Although there has been a slight dip in captive numbers across Europe, this is not an accurate reflection of the health of the industry, which has shown signs of growth despite contending with issues surrounding Solvency II, BEPS, direct fronting and Brexit.
This is according to a panel of European captive owners and consultants at the CICA conference, “View from Across the Pond”. Speakers included: Richard Cutcher, research and development manager at AIRMIC; Ciaran Healy, director of clients solutions EMEA for Aon Captive & Insurance Management; Udo Kappes, chairman of ECIROA and Airbus; and Philipp Viénot, chairman of ECIROA and BNP Paribus.
Formation activity across Europe was seen by the panel to be relatively flat or in slight decline, but it argued this may be attributed to M&A activity.
“Underneath there is a lot of growth within that. It’s not all doom and gloom in captives in Europe,” said Healy.
Areas of growth emanated from the general increase in sophistication among captives in Europe, which are predominantly large, single parent captives. While they have traditionally covered property/casualty, large captives in Europe are increasingly looking at new lines of business, including employee benefits, cyber, non-damage business interruption, along with more parametric type deals.
Malta was identified as one of the fastest growing domiciles in Europe, but it said to be unique in its position in being the only domicile with protected cell company legislation with direct writing across the EU.
Furthermore, Cutcher highlighted that although the regulator has said the domicile has only 10 captives, he suggested there is as much as three times as many but aren’t identified as captives due to writing third party risk.
One of the key areas affect the European captive landscape is Solvency II. It applies to all EU domiciled insurance companies and was introduced to reduce the risk of insolvency and promote consumer protection, however it has created higher barriers of entry for captives - both in terms of time and cost - when compared with onshore and offshore US domiciles.
Small and medium-sized enterprises don’t really own captives in Europe due to the capital, reporting and governance requirements, which are seen to be quite intensive, the panel added.
“Clearly Solvency II has improved the professional management of captives but has increased the burden for captives,” said Kappes.
While the Solvency II regime has been implemented to promote harmonisation across the European domiciles, the panel noted that there is still significant variation in the characteristics across them in spite of this.
Brexit was not considered that relevant for the captives market, as companies that may potentially lose their rights to write into the UK are likely to have fronting in place for business continuity.
“If you are a captive in Malta direct writing into the UK, you will potentially lose those rights to write into the UK - you may have to put a front in place,” said Healy.
CICA 2019, Brexit, Europe, Richard Cutcher, Ciaran Healy, Udo Kappes, Philipp Viénot, M&A, P&C, Cyber, Solvency II