31 January 2014

Non-life and life mix will deliver capital efficiencies

Captives would do well to consider adding life risk into their non-life portfolios in order to achieve potential capital efficiencies, particularly as they face increasing regulatory pressures.

That is the news from Dr Paul Wöhrmann, head of captive services at Zurich Global Corporate for Europe, APAC & LATAM, who says that Zurich has seen a rise in interest among captives looking to add less volatile life lines into existing non-life portfolios.

 “If you run a volatile non-life portfolio, often your parent is obliged to inject more capital into the captive. When you add in less volatile lines such as employee benefits it achieves diversification, which in turn allows you to manage your capital in a much more efficient way.”

Wöhrmann says that in Europe many companies are exploring their capital position as a result of capital requirements under Solvency II, but a similar trend is also likely in the US as captive explore ways to maximise capital efficiencies.

With captives taking an increasingly holistic view of risk and corporate CFOs looking to get the most out of their risk transfer vehicles, it seems likely that more captives will consider how they can develop and diversify the scope of their coverage.