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Airmic welcomes UK government commitment to captive consultation

Luke Harrison
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Airmic welcomes UK government commitment to captive consultation

Airmic CEO Julia Graham has welcomed the United Kingdom government’s commitment to a captive consultation in spring 2024.

The UK government announced on 22 November that it will launch a consultation on the design of a new captive framework in spring 2024, with the aim of “encouraging the establishment and growth of captives” in the UK.

“Airmic welcomes the commitment from government to hold a consultation in 2024 concerning the introduction of a captive regulatory regime in the United Kingdom,” Graham said.

She said the Association looks forward to working with government, regulators and the wider insurance community to ensure any captive legislation is “fit-for-purpose” and supervises captives “proportionately” in a risk-based solvency regime.

“Through Airmic’s Captive Special Interest Group, we represent and are in touch with a wide range of captive owners that utilise established captive domiciles around the world,” Graham added.

“We will work to collect their views on what a good UK captive domicile should look like.”

Graham has previously said the UK could offer a “unique proposition” for captives if a “proportionate and fit-for-purpose” regulatory environment is developed with long term commitment from the government.

Airmic has stated it would want to see a captive regulatory regime sit outside of Solvency II, or its successor Solvency UK, and there must be recognition that a captives are different from commercial carriers, presenting significantly lower risk to consumers and the wider financial system.

In September, a delegation of captive specialists met with the UK government’s previous City Minister, Andrew Griffith MP, at the Treasury to discuss the possible introduction of a captive regime.

The delegation and meeting was organised by the London Market Group (LMG) and Griffith, and included captive owners, brokers, insurers and the wider risk management community.

Griffith has since been replaced as City Minister by Bim Afolami MP, but the government ambition to introduce a captive regulatory framework appears to remain on track.

There is heightening momentum in Europe for more ‘home’ captive domiciling, with France leading the way with new legislation finalised this year and a consistent pipeline of new formations materialising.

European captive growth expected to continue with changing domicile landscape

Richard Cutcher
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European captive growth expected to continue with changing domicile landscape

The momentum driving captive growth in Europe is expected to continue with increasing domicile options supporting the trend, according to AXA XL’s Marine Charbonnier and Julien Guénot.

Speaking in an episode of the Global Captive Podcast, recorded at the European Captive Forum earlier this month, Charbonnier, head of captives and facultative underwriting in APAC & Europe, said the volume of new captives formed in France has been surprising but the drivers are clear.

She added AXA XL had been involved in many of the new captives formed in France, both before the new legislation and after. There are now 14 reinsurance captives domiciled in France, with four being formed in 2023.

There has been a “rising number” of cessions to captives, prompted by the constraints of the commercial market and growing global programmes for sophisticated insurance buyers.

Guénot, regional leader of the Southern Europe markets at AXA XL, which includes France, Spain and Italy, believes there are three dimensions and drivers of the changing domicile landscape on the continent, starting with the commercial market.

“The captive can be an agile tool to adjust, to adapt, to be a bridge between what the market is offering and what a customer would like to obtain,” he explained.

“The second is what we observe as an insurer. The continuous evolution of emerging risk, which is not one risk today. We are facing probably eight, nine crises at the same time. So anytime you have developing risk, which are coming together, you see casualty or cyber captives becoming a really agile tool.

“And last, we observe a very interesting momentum of centralization of power and decision making in the corporates we are supporting. A captive, and risk management in general, is a fantastic tool that permits corporates to centralise their risk management capabilities and organisation.”

Guénot said the historic captive centres such as Luxembourg, Ireland and Switzerland remain “very popular”, but the evolution in France has served as a “positive inspiration” for risk management communities in Spain and Italy to explore the possibilities at home too.

Captive Intelligence reported last week that Enel had formed the first Italian reinsurance captive, ultimately planning to merge and close its long-standing Netherlands-domiciled captive.

“Over the past two years, we have seen strong growth in new captive formations in Europe,” he added.

“I would expect that interest to remain very strong. There is scope for growth, specifically in Spain and Italy, where risk management has risen up the corporate agenda in recent times.

“Both internal and external factors are explaining that companies are looking for greater resilience, additional capacities to manage the terrible crises they are undergoing. Look at natural catastrophe. It’s a key topic for those two countries and definitely captives will play an important part.”

