Swiss Re Corporate Solutions (CorSo) is seeing an increase in the number of companies looking to utilise virtual captives, according to Yann Krattiger, head of alternative risk transfer (ART) EMEA, at the carrier.
A virtual captive retains the same financial mechanics of a traditional captive, but the insurer usually handles the set-up and the administration of the supporting balance sheet, therefore virtually removing it from a company’s balance sheet.
“The virtual captive is definitely something that we are increasingly seeing in the EMEA region, but also in other regions, as an alternative to a protected cell company (PCC) and a first step to test the concept of retaining risk internally often with the aim of setting up captives in the future,” Krattiger told Captive Intelligence.
Paul Wöhrmann, captive consultant as Swiss Re CorSo, said that although there are large international companies with the financial ability to launch a pure captive, there is also a large European market of international middle market companies that do not have the critical mass.
“I don’t see them forming pure captives now, but I see an opportunity for them to open virtual captive accounts,” he said.
Krattiger noted that parametrics is something also being looked at as a complementary tool, or as a replacement for traditional capacity, especially for business interruption.
Wöhrmann noted that particularly in Europe there is an increase in the frequency and severity of natural catastrophe claims, which he said will not only affect large international and national companies but also medium-sized enterprises.
“For example, when a river floods, a small factory that is affected will file a claim regardless of its size,” he said. “The key point is that the industry needs to recognise this emerging trend.
“Once they do, their response will likely include reducing capacity and increasing prices. Therefore, we need to find solutions to support our customers in this changing landscape.”
Wöhrmann believes that captives are becoming more complex and require a higher level of expertise.
“From Swiss Re’s perspective, we can help captive owners in several ways,” he said.
“We offer support on the insurance side and help collect important and valuable information, leveraging Swiss Re’s experience with NatCat and other topics.
“In addition, we provide support on the retrocession side by offering specific protections that other companies may not be prepared to provide.”
Domiciles and regions
Wöhrmann said that some European domiciles are well developed while others need a bit more training and education on captives.
“The Italian market has opportunity to grow, and the French market is a very mature and developed market, while the German market has woken up in recent years,” he said.
“As the topic of captives is discussed more, insurers and insureds can test alternatives and explore what is best for their business.”
Krattiger said North America and EMEA are the most mature markets when it comes to ART solutions, but over the last few years there has been an increase in interest and maturity from Asia Pacific and Latin America.
“At Swiss Re Corporate Solutions, we are fully dedicated to growing these areas, and with that the team’s operational set-up where needed,” he said.
