COMPASS is built on London & Capital’s values of:
Partnering with small insurance companies and Captives to guide them through the challenges.
Providing investment choice to enhance portfolio construction and ensure greater certainty.
Prudence to deliver capital-adjusted returns
in the long term.
The Solvency II Directive has changed the regulatory landscape for insurers in Europe and beyond. The Directive’s three pillars require a top-to-bottom review of capital management, risk modelling and overall processes.
In particular, the Directive creates real challenges in relation to investment management such as portfolio modelling, construction and reporting. The deadline for compliance is December 2015.
The Solvency II Directive places small insurance companies and Captives at a particular disadvantage, owing to their inherent exposure to counter-party risk and catastrophe loss.
Most asset management firms have failed to provide proper guidance for Solvency II as they have placed greater emphasis on investment product rather than providing and all-encompassing service.
Small insurance companies and Captives are particularly at risk, as in many cases they are required to hold a disproportionate amount of capital in comparison to their inherent risk.
In recent years most small insurance companies and Captives have relied on leaving large deposits in cash, but this will no longer be a viable option.
Lastly, Solvency II will require greater governance and, in particular, a greater focus on the investment management process.
To ensure your portfolio’s compliance with the Directive, it is important to develop a strong understanding of your market risk. This demands:
- Certainty about your investment approach;
- Demonstrating your total risk position to the regulator:
- movement of liabilities in line with market cycles
Recognising the required level of capital an insurer should hold:
- Certainty on investment strategy and underlying investments.
Getting the structure right:
- Obtaining proper ‘look through’ on the investments;
- Supportive vs unsupportive asset classes.
Below is a table highlighting capital-intensive and capital-friendly assets according to Solvency II’s capital weighted model. It is important to note that this is a general overview and differences in capital weightings can exist within asset categories. Although differences in capital weights exist, insurers and asset managers should complete capital-weighted return analyses when constructing a portfolio to determine the most efficient use of capital, as differences in asset correlations and return prospects may result in a portfolio that includes assets from both columns.
Granular reporting – providing narrative, not just the numbers:
- Quarterly reporting to the regulator / wider market.
Our reporting portal delivers a web-based, investment accounting solution with integrated investment policy guideline monitoring, portfolio risk and performance reporting and analytics. Designed for the insurance industry, the portal addresses the new regulatory and reporting requirements.
Solvency II introduces a new set of reporting challenges and requirements for European insurance companies, including an increased level of reporting, enhanced risk disclosures, deeper data granularity, and additional security characteristics. Clearwater helps insurers fulfill Solvency II regulatory requirements across the three pillars.
Issued by London & Capital Asset Management Ltd, 7 Triton Square, Regent’s Place, London, NW1 3HG. London & Capital is authorised and regulated by the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5SH. The prices quotes in this report reflect the latest closing prices, or transactions prices if applicable, and may be subject to errors and omissions. Where the latest price is not available, this will be indicated. No rights can be derived from the prices mentioned in this report. Should you be in disagreement with the information presented in this report, please notify London & Capital Asset Management Ltd in writing.
London & Capital COMPASS works in partnership with small insurance companies and Captives – gaining a complete understanding of their needs and requirements.
Following a review, we will create a segregated portfolio optimised for the specific client’s requirements – rather than an off-the-shelf fund. We will provide:
- transparent “look through” and knowledge on individual investments;
- bespoke mandates based on auditable expert opinion on expected returns and volatilities;
- investment management that takes into account regulatory demands, which also moves in line with market cycles and the macro environment.
We will also provide granular portfolio data, which:
- ensures portfolios are transparent and easy to report
- enables quick and accurate aggregated portfolio data – as it is not in a fund – which provides better “look through”;
- makes it easy to produce up-to-date portfolio reports “on the fly”, through an online reporting system reconciled daily using independent custodian data;
- enables bespoke reports, which include CIC and NACE codes for Solvency II standard model reporting;
- also provide accurate VAR calculations.
- London & Capital places equal importance on governance and investment performance, and takes the following steps to ensure successful governance:
- We partner with small insurance companies and Captives to reinforce certainty, and provide qualified views on liabilities and total risk position;
- We agree a clear Investment Policy Statement and ensure that Board level reporting is easy to digest and timely;
- We continually review market risk factors and, where appropriate, provide risk budgets to ensure the investment portfolio serves the client's business, and not the other way round.
London & Capital has extensive specialist experience in working with small insurance companies and Captives.
- We manage over $1bn AUM, on behalf of over 40 small insurance companies and Captives globally;
- We specialise in managing Captives’ investments since 2005, with a further two decades managing the wealth of high net worth private clients and charities;
- Our in-house team of nine specialists, including William Dalziel, Partner, who has over 30 years’ insurance industry experience. Clients have direct access to the fund managers who manage their capital;
- We maintain relationships with over 25 global custodians, allowing small insurance companies and Captives to continue their existing custodian relationships;
- We create segregated investment portfolios for small insurance companies and Captives, allowing them and their directors to view underlying securities – improving their reporting capabilities and transparency to regulators.
- COMPASS was awarded the accolade of 'most innovative investment management service' at the 2016 UK Captive Insurance Awards by Captive Review.