Tuesday, May 21, 2024

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Hard market conditions “sped up” Knauf’s decision to form Luxembourg captive

Hard market conditions drove Knauf’s decision to form a Luxembourg captive, according to Marcus Reichel, head of insurance at the German multinational building materials supplier.

“This is something [the hard market] which helped to speed up the process in our decision making within the group,” he explained on GCP #49.

Reichel said that despite the company having good loss ratios, it was ultimately suffering from “unreasonable” premium increases as a result of hard market conditions.

Knauf, a privately owned company, already has a Vermont-based captive in operation since 2018, which in inherited from an acquisition.

The captive which writes medical stop loss and terrorism and funds self-insured retentions (SIRs) for other property and casualty lines.

The Vermont captive is also looking to write workers’ compenstation and fund life and disability insurance when the time is right.

“Since we have a decent US operation, we see the value in keeping it and even expanding it,” he said.

Reichel discussed the formation of the company’s second captive is Luxembourg and was asked whether Germany was ever considered as the company’s domicile of choice.

“As long as we’re not having a a specialised captive management company here in Germany, we should pick up the knowledge we get from outside of our group,” he explained.

“And therefore, we really looked into these hotspot locations like Dublin, like Luxembourg, rather than going back to Germany.”

Reichel said the company selected Luxembourg as it most appropriately fitted its “needs”.

“And also because of various other aspects like the quality of knowledge of captive management, and proximity,” he said.

In the “first phase” of the company’s new Luxembourg captive, he explained that the company was going start by writing P&C risks.

“We are taking some retentions and giving the insurer the chance to front our policies and take the excess risk,” Reichel added. “But the majority of risk for both the property and casualty programmes are kept with us.”

He said that based on the company’s loss ratios, it had an opportunity to improve its cost base and make the risk management function much more visible within the group.