Charbonnier said whether the captive is domiciled in the parent’s home country or an established captive domicile does not make a big difference to AXA XL, but remaining in a Solvency II domicile does simplify matters.

When it comes to forming new captives and the involvement of a fronting partner such as AXA XL, Charbonnier added that teamwork is key.

“We work with the broker often on options of captive retention for the risk transfer and also for the captive setting conditions,” she added.

“And after that, we also explain how we will work together on the operational side. That is really key for the success of the captive.”

GCP Short: Europe’s next chapter, domicile evolution

Richard Cutcher
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GCP Short: Europe’s next chapter, domicile evolution
Marine Charbonnier, AXA XL
Julien Guénot, AXA XL

In this GCP Short, produced in partnership with Friend of the Podcast AXA XL, Richard is joined by Marine Charbonnier and Julien Guénot to discuss a very topical theme – the growing interest in home domiciling in Europe.

This conversation was recorded at the European Captive Forum in November with Marine, Head of Captives and Facultative Underwriting in APAC & Europe, and Julien, Regional leader of the Southern Europe markets at AXA XL, which includes France, Spain and Italy.

Stories referenced during Richard’s introduction and the podcast discussion:

⁠Enel forms first Italian captive⁠.

⁠Four French captives formed to date in 2023⁠.

⁠UK captive consultation to launch in spring 2024⁠.

For more information on AXA XL’s captive services, visit its ⁠Friend of the Podcast page here⁠.

For the latest news, analysis and thought leadership on the global captive insurance market visit ⁠Captive Intelligence⁠ and sign up to our ⁠twice-weekly newsletter⁠.

Enel forms first Italian captive, more expected to follow

Richard Cutcher
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Enel forms first Italian captive, more expected to follow

Italy has licensed its first reinsurance captive for Enel S.p.A., and Captive Intelligence understands further re-domestications are expected to follow.

Enel is an Italian multinational manufacturer and distributor of electricity and gas, which already owns Enel Insurance NV, domiciled in the Netherlands.

In 2022, Enel Insurance became the first captive signatory of the United Nations Principles for Sustainable Insurance.

Enel Erre SpA received a reinsurance licence from the Italian regulator IVASS on 21 November, with Aon and local law firm Bonelli Erede supporting the project.

SRS is the captive manager of the new reinsurer.

Gabriele Frea, head of insurance and risk financing at Enel, said Enel Insurance would eventually be merged with Enel Erre SpA to create Enel Reinsurance.

“I would like to share my satisfaction with all the colleagues who have contributed to the achievement of the result of finally having re-established in Italy our captive active since the early 2000s, and with the advisors AON SpA and Studio Bonelli Erede,” Frea said.

Captive Intelligence reported in January 2023 that several Italian-owned captives had begun discussions with IVASS on the possibility  of re-domesticating captives back home.

Historically, Italian companies have used established captive domiciles such as Luxembourg, Ireland and Switzerland.

Earlier this year Brembo Re AG, owned by the Italian manufacturer of automotive brake systems Brembo S.p.A., was established in Switzerland.

Captive Intelligence has reported extensively on the growing trend of ‘home domiciling’ in Europe.

France is the most advanced with four new reinsurance captives formed in 2023 to date, taking its total to 14.

There have also been discussions in Spain concerning the introduction of a captive regime, while the UK government announced this week it would launch a captive consultation in 2024.

AM Best affirms rating of Eni captive

Luke Harrison
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AM Best has affirmed the financial strength rating of A (excellent) and the long-term issuer credit rating of “a” (excellent) of Ireland-domiciled Eni Insurance Designated Activity Company (EID). The outlook for the ratings is stable.

The single parent captive is owned by Eni S.p.A, an Italian multinational energy company.

EID is well-integrated within Eni’s group risk management framework and has an active role in overseeing and containing the group’s insurance costs.

The captive enables the group to centralise claims information and establish “effective” internal reporting for Eni.

Prospective performance is subject to volatility due to potential large losses from EID’s property account, but underwriting volatility on a net basis should be moderated by the captive’s reinsurance programme.

The ratings reflect EID’s balance sheet strength, which is very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM).

AM Best assesses EID’s risk-adjusted capitalisation at the strongest level, as measured by Best’s capital adequacy ratio (BCAR) and expects it to remain at this level prospectively.

