Tuesday, 17 May 2011

Captives - Does ERM mean higher costs under Solvency II?

Can't help but think I am missing something having read though A.M Best's special report on Captive Insurers under Solvency II.

The report has some bright spots (covers proportionality and reasons not to factor it in to project plans very nicely), some weak spots (recommends participating in QIS studies which are surely now finished), and some great definition on why so many companies may be caught out (narrowed definition, lower diversification benefits, perhaps had hoped that parent would absorb the impact).

What is not so pleasant is the implication that by tightening standards in the Pillar 2 and 3 areas there will be higher operating costs ("significant impact" in their words). I may be missing a business opportunity here, but this is surely a 'proportional' one-off cost, where they can even get leverage from their parent company's project work?

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