Aon Insurance Managers Guernsey Newsletter

Transcription

1 Aon Insurance Managers Guernsey Newsletter A message from our Managing Director Welcome to our latest newsletter in which we have so much to report since the spring edition. Personally it has been a year of anniversaries. I reached 20 years of service with Aon and it was also my privilege as the Chairman of Guernsey International Insurance Association (GIIA) to host GIIA s 30 th Anniversary celebration. I was joined by Guernsey s Chief Minister, as well as four of the regulators who have served as Insurance Director of the Guernsey Financial Services Commission (GFSC) past and present. Speaking of regulation, this edition focuses on one of the industry s current hot topics the Island s proposed Risk Based Capital Model. The model is designed to meet the requirements set by the International Association of Insurance Supervisors Insurance Core Principles. Accordingly we explain what it might mean for the industry locally. We also report the recent appointment of new GFSC Director General William Mason. He is a welcome addition to the Island s regulatory authority, which is continuing to successfully lead Guernsey s finance sector in an era of change and challenge on a global scale. Once more we feature an interview in our newsletter, this time with Guernsey born and bred Simon Walker. We are proud that Simon worked for Aon Guernsey for many years before his promotion to Group Head of Operations for Aon Captive and Insurance Management globally. Simon s work around the world allows for a unique understanding of the industry and makes for an insightful read. In 2013 Corporate Social Responsibility has been high on our agenda, and we re pleased to announce our new Charity Application scheme. This scheme allows charities and individuals to apply for support from Aon. Whilst on the subject of charities, I was honoured to meet Sir Bobby Charlton in his capacity as founder of the Find a Better Way foundation. A full report of my meeting with Sir Bobby will feature in our next newsletter. Looking forward, we have provided information on our 2014 events, including the Master Class which will take place in London on 21 May 2014 and our Introduction to Captives training event. Table of Contents 2 Guernsey s Proposed Risk Based Capital Model 3 GIIA celebrates 30 th Anniversary 4 An interview with Simon Walker 6 Aon launches Definitive Guide to a Risk Management Information System Louise achieves ACCA qualification Aon Guernsey launches new application process for charities 7 GIIA donates to Sir Bobby Charlton s Find a Better Way New Director General for GFSC Introduction to Captives Seminar Master Class 2014 Aon successfully re-domiciles Bermuda based company to Guernsey Finally you will find our contact details on the back of this newsletter. We welcome any suggestions you may have for the next edition, or any thoughts as to how Aon can support our clients in Best regards, Paul Sykes Managing Director Aon Insurance Managers (Guernsey) Limited paul.sykes@aon.co.gg

