A.M. Best Briefing: Solvency II Disclosures Demonstrate Strong Capital Positions for European Captives

LONDON--()--A.M. Best has obtained and analysed Solvency and Financial Condition Report (SFCR) announcements from its rated European captives and has held discussions with captive managers regarding Pillar III of the Solvency II regime. The conversations follow single entity (solo) risk carriers in Europe being required to disclose publicly an SFCR as part of the Solvency II regime on May 20, 2017. The SFCR provides an insight into the company’s financial condition as at December 31, 2016.

A.M. Best has published its findings in a new briefing, titled “Solvency II Disclosures Demonstrate Strong Capital Positions for European Captives.” Reported Solvency II ratios – the ratio of Solvency II available capital to the Solvency Capital Requirement (SCR) – are very strong for the reviewed sample of captives, ranging from approximately 160% to 240%. A.M. Best notes that this observation is in line with expectations as the captives it rates tend to be well-capitalised. Furthermore, the disclosure of own funds and the composition of SCRs show that own funds for each analysed captive is composed exclusively of unrestricted Tier 1 capital.

Konstantin Langowski, financial analyst, said: “A.M. Best has observed notable differences in the style and quality of the narrative part of the disclosures among its sampled captives, in particular in the description of governance and risk structure. Most A.M. Best-rated captives are able to articulate and illustrate their risk management framework and capabilities as part of the interactive rating process. However, in A.M. Best’s view, the disclosures fail to do justice to the risk management and governance practices of the captives, as well as to demonstrate the importance of these functions to captives and their parents.”

The briefing also notes that some captives view with scepticism the regulatory objectives of improving market discipline and policyholder protection by means of public disclosures in light of captives’ business models. Nevertheless, most captive managers appreciate that the overall implementation of Solvency II has improved their general risk management capabilities and enabled them to manage their capital requirements better on a risk-adjusted basis.

To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=262932.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries.
ALL RIGHTS RESERVED.

Contacts

A.M. Best
Konstantin Langowski, +44 20 7397 0318
Financial Analyst
konstantin.langowski@ambest.com
or
Yvette Essen, +44 20 7397 0322
Director, Research & Communications - Europe & Emerging Markets
yvette.essen@ambest.com
or
Dr Mathilde Jakobsen, +44 20 7397 0266
Director, Analytics
mathilde.jakobsen@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5159
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Konstantin Langowski, +44 20 7397 0318
Financial Analyst
konstantin.langowski@ambest.com
or
Yvette Essen, +44 20 7397 0322
Director, Research & Communications - Europe & Emerging Markets
yvette.essen@ambest.com
or
Dr Mathilde Jakobsen, +44 20 7397 0266
Director, Analytics
mathilde.jakobsen@ambest.com
or
Edem Kuenyehia, +44 20 7397 0280
Director, Market Development & Communications
edem.kuenyehia@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5159
Director, Public Relations
james.peavy@ambest.com