According to rating agency A.M. Best, the Solvency II disclosures published by European captive insurance companies show that the captives in the region are generally healthy and strong.
A.M. Best analysed the Solvency and Financial Condition Reports (SFCR) published by its rated European captives and has also met with captive managers to discuss Pillar III of the Solvency II regime, concluding that the sector is in a position of strength.
Reported Solvency II ratios are very strong for a reviewed sample of captives, A.M. Best said, with SII ratios typically ranging from 160% to 240%.
A.M. Best said that this is “in line with expectations” as the captives it rates all tend to be well-capitalised.
Konstantin Langowski, financial analyst, commented; “A.M. Best has observed notable differences in the style and quality of the narrative part of the disclosures among its sampled captives, in particular in the description of governance and risk structure. Most A.M. Best-rated captives are able to articulate and illustrate their risk management framework and capabilities as part of the interactive rating process. However, in A.M. Best’s view, the disclosures fail to do justice to the risk management and governance practices of the captives, as well as to demonstrate the importance of these functions to captives and their parents.”
Unsurprisingly, A.M. Best also found that some captives view the regulatory objectives of improving market discipline and policyholder protection by means of public disclosures with scepticism, given the way their business models work.
However, most captive managers appreciate that Solvency II enhances their risk management capabilities and helps them manage their capital requirements better on a risk-adjusted basis, A.M. Best said.