2 Guernsey s Proposed Risk Based Capital Model In December 2009 the Director General of the Guernsey Financial Services Commission (GFSC) introduced us to Karel van Hulle, then Head of Unit Insurance and Pensions at the European Commission (or Mr. Solvency II for short), who outlined the forthcoming European legislation. Initially it appeared that there could be benefits to adopting Solvency II or an equivalent standard in Guernsey, but careful consideration of the structure of the Guernsey Insurance Industry and a lack of clarity on the timing and impact of Solvency II led to another conclusion. In January 2011 the GFSC and the Commerce and Employment Department issued a joint position statement on Solvency II. This stated that the Guernsey authorities had no plans to seek equivalence under Solvency II and that the island remained committed to meeting international regulatory standards as set by the International Association of Insurance Supervisors (IAIS). Introducing a New Risk Based Model Since then the GFSC has been working with industry representatives on a new risk based model for calculating the regulatory capital required by insurers licensed in Guernsey. A Capital Impact Assessment, based on a representative sample of 28% of licensed general (re)insurers, gauged the industry s initial responses to the new model. Further planned industry consultation will help to improve it. Unsurprisingly, the framework of the new model follows a similar approach to Solvency II: both, after all, aim to meet the same core principles. Key differences are lower complexity, a proportional confidence level for captives, much lower costs of implementation and a clearly defined minimum level of capital. The model uses some of the same base data as Solvency II. Establishing a Minimum Capital Requirement The new solvency regime will have a Minimum Capital Requirement (MCR) which, if breached, would provoke the strongest regulatory action. This MCR will be subject to an absolute minimum, below which no insurer is regarded as viable. It is proposed that this will be calculated in a similar manner to the existing Minimum Solvency Requirement but at a confidence level of 85%. To put this into context, the current percentages applied to premium and reserves equate to confidence levels of 94% and 69% respectively. More simplythe percentage will go down for premium, and up for claims. For many captives this will result in a reduction in the minimum level of capital. The current 100,000 absolute minimum for general insurance business will remain. In addition it is proposed that there will be a new Prescribed Capital Requirement (PCR) above which the regulator will not intervene on capital adequacy grounds. The proposed model uses a Value at Risk (VaR) measure, considered over a time period of 12 months and set at a confidence level that is appropriate to the entity under consideration. All items on the balance sheet are considered and an appropriate capital charge applied to each element. Certain off balance sheet items such as unpaid capital or letters of credit will also count towards assets available to meet the PCR. The model also considers any interdependence of these individual risks to apply a discount for diversification and it gives credit for accurately matching assets and liabilities. Between these two levels a sliding scale of regulatory intervention will take place. The intention being to identify and correct capital adequacy issues before they become problems. Putting it into Practice Assuming Guernsey Captive X has the insurance programme shown below: Class of Business In this illustration, reserves are not discounted to net present value and the investment strategy is conservative, with funds on call or short term fixed deposits with major banks: 1,000,000 with A rated and the remainder with AA rated. Under the current solvency rules, consideration is only given to the totals of premium and reserves. This simplified approach gives a minimum solvency requirement of 396,000 which must be covered by approved assets the classification and value of which reflect, to a certain extent, market and counterparty risks. The new approach will require consideration of all on and off balance sheet risks of the company. The risks associated with market and counterparty default are explicitly added to the PCR rather than a restriction applied to the value of the asset. Captive X has exposure to counterparty risk plus the risks associated with insufficient premiums or reserves but it does have some diversification. According to the new model as it currently stands, the MCR would be 306,000, calculated at the higher of 12% of either the net annual written premium or reserves. The PCR Continued next page > Limits Annual Premium Reserves Each Loss Aggregate OSLR IBNR Property 250,000 5,000,000 1,000, , ,000 Liability 100,000 2,500,000 1,200,000 1,400, ,000 2 Aon Risk Solutions Global Risk Consulting Captive & Insurance Management

3 Chief Minister Leads Tributes to the Guernsey International Insurance Association on its 30 th Anniversary Paul Sykes, Managing Director of Aon Risk Solutions in Guernsey and the Chairman of Guernsey International Insurance Association (GIIA) was joined by the Chief Minister of Guernsey, Peter Harwood to pay tribute to GIIA at its 30 th birthday celebration. Many of GIIA s former Chairmen and regulators past and present, attended the event. Mr Sykes spoke about GIIA s objective to ensure that Guernsey remains as Europe s leading offshore centre of insurance. Sykes highlighted the contributions of GIIA s previous chairmen and officers and thanked them for putting Guernsey s insurance industry in the position that it enjoys today. Sykes noted the island s success in introducing innovative structures to the global insurance sector, such as Protected Cell Companies in 1997 and Incorporated Cell Companies in The Chief Minister congratulated GIIA on the success of Guernsey s insurance industry and in particular captive insurance which he described as the beautiful sector. Sykes highlighted that Insurance Linked Securities (ILS) activity had commenced in Guernsey in 2006 adding to the diversification of the island s insurance industry. He identified that a fundamental shift was taking place in the insurance market with the emergence of ILS and signalled Guernsey s intent to position itself as an alternative to Bermuda. Sykes explained that Guernsey is uniquely well positioned with political and economic stability, no government borrowing and a regulatory regime that is at the forefront of from left to right: Steve Butterworth, Paul Sykes, Diane Colton, Alan Fleming, Dr Jeremy Quick international best practice with the implementation process of the IAIS Insurance Core Principles reaching an advanced stage. Fiona Le Poidevin, Chief Executive of Guernsey Finance, said: The insurance sector is showing continued growth in the net number of entities domiciled in the Island. We have also seen increased activity in the Insurance Linked Securities (ILS) asset class, which is driving business in the insurance space, as well as the funds sector. The GFSC s monthly statistical update for the insurance sector shows that there has been net growth of 37 international insurance entities domiciled in Guernsey to date. The number of entities domiciled in Guernsey now totals 774 as at 31 July The insurance sector is showing continued growth in the net number of entities domiciled in the Island. Fiona Le Poidevin Continued from previous would be 377,674, which is the sum of the capital for Premium Risk, Reserve Risk and Counterparty Risk, allowing for diversification. Lowering the Capital Requirement For a more complex insurer, the model will consider Market Risk on bonds and equities and provides an incentive to accurately match assets and liabilities. The smarter captive owner or manager, with carefully selected assets to meet a company s risks, will be rewarded with a lower capital requirement. As a result of the GFSC s commitment to working with industry to maintain and improve Guernsey s proportional regulatory framework, the delays and uncertainty plaguing the introduction of Solvency II are conspicuous in Guernsey only by their absence. Guernsey has again demonstrated that the jurisdiction leads rather than follows. Solly Bourne GIIA Regulatory & Technical Committee Aon Risk Solutions Global Risk Consulting Captive & Insurance Management 3

