BaFin in talks with GVNW over simpler approach to captives

The German risk management community will continue efforts to persuade its national supervisor BaFin to relax the way it regulates German captives and apply a more risk-oriented approach to proportionality under Solvency II. Frank Grund, head of the insurance department at the German financial supervisory authority BaFin, told Commercial Risk Europe in a recent interview that he is happy to sit down with the German risk and insurance management community and discuss how captives could be regulated on a more proportional basis under Solvency II. Dr Grund met senior representatives of the German risk and insurance management association GVNW in the spring, to specifically discuss the treatment of captives under Europe’s capital adequacy and reporting regime, and subsequently told CRE that he is open to an ongoing dialogue. He strongly denied that the BaFin is “goldplating” the EU’s insurance rules, not least Solvency II, and pointed out that the supervisory authority has dedicated a stream to captives during its annual conference in November. This is the first time captives have been granted specific attention during its event. GVNW welcomes the recognition of the importance of captives by BaFin, but remains concerned that German-based captives are more heavily regulated than others in Europe, particularly specialist captive centres such as Luxembourg, Malta and Dublin. Alexander Mahnke, president of the GVNW, told delegates at its annual conference in Munich yesterday that he welcomed BaFin’s willingness to discuss the problem. But he added that the association would like to see a firmer and clearer commitment to the application of proportionality, which grants captives lighter capital adequacy and reporting requirements under Solvency II. Dr Grund said he recognises that Solvency II specifically states captives should be granted proportional treatment, but pointed out that, in the absence of a dedicated German captive management community, the principle is difficult to apply. The delegation of core management activities to professional captive managers in specialist centres such as Luxembourg means it is easier for supervisors in such jurisdictions to grant proportional treatment, he said. There is no such community of captive managers in Germany, which makes the application of proportionality more difficult, explained Dr Grund. “We have met with GVNW and the discussion is about the principle of proportionality. We are aware that there are different approaches to this across Europe. In Luxembourg, for example, there is a dedicated captive management community. This means that the captive managers are dealing with a lot of captives and so they can be treated differently,” said Dr Grund. “In Germany, the number of captives is so small that it does not make economic sense for the captive managers to be based here. We are discussing this with GVNW and it will be interesting to see if there are ways of overcoming some of the problems faced by German-based captives. But if there is no captive manager, then it will be difficult to simplify the treatment,” added the insurance supervisor. “I accept that sometimes we Germans can be a little legalistic. But EU regulations are translated into the German national insurance law (VAG) and we stick to the rules. If written reports have to be filed every quarter, we expect it to happen. We are also looking to harmonise our approach with other countries. I accept that there are differences, but we have no interest in goldplating, no interest at all,” he continued. In an interview with Commercial Risk Europe, Mr Mahnke responded: “The comment of Dr Grund in which he states that the application of the principle of proportionality for captives in Germany is dependent on an outside captive management provides an interesting perspective. Nonetheless, we are not of this opinion and have recently stated so in a discussion between members of GVNW and BaFin.” “In our view, the principle of proportionality is linked to the complexity and risk profile of a (re)insurance entity. Unfortunately, in our experience, different standards continue to be applied in supervising captive insurers in different EU domiciles, and that should not be the case under the EU Solvency II scheme. The German captive community has actively proposed a standardisation of reporting to BaFin, in order to create efficiencies for the supervised entities and the supervisory authority alike. We will of course continue our dialogue with BaFin to further foster the understanding of the specificities of captive companies and their risk profile. A less ‘legalistic’ and more risk-oriented approach in supervision would definitely be welcome,” he added. To view our GVNW conference newspaper please click here.

BaFin in talks with GVNW over simpler approach to captives

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