15 March 2013

CRE: Top risk manager says Solvency II is good for captives

A leading European risk manager said that Solvency II may be an administrative pain but it is actually good for captives because it inevitably demands a higher level of professionalism and communication with regulators.

Andrew Bradley, Head of Group Risk Services at Switzerland-based international food group Nestlé, gave this message to over 500 delegates at the Multaqa risk and insurance conference in Doha, Qatar this week and in a subsequent interview with Commercial Risk Europe for the annual Global Risk Frontiers survey.

Mr Bradley said that Solvency II is indeed a 'painful process' that is 'very complex' and demands far increased reporting and the need for actuarial skills that may previously not have been required.

Mr Bradley said that he had employed an actuary as a result of Solvency II, which the Swiss regulator has effectively applied as part of its Swiss Solvency Test, and is in far more regular communication with the regulator as a result. He said that the additional costs are not big for an international group like Nestlé that operates worldwide and has a very active and large captive operation. But for smaller companies he can see how this can be a considerable cost, he said.

Mr Bradley was not so positive about the overall role of reinsurers in the market during an event that focused on reinsurance to a large extent. He pointed out that Nestlé had recently expanded into the pharmaceutical business and this is not a popular business with insurers and reinsurers currently. There are also questions about engineering and even the food business now, he added.

This is another reason, in Mr Bradley's view, why it is so important for any risk manager to use a captive because it enables a more individual assessment of the risks, helps protect the group from the vagaries of the underwriting pricing cycle and also helps immensely towards loss prevention.

The risk manager said that the insurance market needs to watch the current trend towards greater retention and use of captives, among bigger groups in particular, carefully, and think about their overall approach to the corporate insurance market.

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