4 An interview with Simon Walker Group Head of Operations, ACIM What does your role as Group Head of Operations entail? I am responsible for all aspects of our delivery of operational excellence across the Aon Captive and Insurance Management (ACIM) business. This includes leadership of our IT, compliance, legal, service centre and profitability strategies. I have a background in client service, and in this current role I see the office MDs as my clients. I help them to deliver great business results, top level client service and to navigate the Aon network. Given this outline the job entails a lot of travel, so I have gotten to know Gatwick Airport pretty well! What are the key projects you are working on and how will they benefit Aon s clients? There are several projects I m currently working on. Some of the key ones are: Internal risk management this involves areas such as limitation of liability and new contract wordings. In many parts of the finance industry, clients have been faced with an inconsistent and sometimes nontransparent approach to E&O protection. Our approach to limitation of liability involves an open dialogue with our clients and follows the principles of transparency, sustainability and fairness. Similarly, we have developed a new management agreement template which seeks to clarify responsibilities for every aspect of the management process, with the aim of avoiding potential confusion later in the relationship. Intranet facility I believe one of Aon s key differentiators is the range of services we can deliver to clients. It is this and Aon s development of new products in response to new risk which means an intranet facility is vital, in order to allow staff to communicate and share knowledge with each other. This enables us to provide our clients with the best solution in a timely manner. How has the business environment for captives changed during your time working for Aon? One development is that there is a lot more pressure on capital. As capital requirements have increased in the finance industry in the wake of the 2008 financial crisis, captives owned by the banks and insurance carriers have looked to repatriate excess capital to shore up the balance sheets of the main business. Our approach to limitation of liability involves an open dialogue with our clients and follows the principles of transparency, sustainability, and fairness. The other big change is the increased proportion of management time spent on compliance and regulatory issues. When I started managing captives, the compliance section of a board pack might extend to five or six pages, whereas now it appears to be the largest section of the pack. We are committed to ensuring full compliance with local regulatory requirements, but it is important that we lobby for a sense of proportionality as new regulations are developed. What do you perceive as the major challenges and opportunities for captives in the next few years? The two major challenges which I hear from captive owners currently both relate to regulatory changes. In the Americas the main concern is the introduction of the Foreign Account Tax Compliance Act (FATCA) and its application to the insurance industry. There is a view that this legislation, due to come into effect on 1 July 2014, has been extended beyond its initial scope to capture premiums associated with US risk. Failure to comply with the new legislation will result in a 30% withholding tax. Aon has put together a project team to deal with our corporate approach to this new regulation. In Europe, the main concern relates to the introduction of Solvency II. This represents a significant change to the governance structure and regulatory reporting for our clients based in the EU. We have been working intensely on our response to the elements contained in each of the three pillars of the new regime. At the same time, we continue to actively lobby for a sense of proportionality as Solvency II is applied to captive insurance companies as opposed to commercial carriers in the region. 4 Aon Risk Solutions Global Risk Consulting Captive & Insurance Management

