Many captives for large corporates were formed in the late 1980s or early 1990s. Over that time we have learned a lot about the various administrative and structural issues that must be addressed for a captive to be successful. Two particularly relevant issues today are ensuring a compliant solution for multinational risks, and the pros and cons of a “net line” versus a “gross line” structure.鈥�Operating globally, acting locally鈥�The fact is there are no common global commercial standards, regulations or legal frameworks governing a company’s operations. This is especially the case when it comes to insurance. Each country has its own legal and regulatory frameworks governing such things as what coverages are compulsory, and where and from whom insurance can be purchased. Each country also has its own tax requirements, and in many cases, specific levies for national insurance pools.鈥婣s a result, risk managers using a captive to efficiently manage multinational risk are increasingly challenged to achieve the five Cs that multinational programs aim to deliver – Compliance, Coverage, Capacity, Control and Cost. (The same applies to global programs in general, whether or not they are run through a captive.)鈥婽his is not likely to change. Given the ongoing regulatory changes taking place at a local level, captives using multinational program structures must accept the fact that staying current with the latest developments in different countries, and adjusting programs as necessary, will continue to be increasingly challenging and burdensome.鈥婽his also highlights the importance of choosing a fronting partner carefully – one that has the systems and resources to stay up-to-date with the latest legal and regulatory requirements, and that can “act locally” when adjusting claims to minimize delays and uncertainties.鈥�Captive structures: Time to re-assess?鈥�Under Solvency II, European captives now need to consider credit risk, diversification, correlation, operational risk and investment risk. As captive owners start to grapple with these requirements, they are finding that the pros and cons of “net line” versus “gross line” structures have evolved somewhat.鈥婱atthew Latham, XL Catlin’s head of captive programs, summarizes the two approaches as follows:
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“With a net line structure, the insurer reinsures to the captive only the risk the captive wishes to retain. The insurer keeps the rest of the risk or reinsures / co-insures directly.鈥�
“With a gross line structure, the insurer reinsures all of the policy limits to the captive, and the captive decides how much risk it wishes to retain – typically a primary layer – and reinsures the remainder to a panel of reinsurers, usually led by the original insurer.”
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Our view is that while both approaches have advantages and disadvantages, Solvency II has tilted the balance toward net line programs because they are simpler to administer, as well as cheaper and more capital efficient.鈥婾nder Solvency II, the fronting insurer is now subject to a capital charge for the credit risk associated with reinsurance recoveries. For a gross line program where the full limits are reinsured, that means more credit risk, the costs of which are passed on to the captive through higher fronting fees. While credit risk can be mitigated to some extent with collateral, most companies today are looking to safeguard their collateral for more productive purposes.鈥婭n addition, since there are fewer entities to pass premium through, net line programs require less administration. That should also translate into lower fronting fees.鈥婫ross line programs do enable captive owners to access ceding commissions on reinsurance placements. However, according to Matthew Latham, “if the program is looked at from end to end the overall economics of the transaction should be the same on a net line basis as the (re)insurers should be prepared to accept the premium less whatever ceding commission that the captive would have charged, or even keep that commission unaltered as a fee for the captive.”鈥婭n other words, while a gross line program will show greater gross premium, a captive with less premium can still help the parent achieve its strategic goals in a more profitable and capital efficient way, and with less administration.鈥�
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US- and Canada-Issued 尤物视频Policies
In the US, the 九色视频insurance companies are: Catlin 尤物视频Company, Inc., Greenwich 尤物视频Company, Indian Harbor 尤物视频Company, XL 尤物视频America, Inc., XL Specialty 尤物视频Company and T.H.E. 尤物视频Company. In Canada, coverages are underwritten by XL Specialty 尤物视频Company - Canadian Branch and AXA 尤物视频Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following 九色视频surplus lines insurers: XL Catlin 尤物视频Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor 尤物视频Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.
