2009, the good news:
Cell captive market poised for solid growth

As financial markets around the world continue to take a beating, corporates' trust in where their money is "safe" is waning and many companies are opting to self insure more of their business risks, both in terms of taking on higher levels of risk and also diversifying the types of risk that they carry themselves. This bodes well for the alternative risk transfer (ART) market in general, and South Africa's buoyant cell captive market in particular. With the cell captive industry in its 16th year since inception (Guardrisk first launched the concept to the insurance world in 1993), more companies understand the very real rewards to be reaped by owning a facility in which they can accumulate reserves and many are now applying the cell captive concept to other aspects of their business, like their employee benefit programmes.

In 2009 several issues that have long challenged the insurance industry should be resolved: this includes the long awaited clarity on product demarcation, broker and binder holder issues and the introduction of the new short-term insurance capitalisation requirements in the form of Financial Condition Reporting (FCR).

Regulations on what insurers can pay brokers, underwriting managers and binder holders should be published before July, for implementation in September. Under the "old" Insurance Acts, which regulated the market for many years, difficulties arose both because of practical problems in terms of implementation and also because of different interpretations of the regulations, often by players in the same market. This caused many undesirable practices, as was evident from the 2008 report on the consumer credit insurance (CCI) industry in South Africa, commissioned by the Life Offices' Association and the South African Insurance Association. Under the new regulations, loose ends will be tied up and issues of ownership and the business relationship between insurers, administrators, intermediaries and underwriting managers will definitively be clarified.

The cell captive industry trusts that, in the course of this process, legislators will take an empathetic view towards non-traditional distribution channels like the retail industry, which plays a significant role in providing access to products, and that customised legislation will be tabled for this important sector of the market.

On the FCR front, the good news for ART providers is that the Financial Services Board has acknowledged that the prescribed models may not cater for the unique business models of captives, cell captives and niche insurers, who will now be able to develop their own models for sign off by the authorities. The cost of developing their own model, appointing an actuary (if they can find one, considering the world-wide dearth of actuarial skills) and the added burden of increased capital requirements, which will conceivably be necessary within the FCR framework, could result in many captives and niche insurers seeking solvency support in the cell captive environment, where the approved actuary and model is provided by the cell captive insurer.

The impending hardening of the market due to the contraction of capacity and the European Union's move towards Solvency II will provide massive growth opportunities for the international cell captive market in 2009.

With the asset side of insurers' balance sheets hard hit, insurers will be forced to apply their capital to high return areas. As capital becomes increasingly scarce, there is no doubt that insurers will be looking to move some of their lines, which require positive technical solvency measures, out of the business and into ART vehicles, like cell captives.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Prepared by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450