5 Guernseyman Simon Walker is Group Head of Operations for Aon Captive and Insurance Management Opportunities for captives include the coverage of emerging risks, where the traditional market has yet to develop products which cover those risks appropriately. For organisations considering a new captive or PCC, our recent analysis has shown the main interest coming from the pharmaceutical, utility and hotel industries. In the pharmaceutical industry, interest is driven by inadequate capacity for product liability, whilst the utilities sector is experiencing a hardening property market. Financial institutions are interested in increasing income producing opportunities by expanding their captive programmes to customer risks. What is Aon doing to remain a leader in captive management? More than 20% of all captive owners entrust the management of their captives to ACIM. The size of our global book of business provides us with a greater understanding of the nature of captives across the globe. This allows us to generate ideas and be innovative in order to keep captives current and relevant to the needs of their owners and insureds. As an integral part of AGRC, we are positioned to ensure the maximisation of the performance of the entities we manage. Through the provision of exposure valuations, robust analytics, implementation of risk control measures and proactive management, we have the expertise to ensure our clients captives support the business goals of their owners. What difference have you seen between businesses in different parts of the world since you took on a global operational role for Aon? Similar to other parts of the finance industry, increased regulation is a common theme and that extends both to the requirements of the regulator and Aon internally. The themes tend to be universal. Whether it s Switzerland (Swiss Solvency Test), the EU (Solvency II), or Guernsey (Own Solvency Capital Assessment), the issue of capital adequacy to withstand future shocks is a common theme and one which has increased workloads and cost to the industry. These developments have accelerated the closure of some captives and encouraged us to consider other ways in which we can support the broader insurance industry via a knowledge process outsourcing (KPO) offering, leveraging expertise built up through the introduction of such regulatory changes. What is your most memorable moment of your time working within this industry? I don t think there is a specific moment but there are some aspects of client relationship work within captive management which I always enjoyed. One of them is winning new business. I m a competitive person so the opportunity to go up against the competition and demonstrate that we can offer a better service has always been something I ve enjoyed tremendously. The other thing is the opportunity to work closely with senior business people. The typical parent representation on the captive board is of very senior individuals CFO, CEO, Chairman, CRO and Risk Managers. The nature of the captive management work means that our relationship managers have the opportunity to spend a significant amount of time with these individuals. That affords our team a great chance to tap into and learn from extremely experienced and successful business leaders. What keeps you busy outside of the office? I am the proud father of six children aged between four and thirteen so that probably answers your question! I also have a house which is 400 years old and is in the middle of being renovated, so between those two that leads to a pretty chaotic life. When I do have any time to myself, I enjoy running and cycling. I have completed two London marathons, raising a good deal of money for charity, which was extremely satisfying. The next challenge may be a charity cycle ride from Rome to Guernsey which should take around two weeks of cycling 100 miles per day. Aon Risk Solutions Global Risk Consulting Captive & Insurance Management 5

6 Aon launches Definitive Guide to a Risk Management Information System Aon esolutions has launched a guide for organisations considering using a Risk Management Information System (RMIS). The educational guide helps clients identify areas for consideration when thinking of investing in a RMIS, as well as explaining the value and potential return on investment that can be achieved. Drawing on client feedback and Aon s own research findings, the guide explores the reasons why organisations may look to invest in a RMIS. The guide also features a section on the potential return on investment and savings that a RMIS can deliver. This includes quickly translating risk and insurance data into meaningful intelligence which can be used to inform both tactical and strategic decisions. Managing Director at Aon esolutions (EMEA) Steve Cloutman commented: We ve seen a growing demand in RMIS from large national and global organisations, largely due to the board wanting to better identify, manage and control risks and exposures which may affect the strategic growth of the company. This places increased pressure on the risk manager to report quickly on enterprise-wide risks and show how they are being handled. Many organisations are first-time buyers, so we felt that developing a guide would help inform risk managers of how a RMIS can help, beyond just claims and policy management and drive value from technology. Airmic s Technical Director Paul Hopkin underlined this: It is a comprehensive guide to RMIS, set out in an attractive and easy to follow format. The guide succeeds in providing objective information that will help risk and insurance professionals to determine how a RMIS could help their organisation. Such is the success of the guide that, since its launch in May 2013, it has been downloaded over 750 times. It can be accessed at: aon-esolutions.com/guide Louise achieves ACCA qualification Aon Guernsey is pleased to announce the promotion of Louise Coxon to Assistant Account Manager after she successfully passed her ACCA qualification in February Louise joined Aon in 2008 and started studying for her accountancy qualifications in late After qualifying, Louise said: Between the long course dates, studying during evenings and weekends, balancing work commitments and then the sleepless nights waiting for the 5am release of the exam results, I can honestly say that it was no easy feat. However, three years later, I am a fully qualified Chartered Certified Accountant having passed every exam first time. I am thrilled to obtain ACCA Membership and ultimately very relieved too. Looking back, I am extremely proud of this achievement and very grateful to Aon for all their support over the last three years. The ACCA qualification is well regarded within our industry and recognised globally. The qualification will allow me to progress professionally and also enable me to deliver high quality accounts to our clients. Got a Charity in Mind? Aon Guernsey Launches New Application Process for Charities Aon staff sorting food for the Guernsey Welfare Service. Aon takes a proactive approach to Corporate Social Responsibility (CSR), and here in Guernsey our aim is to ensure, as far as possible, that we target our efforts on good causes which benefit the island and its people. In July 2013, as well as donating food, staff from Aon Guernsey assisted the Guernsey Welfare Service by sorting 61 boxes of food donated by the public. We are also pleased to have donated money this year to Headway Guernsey, Guernsey Society for Cancer Relief, Guernsey Judo Club and Friends of the Duke of Edinburgh. To make sure our CSR efforts largely remain centred on Guernsey, we ve also launched a new application process for charities that may be interested in receiving either staff time or donations from the Aon charity fund. If you would like to apply for a donation or staff time please go to aon.com/guernsey/charity 6 Aon Risk Solutions Global Risk Consulting Captive & Insurance Management

