Best Sees Growing Interest for Euro-Captives’ Ratings

A.M. Best Co. reported that it is “seeing a growing interest in financial strength ratings (FSR) for captives and other alternative market vehicles in the European market.” The vehicles are already “one of the fastest growing rating segments for A.M. Best in the U.S., where more than 200 captives carry financial strength ratings.”

Best said it “treats captives, protected cell companies (PCC) and other alternative market structures as a distinct segment for analytical purposes. The rating methodology can be obtained at: www.ambest.com/ratings/methodology/domesticcaptives.pdf, and a new methodology, Rating Protected Cell Companies, at: www.ambest.com/ratings/methodology/ProtectedCellCaptives.pdf.

Best also indicated that it “believes the advantages of captive ratings may include the following:
— Greater flexibility regarding fronting arrangements
— Enhanced access to reinsurance
— Validating the financial strength and credibility of a captive, satisfying corporate governance standards
— Satisfying regulatory and other third party requirements (e.g., joint ventures)
— Attracting and retaining members in group (multi-owned) captive organizations
— Providing captive benchmarking standards
— Increasing a risk manager’s control and flexibility of a group insurance program
— Facilitating expansion into third party business where this is a strategic goal

Best recently discussed these, and other related issues, with leading captive managers during recent visits to two of the main European offshore captive domiciles, Guernsey and the Isle of Man. Presentations were also given to the Guernsey Insurance Company Management Association (GICMA) and the Manx Insurance Mangers Association (MIMA).

Nick Charteris-Black, director global financial services, who led the offshore visits and presentations commented: “We believe, and this is supported by the feedback we received during our recent offshore visits, that the growing interest in captive ratings is driven primarily by corporate governance standards, Solvency II and fronting issues. The current debate regarding the application of Solvency II to captives may well be a particular catalyst. There is little doubt that a combination of these factors together with other benefits will lead to an increase in the number of rated captives in the European market mirroring our experience in the U.S.”

Best’s analysts also led an online Webinar on Thursday, July 31, updating the state of the U.S. captive insurance industry and elaborating on highlights of a new A.M. Best special report on that industry. For those who could not participate, the webinar will be available Best’s Web site – www.ambest.com. Related information is also available at: http://www.ambest.com/captive/.

Source: A.M. Best

Topics Europe AM Best