Ferma fears Solvency II review doesn’t go far enough for captives

Ferma is disappointed that proposed changes to Solvency II put forward by the EC do not make the rules more proportionate for captives. The EC recently announced plans to reform Solvency II following initial proposals put forward by the European Insurance and Occupational Pensions Authority (Eiopa) in December. The EC claims the rule changes would better protect insurance buyers while freeing up €90bn of insurance capital in the short term to boost green investments and help the Covid-19 recovery. The reform would see an overall reduction in insurers’ capital requirements, while introducing more proportionate rules, it said. Ferma and the European Captive Insurance Owners Association have fought long and hard for captives to be treated less onerously under the capital adequacy and reporting regime, through the proportionality principle that was enshrined in the original directive. And there was hope that EC’s review would usher in more attractive rules for captives. But it seems Ferma believes captive owners’ wishes have largely been ignored. “On first reading of the commission’s proposals, Ferma is of the view that the commission has missed a golden opportunity to make the regulatory framework more proportionate,” said Ferma in its latest newsletter. The federation added that its captives committee will now look further into the proposals and aim to influence discussions that will take place between the Commission, parliament and council before a final set of rules changes are put in place. “Ferma’s main interest in the European Commission’s proposals is what it plans to do to improve the application of the principle of proportionality. For a long time now Ferma has been vocal on the need for a more proportionate regime, which should be linked to the risk-profile of the undertaking,” the federation made clear. Insurance Europe, which represents the European insurance industry, is also disappointed with the planned changes to Solvency II, despite AM Best’s assertion that they are more generous to insurers than most expected. AM Best said rule changes offer a bigger reduction in insurance capital requirements than plans initially put forward by Eiopa last year. But despite AM Best’s feeling that the EC has listened to the European insurance industry and reduced its capital requirements further than expected, Insurance Europe, which represents Europe’s insurers, also fears the proposals don’t go far enough. It said only “significant and permanent reduction of capital” would allow insurers to increase their contribution to financing the recovery and supporting the EU’s Green Deal and Capital Markets Union. “This is because insurers must take a long-term view in their strategy and investment decisions. In addition, a significant and permanent capital reduction would allow our industry to regain international competitiveness. This capital reduction can be achieved while maintaining very high levels of protection for European policyholders,” said Olav Jones, deputy director general of Insurance Europe.

Ferma fears Solvency II review doesn’t go far enough for captives

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