7 GIIA Donates to Sir Bobby Charlton s Find a Better Way Paul Sykes, GIIA Chairman and Aon Guernsey MD, presents Sir Bobby Charlton with a cheque for the Find a Better Way charity. The charity was founded by Sir Bobby to develop technology that safely detects and removes landmines. The foundation also works to raise awareness of the risk of landmines and improve access to healthcare for landmine victims across the globe. Paul s interview with Sir Bobby will feature in our next newsletter. New DG for Guernsey Financial Services Commission The Guernsey Financial Services Commission (GFSC) has announced that William Mason will be appointed Director General upon Nik van Leuven s retirement. Mr Mason previously worked for the Financial Services Authority and most recently held the post of head of risk management at the Central Bank of Ireland. He says of his new role: Guernsey is a mature and highly regarded financial services jurisdiction. I very much look forward to leading the Commission at a time when global financial services and markets continue to face many pressures and challenges. My wife and I are much looking forward to making our home on the Island. (Source: Guernsey Finance 2013). Introduction to captives seminar Aon Guernsey held a one day seminar on 27 June 2013 providing an introduction to captive insurance. Delegates heard presentations on the following: What is a captive? Underwriting issues Accounting issues Investment matters PCCs and ICCs Compliance NED responsibilites The seminar was free to attend and included a dinner for delegates the evening before. We will be running this seminar again next June and can also provide in-house training for clients and colleagues. For more information please contact: vicky.tailby@aon.co.gg Look out for the next Aon Guernsey Master Class The third Aon Guernsey Master Class was held in April 2013 at the Chartered Accountants Hall. Delegates heard from a number of speakers, including the Minister for Commerce and Employment Deputy Kevin Stewart, Rolls-Royce plc s Head of Group Insurance Robert Towle and Evelyn Brady, Partner at PwC LLP Guernsey. Following the success of this year s event, we are pleased to announce the date of the 2014 Master Class, which is Wednesday, 21 May We will be sending out save the date invitations in due course, and look forward to seeing you there. Aon successfully re-domiciles Bermuda based company to Guernsey In March 2013 Aon Guernsey achieved a successful re-domiciliation of a Bermuda based reinsurance company to Guernsey, the first such move for some time. This was made possible by the re-domiciliation laws that exist in each jurisdiction. The re-domiciled company writes both motor and household cover with substantial premium volumes and is part of a well-known group. A great win for both Guernsey and Aon, the move was driven by various factors, but uncertainty over Solvency II and its implementation in Bermuda played an important role. The risk based approach to regulation adopted by the Guernsey Financial Services Commission also played its part, as well as existing group operations on the island. Aon Risk Solutions Global Risk Consulting Captive & Insurance Management 7

8 Key Contacts Paul Sykes Managing Director +44 (0) Stuart Brown Executive Director +44 (0) Diana Knott Executive Director +44 (0) Graham Powell Executive Director +44 (0) John Rowson Executive Director +44 (0) Vicky Tailby Editor +44 (0) Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurancebrokerage, and human resources solutions and outsourcing services. Through its more than 62,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit for more information on Aon and to learn about Aon s global partnership and shirt sponsorship with Manchester United. Aon plc, All rights reserved. Aon Insurance Managers (Guernsey) Limited is licensed and regulated by the Guernsey Financial Services Commission Registered Office: Maison Trinity, Trinity Square, St. Peter Port, Guernsey, GY1 4AT Registration Number: 5821 FP7050