Captive owners ‘optimistic’ about latest Solvency II developments

Günther Dröse, Head of the European Captive Insurance and Reinsurance Owners’ Association (ECIROA), told Commercial Risk Europe that he is ‘optimistic’ about the final outcome of Solvency II for captives based on the latest news from CEIOPS and the Commission. CEIOPS issued the technical specifications for QIS5, its latest and hopefully final field test for Solvency II, and will provide the European Commission with the report in April of next year to help it decide on the final implementing measures. CEIOPS will run the QIS5 exercise between August and November so that it can provide quantitative input to the finalisation of the Commission's proposal on level 2 implementing measures for the Directive.hideAs reported in last week’s newsletter, buried deep within the 330 page document is a section on simplifications for captives that suggests that some of the concerns expressed to CEIOPS, the Commission and national politicians in recent months by ECIROA and FERMA about the limited applicability of the simplifications to captives may have been addressed. A number of leading European risk managers have told Commercial Risk Europe in recent weeks that they are confident that the efforts made by FERMA and ECIROA to ensure that captives receive proportional treatment in the final rules will bear fruit. Mr. Dröse told CRE that he does not believe that the most recent papers from CEIOPS will ‘represent the final outcome’ in its discussion with EC and CEIOPS but added ‘I am optimistic’. “We have had a close contact with some of the regulators and are happy to see some success for captives in general,” said Mr. Dröse. He said that the lobbying to try and persuade CEIOPS and the Commission to take a less hardcore stance on captives had been a real team effort and that ECIROA had not worked on this alone by any means. Despite the apparent recent progress made, he also promised that the effort would not be relaxed. “We will not stop our engagement and the diligent and broad activity which is very much time consuming,” said Mr. Dröse. To support this effort, Mr. Dröse urged European captive owners to take part in the QIS5 exercise and therefore provide CEIOPS and the Commission with the hard evidence needed to make the right decisions. “There is a lot to do. We need to convince captive owners to participate in QIS5, keep actuaries still busy with recommendations about how to calculate captive risks in line with Solvency II but ‘in proportion’ to commercial insurers, determine in more detail what the ‘proportionality principle’ contains or means and describe that in an effort to be more precise and fair to all insurers. And we are still working on the captive definition,” he said. In general the captive owners and the wider commercial insurance industry will have been pleased with the QIS5 technical specifications issued by CEIOPS. In its call for advice in the form of a letter to Gabriel Bernadino, Chairman of CEIOPS, David Wright of the Commission noted it had made a number of changes to the technical specifications following extensive consultation, all seemingly positive for insurers and their customers. Mr. Wright said that the Commission is aware that not all stakeholders or Member States are ‘totally satisfied’ with the choices made by the Commission in the technical specifications but stressed that it had done its best to reconcile the different positions and to test compromise approaches wherever possible. “As the Commissioner [Barnier] indicated, it is important to reach a balanced approach in QIS5 that takes supervisory as well as general concerns into account. It is very important to stress that QIS5 is a test. This point should be clearly communicated to the participating undertakings,” stated Mr. Wright. He explained that the technical specifications should not be seen as a pre-judgement of the final outcome of the discussions on the level 2 implementing measures. The intention of the Commission is to publish the proposal on level 2 implementing measures once the results of QIS5 are known to ensure that the final policy decisions are made on an ‘informed basis’, he said. Mr. Wright stressed that the Commission expects much higher participation in this impact study than before and particularly from smaller undertakings, such as captives. “The Call for Advice sets out an expected participation of at least 60% of insurance undertakings and 75% of insurance groups. It is particularly important that smaller insurance undertakings as well as reinsurance undertakings and specialised insurance providers are included. We also need a representative geographical coverage throughout the EU and participation of insurance undertakings in all Member States,” he said. To help ensure that this happens, Mr. Wright said that he welcomes recent efforts by CEIOPS to make its spreadsheets more user-friendly. Captive owners will be particularly pleased to hear that he told CEIOPS: “They should in particular not overburden small and medium-sized undertakings. I would also like to reiterate my support for your idea to develop a QIS5 user manual in order to help in particular those undertakings which are new to QIS exercises.” “I believe that a close cooperation between the insurance industry and supervisors is essential for the success of the QIS5 exercise. Supervisors should invite insurance and reinsurance undertakings to participate in QIS5 and provide appropriate support, in particular through an efficient question and answer procedure, seminars and where appropriate, communication through trade associations,” he added. FERMA and ECIROA are jointly developing a best practice document for captives that focuses on the Pillar II and Pillar III transparency and governance requirements along with captive management experts to help insurance managers prepare for the challenge.

Captive owners ‘optimistic’ about latest Solvency II developments

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