Good times ahead for ART market as businesses get back to basics

- Herman Schoeman, MD of Guardrisk

With shareholders pressing for value, and corporate governance and compliance issues looming large, organizations are increasingly returning to their core business models; and choosing to outsource activities, like insurance, where experts can help them to realize their strategic goals.

In the seventies the lure of owning one's own insurance company - in the form of a wholly-owned captive - led many large corporates to forego traditional insurance markets and take on the responsibility of running an insurance licence. But that was before International Financial Reporting Standards 4 (IFRS4) and the additional onerous compliance issues that insurers now face. In today's highly regulated environment, many of those corporates who chose the captive route are finding that running their own captive simply consumes too much time, energy and money, which could be better spent pursuing the company's core business objectives.

While this may be bad news for the wholly-owned captive industry, it bodes well for the alternative risk transfer (ART) market, which provides an alternative for corporates used to the benefits of being able to set their own risk retention levels and reap the rewards of prudent risk management. Locally and internationally there is a definite trend towards outsourcing the management of wholly-owned captives or converting them to other ART structures to spread some of the compliance burden.

Locally some large corporates have reassessed their wholly-owned captive structures and started the conversion phase; while internationally, the rate of growth in cell captive facilities (of various forms) has increased significantly.

And it's not a passing phase: developments in the insurance industry - like the introduction of IFRS4 - require such high levels of interaction with industry and regulatory participants that are simply not feasible to perform, unless insurance is your core business.

Similarly, the impending introduction of Financial Condition Reporting (FCR) will make an insurance company a more complicated business, especially for non-traditional insurers. In fact, under IFRS4 and FCR, a short-term insurer will soon require a full-time actuary to help comply with ongoing accounting and regulatory developments in this area.

Thus it makes sense that more and more boards of directors - feeling the weight of their corporate governance responsibilities, and well aware of their fiduciary obligation to shareholders to practice sound risk management ? are choosing to leave their insurance and risk management programmes to outsourced experts, in the form of ART providers, and free themselves to get back to the basics of their core business and, together with their strategic partners, maximizing shareholder wealth.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: +27 11 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: +27 11 615-3309 / +27 83 225 7450