Ferma continues battle to get proportionate captive treatment under Solvency II

The European risk management federation Ferma has held two recent meetings with the French government, which holds the presidency of the Council of the EU, to drive home the importance of ensuring captives are treated more proportionately under the EU’s Solvency II directive.

Ferma reported that the meetings were held in April with the French Treasury, to “discuss some critical elements of the Solvency II proposal”.

“More specifically, Ferma has pushed for a more proportionate and risk-based framework for (re)insurance captives,” said the federation.

The capital adequacy and reporting regime is currently under  review. Ferma is targetting the French government because it is currently driving political discussions between EU member states during its presidency of the Council of the EU.

Ferma said there is hope that a general approach to the treatment of captives under Solvency II can be formed by the end of June.

“Ferma continues to push for an outcome that is favourable for captives,” it added.

Ferma welcomed proposed changes to Solvency II back in January that would strengthen the concept of proportionality, and in particular the creation of a new classification of “low risk-profile undertakings” that would clearly help captives gain lighter treatment under the regime.

But the federation called for a further revision that would enable captives to be treated as low-risk undertakings automatically, unless there are clear reasons to apply the full criteria.

Ferma has argued that it is in everyone’s interest for Europe’s businesses to more effectively manage and transfer their risk using captives.

January’s proposals for updating Solvency II explicitly recognise that captives need to be treated differently. But Ferma said they need to go further in the current market.

“Ferma has consistently advocated risk-proportionate regulation of captives in European insurance regulation. It now gives a qualified welcome to proposed changes to Solvency II that would strengthen the concept of proportionality, and in particular the creation of a new classification of ‘low risk-profile undertakings’,” stated the federation in January.

“We call for captives to be treated automatically as low risk-profile undertakings unless, for example, the captive poses a systemic risk or has been in breach of its solvency requirements,” it added.

Ferma said this amendment would further reduce complexity for small and less risky insurers, specifically captives.