An offsetting rating factor in the balance sheet strength assessment is EID’s reliance on reinsurance to underwrite large risks.

The risks associated with this reliance are mitigated partly by long-standing relationships with reinsurers of “excellent” credit quality.

EID has a track record of strong operating profits, demonstrated by a five-year weighted average combined ratio of 51.5% (2018-2022).

The company’s underwriting performance has remained strong during the first nine months of 2023.

Artex to rename all cell facilities under Artex Axcell brand

Luke Harrison
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Artex to rename all cell facilities under Artex Axcell brand

Artex will transition all of its cell company names globally to Artex Axcell over the coming months.

Artex Axcell facilities are available in multiple jurisdictions around the world, including Guernsey, Bermuda, Cayman and the United States.

The company currently manages over 1,300 individual cells for businesses of all sizes and encompasses a wide range of industry sectors.

“The creation of Artex Axcell is the result of a rationalisation effort that will be phased across jurisdictions and will drive a consistent global approach,” said Peter Mullen, Global CEO, Artex.

“The new cell facility name is designed to highlight our best-in-class offering and build upon the strength and reputation of the Artex brand to entities across the US, Cayman, Bermuda and Guernsey.”

The company said the change aims to bring more efficiency and better service to clients looking for alternative risk solutions that demands “less time, investment and resources”.

UK captive consultation to launch spring 2024

Luke Harrison
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UK captive consultation to launch spring 2024

The UK government will launch a consultation on the design of a new captive framework in spring 2024, with the aim of “encouraging the establishment and growth of captives” in the United Kingdom, according to today’s Autumn Statement by the Treasury.

In September, a delegation of captive specialists met with the UK government’s previous City Minister, Andrew Griffith MP, at the Treasury to discuss the potential introduction of a captive regime.

The delegation and meeting was organised by the London Market Group (LMG) and Griffith and included captive owners, brokers, insurers and the wider risk management community.

“The LMG is delighted by the announcement today by the Treasury that it will consult on the creation of a UK captive regime by spring next year, taking on board the recommendations within our Plan for the Future,” said LMG CEO, Caroline Wagstaff.

Wagstaff said that as the global centre for risk transfer, London needs to be able to offer “all the tools in the toolkit”, so this is a “great step forward”.

“We look forward to working closely with the government and regulators to ensure the UK remains a highly competitive insurance centre,” she added.

Chris Lay, UK CEO at Marsh McLennan, said the company welcomes the Treasury’s consultation on the establishment of a UK captive framework.

“An ambitious regulatory model for captives, combining a proportionate risk-based solvency regime with London’s global reinsurance market and the UK’s wider financial services ecosystem, could make the UK a unique and attractive location for captive investment globally,” he added.

Speaking on episode 94 of the Global Captive Podcast, Wagstaff explained why the group is lobbying for this initiative, while Charles Winter, head of strategic risk consulting at Aon Global Risk Consulting, noted what made a successful domicile and the potential appeal of the UK.

Airmic CEO Julia Graham said in September that the UK could offer a “unique proposition” for captives if a “proportionate and fit-for-purpose” regulatory environment is developed with long term commitment from the government.

There is growing momentum in Europe for more ‘home’ captive domiciling, with France leading the way with new legislation finalised this year and a consistent pipeline of new formations materialising.

North Carolina appoints Joe Rosenberger as chief captive analyst

Luke Harrison
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Joe Rosenberger has been appointed chief captive analyst of the North Carolina Department of Insurance (NCDOI) in its Captive Insurance Division.

Rosenberger has been with NCDOI for more than five years, and most recently worked as a senior financial analyst within the Captive Insurance Division.

“Joe is an outstanding ambassador for North Carolina’s captive insurance program,” said Commissioner Mike Causey.

“His ability to genuinely connect with industry professionals and to understand complex captive insurance concepts makes him a valued team member.”

Rosenberger said that he was “thrilled” to be offered the opportunity to help guide the “successful” captive insurance programme North Carolina has built over the last ten years.

“The captive marketplace is growing and constantly transforming, and I look forwarding to working alongside the wonderful team at the NCDOI to continue serving our North Carolina captive insurance companies,” he said.

The NCDOI licensed 62 new captives in 2022, while more than 100 cells and series were also approved.

