terms of skills.”

Wöhrmann said that he would recommend the development of relationships with stakeholders in the market, who can provide specific information which NEDs need, who can perhaps provide or invest in training, and can probably provide access to risk management conferences.

He stressed that it’s very important to keep this connection with people who own a lot of information and that captive board members need to explore how they could benefit from the expertise of risk management associations, which are now present in a lot of countries.

This can provide NEDs with various views with regard to questions surrounding risks, which can be shared afterwards in the captive board meetings.

“I have observed that in recent years, former group risk managers and captive managers have increasingly shown their interest in becoming an independent captive board member,” said Wöhrmann.

“At Zurich it’s in our interest to support captive board members as part of our global customer-focused strategy, to make our expertise and experience available in the ongoing development of international corporate insurance.”

“To stay up to date these days, people don’t read newspapers, it’s all online. But networking is something the insurance industry is very good at,” Bradley said.

He pointed out that networking and keeping in touch with former colleagues and other people in the industry who have a lot of knowledge can be useful, along with linking up with other captive board members to see what’s going on in other jurisdictions.

Bradley cited LinkedIn as a good resource via which to follow the latest news, attend conferences and learn. One captive conference he personally likes is the European Captive Forum, held every two years in Luxembourg. “That’s an excellent event at which to keep up to date on what’s going on, trying to follow the legislation, and getting details about the local captive jurisdiction to make sure you’re on top of possible changes.

“It’s all of that—networking, keeping in touch and keeping your finger on the pulse to make sure you are on the ball and you haven’t forgotten anything.”

Carli added that in her view insurance brokers are bringing a lot of information that captive directors and others can use. She thought that Zurich and several Swiss companies, compared to insurers in France, are producing some very interesting documentation that you can see online and can use.

She recommended spending a lot of time keeping track of what’s going on by looking at the financial documents that are filed by large companies because, as she put it, in those documents you can find new areas of risks that are described in the risk factors.

Finally, she said, in some captives, the captive manager and the captive owner should be pushed to do some training for the board.