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Captive parents and others in the industry are waiting to find out how the European Union's Solvency II directive will affect them.
While finalization of the sweeping rules has not yet happened, E.U.-based captives need to be on the path to implementation, said Sarah Goddard, Dublin-based CEO of the Dublin International Insurance & Management Assn. Ltd.
In general, the European Commission, Parliament and the architects of Solvency II are looking specifically at how the directive will apply to captive business despite the fact that many E.U. member states do not host captive operations, “and some have appeared to be resistant to incorporating the captive model into an overall market view,” Ms. Goddard said.
Under the directive, captives overall will face drastic regulatory changes that will take into account the totality of risks an entity faces.
“For some captives, this will mean a massive change in their operations and functions, though the risk management direction of Solvency II should mean there is a natural appreciation between the aims of the parent company in using a captive and the aims of the new regime,” Ms. Goddard said, noting that captives may feel a constraint in resources when putting their Solvency II program in place.
“Even so, I personally believe that once the new structures have been put in place, they will give captive owners an even deeper understanding of their business; and once these structures have become embedded, they will see significant benefits,” she said.
While several factors prompt captive insurance owners to redomicile their facilities, surplus lines regulations in the Dodd-Frank Wall Street Reform and Consumer Protection Act eventually could drive that activity inappropriately, captive experts warn.