Allied Risk Management
CIT speaks with Ronan Ryan of Allied Risk Management about the Irish market, what to expect from your captive manager and the appropriate level of service
How would you describe the current state of the Dublin market and has there been much of an inflow of captive business being written?
While I believe in the strength of Dublin as a captive domicile going forward, I fear for our ability to retain a certain level of the business. On updating our own list of captives recently for an annual publication, I noticed that I put a line through five companies. Four of which have been or are going through the liquidation process and one as part of a cross border merger to Malta. For the majority, these were profitable companies. What’s the main reason? Is it really Solvency II? I don’t know. If we look at Solvency II, what does it mean for the average captive? It means as follows:
Same minimum capital requirement as Solvency I, but for the majority it is hard not to see a significant level of increased in solvency capital requirement (SCR)
Production of your Own Risk and Solvency Assessment (ORSA)
Sixty reporting spreadsheets instead of current (circa 10) reporting requirements
Build/buy your own standard model from the standard formula instead of it being issued to you by the central bank.
With the exception of the first point above, the burden of the work will be with the captive managers to administer and manage for the captives and that will increase costs, time and resources. However, while I have no doubt that strongly capitalised captives will survive and flourish under the new regime, I’m not so sure about the rest.
Other European domiciles have been established—how competitive is the European marketplace for captive business?
I do not think it is that competitive for pure captive business. Each EU domicile has its own characteristics but essentially they are all governed by the same EU insurance and reinsurance regulations.
How important is the feasibility study when clients are establishing new captives?
It is very important. The study would be comprehensive in nature and should address the following key areas as a minimum:
Review of the purpose and benefits of establishing a captive insurance company. The report will typically review all classes of insurance purchased and determine if participation by a captive is feasible and financially viable. This will address issues such as:
Policy issuance, fronting arrangements and related costs;
Claims management procedures;
Board structure and corporate governance issues;
Management reporting; and
Financial reporting.
Consideration of capital requirements and share structure for the captive.
Consideration of choice of domicile for a captive.
Three-year financial projections for the captive for all viable classes of insurance, including details of all establishment and ongoing operational costs.
Accounting and tax issues relating to:
Ownership structure;
Control; and
Dividend policy.
Review of the role and responsibilities of the appointed manager of a captive.
Critical path setting out the steps, actions and costs required to move from the design stage to the establishment of a captive.
Ireland has double taxation treaties with approximately 60 other countries—how important are they for prospective captives?
They are another piece of the jigsaw for the risk manager and group finance function on deciding on an appropriate domicile.
What is the typical time frame for establishing a direct writing captive in Dublin and how does this compare to other domiciles?
The typical time frame is four to six months depending on the quality of the submission. I would think that this is not too dissimilar to most of the other EU domiciles.
How can owners and directors of captives check if they are getting an appropriate level of service?
It is appropriate that owners and directors of captives should ask themselves if they are getting an appropriate level of service and to ensure that complacency has not crept into the relationship with their appointed captive managers.
There are a number of areas that captives should consider when reviewing the services they are receiving from their management companies:
Resource and stability—there needs to be a team with appropriate professional skills in the required disciplines: underwriting and claims; finance and accounting; regulatory and compliance; and company secretarial and administration. Each discipline requires a special skill set that needs to be coordinated and appropriately focused on the day-to-day operation of the company. There can be a temptation for management to leave service teams to their own devices in favour of focusing on new business projects. Ensure that your service does not suffer as a consequence and remind the team manager of your service expectations from time to time. Captive managers seek to bring economies of scale by having one team responsible for the management of many client accounts.
Service delivery—failure to deliver to prior agreed service requirements will often be an indication of a service team that is over stretched poorly managed or that its focus has been otherwise distracted from servicing your company. Examples of such areas will be:
Failure to provide management accounts to the parent’s finance department on the due date
Failure to submit regulatory, tax and company returns on time
Failure to issue premium invoices or prepare policy documentation within the terms of the service agreement
Failure to produce a high quality, informative, complete and accurate board papers to the directors within the agreed delivery date prior to the board meeting
Failure to provide draft minutes of board meetings within the agreed period following the meeting
Failure to address, in the agreed timeframe, matters arising at the board meeting that may require action by the managers.
Communication—how can there be excellence in service without regular communication? Some individuals are better communicators than others, but it is important to distinguish between nice-to-have and essential. Communication on some aspects of the business is essential to ensure the efficient operation of the company.
Awareness—your service team will be much more effective when team members are aware of all aspects of your company activities. This may manifest itself in a number of ways. For example:
Does your service team sit together and do they work together on several clients? This promotes cohesion within the team and an awareness of each other’s strengths and weaknesses. A good team will draw on each other’s strengths and compensate for weaknesses through collective responsibility.
Does the team work on other businesses that are likely to write similar lines of coverage to those that you need to place in your company? Practical experience of handling those classes of business in other captives can be very valuable to you. Is the team aware of developments in your particular industry sector as well as developments in the insurance/reinsurance market and the captive sector?
Proactivity in planning—it is imperative that you are satisfied that your captive manager is keeping abreast of all regulatory, compliance and corporate governance issues, for example, Solvency II, to ensure the company is in a position to fully implement these on a timely basis. Are these agenda items at all board meetings?
Loyalty and support—at times, these qualities are called upon from your manager to address and resolve unexpected challenges that may occasionally arise. Acceptance of responsibility and commitment to your company must be expected to face these challenges to ensure full compliance to the highest standards of regulation and corporate governance.
How do you see the remainder of 2013 shaping up for the captive market in Europe?
The market will be getting ready for Solvency II’s Pillar II reporting requirements, which are expected sometime in 2014.