The licences were a combination of new formations and the transfer of existing captive insurers to North Carolina from other captive domiciles.

In April, The North Carolina Senate unanimously voted to pass SB 319, which would extend the premium tax holiday for captives re-domesticating to the State until 2025.

Missing cell legislation a major shortcoming for Dublin, Solvency II a hurdle

Luke Harrison
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Missing cell legislation a major shortcoming for Dublin, Solvency II a hurdle

One of Dublin’s largest shortcomings as a domicile is its lack of cell company legislation, according to Mike Matthews, international commercial director at Artex Risk Solutions.

Malta is the only European Union captive domicile that has protected cell company (PCC) legislation in place, with cells proving a huge growth area for captive business in multiple jurisdictions over the past five years.

More broadly in Europe, Guernsey, Gibraltar and the Isle of Man all facilitate cell business, with Guernsey particularly popular. Further afield, Bermuda and the Cayman Islands have comparable cell company facilities, while multiple states in America offer sponsored captives, cells and LLC structures.

 “I think one of the big failings in Dublin, and lots of commentators have touched this over the years, is the lack of protected cell legislation in Ireland,” he told Captive Intelligence.

He said the main challenge for introducing cell legislation in the jurisdiction is linked to Solvency II mechanics, “especially where core assets can be exposed, unlike other domiciles where they typically do not have access to core funds”.

“For a PCC cell to meet the Solvency II minimum capital requirements, it still needs to be able to leverage that core capital, so that it does not need to have the minimum level of capital itself,” Matthews said.

“As such, I can see why it has to have access to the core, but that does not work for a lot of PCC sponsors.”

He said he is seeing a “huge uptick” in clients looking to use PCCs, segregated accounts, and other rent-a-captive solutions, as a way of funding risk instead of going down the single parent route.

“They are easier to get through their own internal governance structures, because unlike creating your own wholly owned subsidiary, it’s not the same process as the client is not going to the board looking for high capital allocation,” he said.

Matthews said creating a cell is a more “streamlined process” for many sponsors, as well as being more flexible when a client wants to stop using it as there is not a subsidiary that requires liquidating.

“A client can simply clean the balance sheet and just surrender that licence.”

He also highlighted the cost savings of utilising a cell over other captive structures.

“The cost of running a cell captive is much less as a client has got the economies of scale because they are within an entity that has multiple cells with its facility costs spread across all of them,” he added.

After early success, captive formations in Ireland have stagnated in recent years.

Captive Intelligence published a long read last week detailing some optimism that potential regulatory procedure changes at the Central Bank of Ireland (CBI) could help reignite captive interest in the jurisdiction.

A source close to the CBI told Captive Intelligence that they work in a “reactive” manner when it comes to requests from the industry, and no business has approached the regulator in recent years with a PCC business plan or proposal.

“Having said that, it is not in legislation, so maybe they think it will be a very quick answer,” the source, speaking under the condition of anonymity, said.

Supreme Court denies Delaware’s latest attempt to block IRS summons

Luke Harrison
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The US Supreme Court has declined the opportunity to review a decision that allowed the Internal Revenue Service (IRS) to proceed with its summons of captive records held by Delaware’s Department of Insurance (DDOI).

In October, the DDOI said the Supreme Court should review the case because the Third Circuit’s decision to let the summons stand endangers states’ ability to regulate the industry.

The US Department of Justice argued that the Supreme Court should not review the case because a state insurance regulatory statute does not override the federal tax code authorising the summons.

The DDOI had previously appealed to the Supreme Court at the end of July to stay proceedings and recall the mandate of the Third Circuit Court of Appeals, which would require the DDOI to provide the IRS with specific 831(b) documentation.

In April, the DDOI lost its latest attempt to block an IRS summons concerning 831(b) captives managed by Artex Risk Solutions and Tribeca Strategic Advisors, wholly owned by Artex, in the State.

The United States Court of Appeals for the Third Circuit on 21 April affirmed the District Court’s decision that the McCarran-Ferguson Act does not protect the documents requested and the threshold for constituting the ‘business of insurance’ was not met.

The IRS originally issued its summons to the DDOI on 30 October, 2017 during its investigation into Artex and Tribeca, seeking filings and communications between the Department and the captive managers.

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