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Revised solvency rules aid some Ireland captives


DUBLIN, Ireland--Some captives domiciled in Ireland will be able to reinsure greater amounts of fronted business and are subject to new solvency rules under recent regulatory changes.

The changes, contained in a guidance paper released by the Irish Financial Services Regulatory Authority, are in line with intentions regulators expressed earlier this year to ease some restrictions on captives. The revisions will be applied on a case-by-case basis beginning July 1.

Under the changes, the amount of reinsurance premiums that can be received, which usually is done through a fronting arrangement for business in locations where captives are not allowed to write directly, increases to a maximum of 50% of a captive's total gross written premiums. The previous limit was 20%.

A captive and its parent must meet several criteria to be eligible for the new requirement. Among them, the parent has to apply similar corporate governance standards and operational risk management procedures to all operations, regardless of where they are located, and the captive cannot accept third-party risks.

Under current requirements, Ireland-based captives must maintain a solvency margin that is 200% of either the European Union's requirement or the domicile's minimum guarantee fund for the first three years of its operation. The regulatory changes will drop the margin to 125% for new and existing captives writing pure property or property with ancillary consequential business interruption insurance. A margin of 150% will be permitted for other captives.

The changes waive the application of the ratio to eligible captives in recognition that the solvency margin requirement is a more significant indicator than the regulator's solvency ratio.

The guidance paper also clarifies guidelines for loans to parents by captives and the manner in which solvency credit for risks ceded to related reinsurance entities is calculated.