Insight

Aon sees growth in captives to cover emerging risks

Companies look increasingly to captive insurance structures to address cyber, environmental and employee benefit risks, says Karl DeGiovanni, Deputy General Manager of Aon Insurance Managers (Malta) PCC.

Aon plc is the leading global provider of risk management, insurance and reinsurance brokerage, human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon services clients in over 120 countries. Incorporated in 2005, Aon Insurance Managers (Malta) operates to the highest standards in providing insurance management services, risk management consultancy services and Protected Cell Company (PCC) facilities through Aon’s White Rock PCC vehicle. Deputy General Manager Karl DeGiovanni talks to MaltaProfile.  

What sections of your business do you see delivering the greatest innovation and growth potential?

At present the focus in the insurance management arena has been on meeting the Solvency II needs of clients with innovative and sustainable solutions. An example of this is the solution offered for the Pillar I requirements of Solvency II where Aon has developed Astra; an excel-based Solvency II Standard Formula tool. This is a simple, easy to use and cost-effective solution to completing the standard formula calculation. On the Pillar II side, Aon has developed an integrated and online Governance, Risk Management and Compliance (GRC) framework to help clients address these requirements. Aon’s GRC platform provides consistency at all levels and avoids extensive documentation of policies and procedures. Furthermore, the GRC platform helps clients avoid complex and uncontrollable implementation programmes, while maintaining a structured approach across all organisational levels, with a fit for purpose cost-efficient solution. For Pillar III Aon is developing a quantitative reporting tool designed to streamline the quarterly and annual reporting obligations. This software will link into various Aon systems including Astra and the GRC in order to further ease the reporting requirements clients now face. In addition, Aon Benfield has developed a catastrophe modelling tool called ReMetrica which is now being used to assist clients’ model under Solvency II. 

What new markets and trends do you see emerging in the captive industry?

We are experiencing an increase in captives among Asia-Pacific firms. According to Aon’s 2015 Global Risk Management Survey, captive owners in that region increased from 17% in 2013 to 23% this year. The survey also shows that captives that are dormant or inactive seem to be diminishing, which supports our benchmarking data from Aon’s captive book which has seen an increased amount of premium written in the last three years. General/third party liability and property are the most frequently underwritten lines of coverage within a captive at 45% and 59% respectively. In terms of new trends, we are seeing emerging risks being underwritten in captive entities including cyber liability/network liability, environmental/pollution and employee benefits. The lack of appropriate or adequate cover in the commercial market place is clearly the driving force for clients to use their captive to cover these risks.

In terms of evolution, what major developments have influenced the insurance sector over the last 5-10 years?

The last 5 to 10 years have seen numerous developments that have challenged the traditional nature of the insurance sector. As the traditional captive market matures, entities are looking at alternative structures to mitigate and manage their risk. We have seen an increase in Protected Cell Companies (PCCs), Incorporated Cell Companies (ICCs), Insurance Linked Securities (ILS) and an increased emphasis on emerging risks. As the environment around us changes, the risks around us evolve and have become more interconnected. For instance, a cyber-breech in a company can have an effect on a number of other risks such as damage to brand and reputation, failure to attract or retain top talent, operational interruption or a negative effect on a company’s bottom line.

Over the past few years we have also seen a global financial crisis, increased threats of terrorism, military conflicts and political unrest in the Middle East, which have materially changed the environment in which we operate. At Aon we strive to be at the forefront in offering solutions that help our clients mitigate these risks. This is based on research, data and analytics which Aon conducts throughout the year, including Aon’s thought leadership piece – the Global Risk Management Survey. The report offers insight from more than 1,400 respondents from global public and private companies in relation to what, in their opinion, are the top 50 risks and emerging risks.

What key challenges are facing your industry at the moment, and how is your company attempting to tackle them?

The need to operate economically and efficiently, to comply with increased regulatory demands, to remain competitive and be increasingly innovative are all challenges which the insurance industry is facing at the moment. Currently, in Europe Solvency II is on everyone’s mind. As mentioned earlier, at Aon we are at the forefront in helping our clients meet these requirements in a seamless manner, and we have been involved at EU level in lobbying for proportionality in relation to captives.

What are the key attractions for insurance companies to make Malta their home?

Being based in Malta has many advantages including; a professional and well-established insurance sector, an accessible and experienced regulator, the ability to passport into all 31 EEA countries on a freedom of services basis and a strong presence of industry professionals. Another important aspect to consider is that while the Government, the regulator and the industry want to encourage business into Malta, they want to do it in a managed and compliant way with an emphasis on protecting policyholders and upholding the reputation of Malta.

A good banking infrastructure, availability of skilled workforce and a clear regulatory environment are crucial issues for the economic success of a country. How would you assess the infrastructure and the regulatory environment in Malta?

The financial services sector in Malta is a major force in the country’s economy. Malta has some significant strengths to offer the industry, such as a well-trained, motivated and multilingual workforce, as well as an advantageous tax regime backed up by close to 70 double taxation agreements. Institutions such as FinanceMalta have been set up to promote Malta as an international business and finance centre bringing together and harnessing the resources of the industry and government. This helps to ensure Malta maintains a modern and effective legal, regulatory and fiscal framework in which the financial services sector can continue to grow and prosper. On the other hand, the Malta Financial Services Authority acts as the single regulator for financial services in Malta ensuring that the country has a sound regulatory environment, compliant with international standards, which supports the development of a dynamic framework that enables the industry to develop new products and services. 

In terms of economic growth and development, what are your expectations for Malta in the coming years?

From an insurance industry perspective, innovation is going to play a key role in being one step ahead. As a jurisdiction, we need to continue to think globally. Globalisation has brought about increased opportunities in the form of international partnership, technological innovation and business growth for companies around the world. Bridging the geographical gaps of countries and companies through globalisation provides unprecedented opportunity for growth.

Karl DeGiovanni started his career in 1995 with a local audit firm in Malta and graduated from the University of Malta with an Honours degree in Accountancy in 1997. In 1999 he moved into industry where he held various finance positions. He moved to Guernsey in 2008, joining Aon Insurance Managers in Guernsey, taking on responsibility for a number of captives whose parents operate in a wide range of industries. He joined the Senior Management Team in 2010. Karl relocated to Gibraltar in May 2012 taking over the role of Associate Director with Aon Insurance Managers in Gibraltar. In 2015, Karl returned to Malta to take on the position of Deputy General Manager with Aon Insurance Managers (Malta) PCC Limited. He holds a Certified Public Accountant warrant from the Malta Ministry of Finance and is a Fellow of the Malta Institute of Accountants.

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