Captives still in the dark over Solvency II

And the view from the Forum from all sides—regulators, insurers, brokers and buyers—is that the current delays to Solvency II are an opportunity to push for changes and clarification, particularly in relation to captives. So where are we currently with Solvency II? According to Marc Paasch of Marsh, Pillar 1 is currently waiting for the approval of the Omnibus II Directive that modifies the directive. As far as Pillar 2 is concerned, implementing measures are being drafted and EIOPA has issued guidelines on Pillar 3, he added. Indeed several domiciles, such as Malta, have already issued guidelines and so things are moving well from the domiciles’ point of view, he said. He explained that the latest quantitative exercises showed that captives usually have a high capital requirement for cat risk, concentration risk and counterparty default risk.hideHe added that while there were some simplifications for captives in Pillar 1 on the principle of proportionality, there were no simplifications for Pillar 2. “We would like to see some more simplifications,” he said, adding that he would also like to see a broader definition of a captive than in the current proposals. Fabrice Frere from Aon pointed out that there will be no definitions of proportionality coming down from the European level. It is down to each company to demonstrate that the system that they have put in place and the way they have approached it is not only compliant but also relevant to their business. He added: “The fact that we have a bit of a delay now can be seen as good news, because it means that we have the opportunity to try and influence Pillar 2 as far as captives are concerned.” Hans-Jürgen Allerdissen, from Deutsche Bahn, said that at the start of the whole Solvency II process the maxim was very much ‘one size fits all’. “What has happened is that now there is no chance that it will be implemented in this way—there is no acceptance from the market or from governments and others,” he said. He explained: “Now we are on the way to seeing a different model with special requirements for SPVs, for finite solutions, maybe even for non-EU domiciles looking for equivalence. So we are even seeing special requirements for markets that are not even EU-supervised. But still there are no special requirements for captives.” He asked: “How do you transform the Solvency II model onto captives? Is it a fitting model for captives?” He said it is still possible to find a special shape for Solvency II for captives and there are three reasons for that. Firstly, he explained, captives are niche and they know more about their business than the insurance industry or brokers. Secondly, they are not of a size that if a captive fails it would have an effect on the general market. And thirdly, nearly all captives are not active in third party risks, or if they are active in third party risks they are not relevant for the public sector. He appealed to captive managers: “Help us find a model that is not so cost-intensive and create a workable platform for reporting documentation and running captives in future in Europe.” Not everyone was supportive of a special treatment of captives, at least not on all aspects of Solvency II. Oliver Baete, Member of the Board of Management of Allianz SE and current Chairman of the CFO Forum, pointed out that one of the most important roles for a captive has been to provide capacity for risks that the insurance industry either would not provide or for the wrong price. “Therefore, the same risks have to have the same capital rules. But in terms of administration and reporting, it should be proportional, but it should not be proportional for the risks. Same risks, same rules,” he said. In his keynote speech Mr Baete said the original objectives of Solvency II were to foster policyholder and shareholder protection, introduce a risk sensitive framework to promote better risk management, to create a regulatory level playing field across Europe and to link business decisions with risk-taking awareness. Solvency II is stalling, he said, not because of anything on the industrial insurance side. “But it has everything to do with the political decision of whether we want to have guaranteed life insurance products in the next few decades, or whether we will not have them anymore.” He said politicians were rethinking the framework and added: “If I was a cynic, I would say Solvency II is a very bad copy of Basel II where people have designed something for a different balance sheet, a banking balance sheet, not an insurance balance sheet.”

Captives still in the dark over Solvency II

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Related Articles