Captive companies as a form of doing insurance business have some advantages, in particular, allow enterprises of the group that controls them to save money thanks to the reduction of the size of insurance premiums, Director General of Insurance Business association Viacheslav Cherniakhovsky said during the XVI International Carpathian Insurance Conference. In addition, he said, captive companies have the ability to establish the amount of risk remaining for them, and transfer to reinsurance only that part of it that they cannot cover on their own. In addition, they have an opportunity of placing part of the assets covering insurance reserves at the enterprises of their group.
The format of a captive insurance company also helps to better protect the business interests of holding companies or groups, in particular, to keep secret information about technological, production and business processes, innovations, Cherniakhovsky said.
According to the director general of the Insurance Business association, it would be advisable to legally determine the status of a captive insurance company, thus giving impetus to the development of this segment of the Ukrainian insurance market.
In his opinion, for this it is necessary to define the concept of “captive insurance company” in the new version of the law on insurance, determine the circle of counterparties (policyholders) with whom the captive insurer has the right to work on the basis of its declaration and reduce or limit the requirements for prudential supervision, similar to what is now happening in Europe, where industry structures believe that scenario analysis and stress testing are unnecessarily complex and burdensome for small and captive insurance companies.
“The main task is to choose the right model for the transformation of the Ukrainian insurance market for its development for the next decades. This applies to both the transformation of the legislative framework and regulatory policy, and the change in business models and the work of insurers,” he said.
Cherniakhovsky also highlighted a number of pan-European insurance trends that affect the situation and prospects of the industry. In particular, according to him, the requirements of the Solvency II Euro Directive turned out to be stringent even for European markets and are being revised towards mitigation, and the state and indicators of the Ukrainian insurance market differ from European countries: the insurance premium per capita in the country is less than EUR 50 per year, while the average per capita insurance payment in Europe is EUR 2,200 (data for 2017). In addition, in recent years, Ukraine has also experienced a sharp decrease in the number of insurance companies – from 407 in 2013 to 234 in 2019.
“In the current situation, insurance companies are forced to choose the right transformation model, which allows them to maintain their place in the market and provide resources for development. Among the possible options for transformation are closing or selling a business, transforming the insurance company into an intermediary, enlarging insurance company (M&A), converting to a captive insurance company,” he said.
