Even prior to the havoc caused by the Covid-19 pandemic, the market was hardening and pushing more organisations to investigate alternative risk transfer methods. Reports from regulators indicate that many of the European domiciles are seeing increased applications for licences despite the pandemic, continuing the worldwide trend of increased captive interest.
The European industry has been ripe for a shake up for some years. When it was announced in 2017 that independent manager Strategic Risk Solutions (SRS) had set up a base in Ireland, the captive world was buzzing.
SRS had been, for years, one of the leading independent managers in North America. So when CEO and president Brady Young decided to turn his eye on Europe, everyone was waiting to see how he would ripple the pond.
And ripple the pond Young and SRS certainly did. Stuart King was appointed as co-founder and head of SRS Europe, and a string of high-profile appointments have followed in the subsequent years. In 2019 David Lewis moved from his position in Willis Tower Watson’s global captive practice to SRS, and former JLT Insurance Management CEO Richard Daley also joined the team.
In March 2020 SRS announced that Derek Bridgeman, then senior vice president of Marsh Captive Solutions, would be joining the organisation as managing director or SRS Europe from May this year.
But there is one other major change that has happened in 2020 that will, in Bridgeman’s opinion, help independent captive managers: Aon’s acquisition of Willis Towers Watson.
Worth $30bn, the acquisition was confirmed in March 2020 after talks between the companies broke down the year before. Aon has stated that there will be $800m of cost reductions as a result of the merger, although it is not clear how that will impact the captive practices of both organisations.
“There’s an opportunity to compete now with some of the other managers in terms of for competitor managed clients,” Bridgeman said. “In particular the opportunities are helped by the Aon acquisition of Willis Towers Watson, because I think just less choice is not seen as a good thing in general.
“I would’ve participated on a number of RFPs, and generally the RFP for captive management would require three parties. Previously, it might have been Aon, Willis and Marsh. And whereas now there’s opportunity for SRS and other independents or other smaller captive managers to get in. So I think that will bring opportunities to get in on competitor managed clients, and that’s what we are doing.”
According to Bridgeman, SRS’ plan for their European operations started with creating their branches and getting appropriate regulatory approval.
“The plan to date has been establishing the branch, establishing the headquarters,” he told Captive Review. “We have headquarters in Ireland, the branch in Malta, to issue on a freedom of establishing bases through the European domiciles.
“That’s very much taken a lot of the time to date. We have received and continue to receive our branch application licences. We’re essentially now able to do business and manage clients in the local domiciles.”
Although SRS is very well established in North America, with at least 10 offices managing more than 23 domiciles, Europe is a different market. Regulators can work slower than in US and European domiciles aren’t linked together by a single federal structure.
Bridgeman explained to Captive Review that when it comes to domiciles, the operation wasn’t the same in Europe as the US because of these differences. Because of that, SRS is employing a slightly different strategy.
“Europe is nearly being divided into onshore and offshore domiciles. So we’ve very much concentrated on EU onshore at the moment, which has been to date the Solvency II type domiciles,” he said. “I think I think it can be important to give that offshore comparison.”
The SRS managing director said that moving forward the organisation will be looking at their operations in Bermuda and the Cayman Islands to model their expansions in Europe.
“That’s probably something we will look at quite closely as we move forward,” he explained. “I think the likes of Guernsey has an interest and ability to respond quickly to innovative risk in terms of insurance-linked securities (ILS) and things like that. It could potentially make Guernsey an appealing domicile for certain clients.”
One of the big focuses for SRS is on the consulting side however. This is where Bridgeman is playing a big part, consulting and working with broker networks and independent brokers. While organisations like Marsh and Aon are supported by their in-house brokers, being referred potential captive clients, SRS is using the fact they are independent to promote itself.
“We’re captive managers and consultants, we’re not brokers,” Bridgeman said. “That’s very beneficial because it allows us to speak to the brokers, provide an unbiased view, assist them and help the client to understand what is appropriate without having the broker guiding any sort of recommendation.”
The state of the market is having an impact as well, with many parent companies looking into captive utilisation with the hardening market. This is creating more options for captive managers and consultants,
“The market really is changing at such a pace that it’s becoming so much harder,” he said. “Clients are really under pressure now to maybe consider the use of a captive. If they have a current captive that they perhaps haven’t utilised to its full capacity through the soft market, they are now under pressure to consider utilising it more. So that will drive consulting, and that has been driving, consulting.
“There’s increased premiums, increased deductible levels, just reduced capacity across different lines. Where we are doing a lot of work is with clients who don’t have captives but who are considering a captive. Again, the way we’re approaching that is it’s obviously a consulting piece.”
SRS is focusing heavily on consulting in Europe, as Bridgeman states, also building their relationships with brokers and seeing where there may be business in those partnerships.
“Part of the plan with SRS is to work with the clients on the consulting basis, work with the independent brokers,” Bridgeman explained. “A lot of these independent brokers obviously don’t have a captive management wing, they don’t have a captive consulting wing.
“We feel that as independents we’re ideally placed there to assist them. We’re not trying to get in on their broking and we can provide some of the services that they don’t otherwise have. That’s really part of how we’re growing in Europe.”
This focus has translated into some of the other key hires the business has made, such as Neil Campbell who will be focusing on structured reinsurance. Andy Hulme, formally of BuildersRe, has taken on a global underwriting role and Paul Owens, the former head of Willis’ global captive practice, has come on as a consultant.
One of the other big considerations, according to Bridgeman, is the size of captives in Europe and the amount that European captive owners are more likely to self-manage their risk.
“Europe is again, a little bit different to the US, where they have these large what you would call ‘super captives’ nearly,” he explained. “A lot of those captives are self-managed. They’re so big and they have such an appetite that they want to retain a lot of the control.
“Those captives will potentially have their staff do the day to day. But where they may not have the capabilities is on the consulting side. So maybe for these ad hoc pieces of consulting, they have the appetite to reach out to us. We have our local reps on the ground in the individual domiciles, generating these opportunities that we can then go and talk to these clients about.
“We are seeing some interesting discussions around some of these super captives, who maybe historically have self-managed a lot of their business are now looking to evaluate. They’re asking, could it make more sense to use an outsourced provider?”
“Essentially we’ve focussed quite a bit on consulting because we realised it can be sticky business in Europe, as quite often captive owners may stay with their current captive manager for a period of time.”
“I think the consulting gives an opportunity to get in and kind of get their trust and demonstrate value to them with a view then to potentially assisting them on the management side.”
Ultimately, SRS is fairly confident that their strategy in Europe will pay off. Competition is never a bad thing for captive owners, but we will all have to wait and see exactly how this move disrupts the industry.