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18th of May 2012

New Zealand’s captive market predicted to expand

Vicky Beckett 14/11/2011

New Zealand’s captive market is expected to increase in the wake of the 2011 earthquakes.
 
Higher reinsurance costs and more onerous terms and conditions from regulators are leading companies to consider alternative risk transfer, such as captives, AM Best has reported.
 
Larger brokers are carrying out feasibility studies for the use of captives and Singapore is expected to be a popular domicile.
 
The usage of catastrophe bonds is also being considered by major firms, but traditional insurance and reinsurance is still seen as preferable to alternative markets.
 
Far from a soft market, some lines of reinsurance are becoming particularly scarce, including contractors all risks, construction, engineering, erection and business interruption.
 
Yvette Essen, director of industry research Europe & emerging markets, said: “Brokers state that in addition to higher reinsurance rates, terms and conditions have been tightened for reinsurance coverage.
 
“Retention ratios are higher for primary insurers, and brokers say they are approaching greater numbers of reinsurers than in previous years for larger commercial risks.”
 
Some reinsurers in the Christchurch area considered excluding earthquake risks during the July renewals, however, this did not happen.
   
The Insurance (Prudential Supervision) Act, passed in to law in 2010, has introduced minimum solvency capital levels of NZ $5m for life insurers and NZ $3m for non-life insurers.
 
NZ $1m is being considered as the minimum solvency capital for non-life captives by the Insurance Council New Zealand.

Tags: Captive, Catastrophe bonds, Earthquakes, Insurance, New Zealand, Reinsurance, Solvency

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