Ferma ‘watchful’ of Solvency II proportionality promise

Ferma has called on insurance regulators at both European and national level to ensure reforms to the Solvency II regime are “truly proportionate”. In response to a consultation on the new proportionality regime under Solvency II published by Eiopa in August, Ferma said it remains “watchful” on the next steps as it wants to ensure that the regulation is more straightforward and “better serving”, in particular to captives and their parent companies. The European risk management body has already raised concerns that the technical detail now being developed by Eiopa for the European Commission is in line with the text agreed at political level in December last year, which included a key commitment to more proportionality as a principle in changes to Solvency II. The Council of the European Union signed off the proposed Solvency II reforms yesterday, with the final text expected to be published in the Official Journal shortly. But for now, Ferma said “the market is operating on the assumption the changes will bring them more proportionality but awaits technical specifications”, adding: “As ever, the devil is in the details.” In its response to Eiopa’s consultation, Ferma said the new category of small and non-complex undertakings (SNCU), under which entities that meet criteria will benefit from the proportionality rules and reduced reporting requirements, should not be complicated any further. “There does not need to be further fine-tuning or complexity added to the methodology for classifying SNCUs,” Ferma said. “The methodology and criteria in the politically agreed text is abundantly clear. By adding more to an already dense text with three subsections – which are tailored to whether the undertaking writes more life business, non-life business or a mixture – would be unnecessary,” it argued. In response to Eiopa’s question gathering views on how to set conditions for granting some proportionality measures to non-SNCUs, Ferma said there is “good sense” in the approach, but that it remains guided by its overall position that “any added detail to the text should maintain the sense of proportionality”. “Ferma maintains a watchful eye on next steps and will work with its network to ensure Solvency II is more proportional and straightforward, as well as better serving captives and the enterprises that make use of them,” it said. Last month, Ferma said it expected the majority of EU-domiciled captives to meet SNCU criteria. In a policy note following the European Commission’s review of the Solvency II directive, Ferma said most insurance and reinsurance captives are expected to be considered as SNCUs. “Holding captives to the same regulatory requirements as large, diversified insurers places excessive administrative burdens and costs on such entities, reducing their overall effectiveness and efficiency,” said Laurent Nihoul, board member and chair of Ferma’s captive committee. As a result, captives classified as SNCU will benefit from proportionality measures on reporting, disclosure, governance, revision of written policies, calculation of technical provisions, the own risk and solvency assessment and the liquidity risk management plan, Ferma said.

Ferma ‘watchful’ of Solvency II proportionality promise

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