A global soft market is set to stay for the foreseeable future, so now is the time for owners to take a good look at all parts of their captives and, while they are about it, take a shot at lowering their management fees.
David Ezekiel points out in our CEO survey (page 56) that a captive’s key priority in a soft market is to retain underwriting discipline and not reduce pricing to unsustainable levels. This is backed up by the views in our feature on the current state of the market in Bermuda (page 6) in which Andy Barile of Barile Consulting, for instance, argues that the billion dollar Bermuda companies have begun buying US insurance companies that will compete with fronting companies involved with captives. Now is the time to start negotiating a better deal, he states.
One of the greatest and as yet under-appreciated challenges both for Bermuda captives as well as the insurance market as a whole comes in the form of Europe’s Solvency II regulation. Charles Thresh and Paul O’Neill at KPMG provide an overview of the regulation and how it plays into the Bermuda market (page 48). The regulation is pencilled in for 2012, but the opportunity for negotiation with the European Commission is only expected to last a few more months. The thorny issue of passporting rights into the EU remains, and there is a great deal of European business at stake unless the treatment of captives as non-commercial insurance operations is firmly established.
But there are other areas where captives in Bermuda have the luxury of being able to turn threats into opportunity. Just as the proportion of US states with captive domicile legislation tips into the majority, captive owners in Bermuda find themselves in the enviable position of reaping the benefits of London market reinsurers arriving on the Island, enabling them to conduct the entire insurance programme on their doorstep.
While the decision as to where to domicile or redomicile a captive is firmly a business issue and has little to do with any particular domicile’s popularity, Bermuda’s unchallenged status as the oldest captive domicile with the largest captive population continues to bring gravitas to the Island, providing allure to captives with parents located in all corners of the world
