Captive and ART Review Article of the Month - Forging a Strong Relationship
Captive managers are faced with a wide-ranging choice of banking providers and choosing one over another is not always easy. Invariably, and quite rightly, they seek to build relationships that will ensure their requirements are completed efficiently and to deadline. In a very competitive environment, there is increasing pressure on captive managers to deliver the best solution for their clients at all times. The managers may ask themselves if they can find the solutions they need from one banking provider, or would they benefit from shopping around in the belief that no single provider can meet all their specialist requirements.
The bank's role
The needs of captive managers will differ from manager to manager but it's likely that they will want the bank they appoint to take on a range of banking and investment solutions. This may include the need to structure transactions and establish credit facilities (including accepting incoming letters of credit as collateral for the facility), the creation of custody accounts, discretionary investment mandates, online banking access and treasury arrangements.
The risk profile of the underlying client is a crucial factor in deciding upon an investment strategy. Products have multiplied as providers compete to develop solutions that accomodate specific investment criteria and maximise returns. There will be managers seeking products that will mitigate risk and provide low levels of volatility, and others that might be willing to seek a different investment philosophy. These strategies may be modified further, depending on the prevailing market conditions and the captive's cash flow requirements.
The result of all this is that the captive manager needs a bank that can deliver solutions from this maze of financial services, which really take into account their needs. He or she needs a bank that is willing to devote the time and resources to fully understand the sometimes complex requirements of the underlying client. We believe the captive manager will benefit from a banking organisation that is able to offer holistic solutions combined with seamless delivery of appropriate services.
For this approach to succeed, the bank must have a team of experienced and highly capable relationship managers, who should have the ability to call upon expert assistance from within the bank's wider group when required. For example, if the most suitable investment solution involves some form of principal protected notes, the captive manager needs a relationship manager who will be able to explain the thinking and have access to the product specialists.
The relationship manager should be working to build a strong one-to-one relationship, handling day-to-day requirements and thinking longer term to help devise tailored solutions that will meet all investment objectives. The relationship manager will encourage a one-to-one dialogue and work towards building a partnership. Captive managers should feel confident that when they entrust their clients' financial requirements to a bank, they do so knowing they are with a banking organisation that has exemplary service at its heart and a passion to perform.
With this in mind, Deutsche Bank saw its commitment to client care rewarded this year when it was awarded the title Best Private Bank in Cayman and the Channel Islands in the prestigious Euromoney Private Banking Survey 2007.
Customer care has to be underpinned by an insightful appreciation of the market in which the captive manager is operating. It would be ill-advised to opt for a bank that does not understand the specialist requirements of the captive industry.
At Deutsche Bank, for example, we have staff in the Cayman who have built a strong relationship with captive managers, the professional community and insurance brokers. This is the key to understanding the specific requirements of the captive managers and the market they operate in.
The whole picture
The quality of the relationship is one side of the coin. On the flip side is the breadth of the services available to the captive manager and, in this respect, we would highlight the value of a holistic approach. We have noted already the increasing number of products that are now available in the marketplace. These range from typical term deposits and money market accounts, to more tailored structured deposits, hedge funds and other alternative investments.
Increasingly, captive managers are choosing more sophisticated investment vehicles to generate improved risk-adjusted returns. Captive managers want a financial provider that will assess risk parameters and investment needs. It is easier and more efficient for them to seek advice from a provider able to offer a complete solution. A bank that fits such a profile will be one that has a global reach and specialist capabilities available through its network. It will also need to have access to the entire range of specialist investment products and be able to tailor these to suit individual requirements.
At Deutsche Bank, for instance, we have analysts, product specialists and professional portfolio managers dedicated to identifying the world's best investments. And an AA- rating from Standard and Poors.
One of the skills of the relationship manager is their ability to work with investment specialists to evaluate the suite of products available and to select the most appropriate in the circumstances. There are considerations such as the risk profile and cashflow needs, which will depend upon the credit requirements of the captive company.
For example, structured solutions have proved popular, allowing investors to select an investment philosophy and profile that best suit their strategy. These may be bespoke in nature, designed to address specific requirements including enhancing or eliminating exposure to market price movements. Hedge funds, combined with traditional assets within portfolios, can offer superior risk-adjusted performance.
The key consideration is that the bank can provide bespoke solutions that meet the investment objectives of the captive manager.
Cayman Islands
The number of captive insurance companies in the Cayman Islands continues to grow, with 740 licensed as at the end of 2006. Premiums written amount to approximately US$7bn and total assets under management are more than US$29bn (Source: Cayman Islands Monetary Authority).
It is a leading business sector in the Islands and one that naturally attracts many service providers. This is even more reason why the captive manager must take time to consider the organisation that would make the most appropriate banking partner.
To summarise, the captive manager should look for a provider with a one-stop solution that has quality investment products, underpinned by responsive service.
Relationship managers dedicated to the client's needs and with an understanding of the local captive insurance marketplace are also critical.
Captive managers need a finance provider that will be with them for the long term and will take the time to understand their investment priorities and the risk profile of their clients.
As the market in this sector has grown, so the banks have responded accordingly. Captive managers naturally expect seamless and efficient execution of their requirements, and need banking specialists that understand their unique marketplace and are able to find Investment solutions to their problems.
