QIS 5 delayed but captives have not been ignored

Risk and insurance managers across Europe had expected to see the results of the impact assessment by the end of this month. But earlier this week Karel Van Hulle, Head of the pensions and insurance unit at the Competition Directorate at the European Commission and the architect of Solvency II, told Commercial Risk Europe that the results would not be seen until mid-November.

Speaking at the European Captive Forum in Luxembourg, that also doubled as ECIROA’s annual general meeting, Mr Van Hulle told CRE that the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) had been given a two week ‘period of grace’ beyond the end of October deadline to help them prepare the numbers.

He said, however, that he had no reason to believe that this minor delay would slow down the whole process and that the new rulebook would be ready for consideration by the European Parliament and Council of Ministers by June next year to enable implementation by January 1, 2013.

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Carlos Montalvo, Secretary General of CEIOPS, provided further comfort to those who may be worried about further deadline slippage with Solvency II when he said during the conference that the committee plans to issue its final recommendations to the commission ahead of schedule in March of next year.

“Hopefully we will deliver a report to Mr Van Hulle in the first week of March before the official deadline to give him time to improve it and get as close to perfection as possible,” said Mr Montalvo.

He also reassured the many European captive owners at the conference that their interests are being taken into account, despite accusations over the last few months from some that CEIOPS had ignored their pleas for special treatment, as stipulated in the original Framework Directive.

Just before Mr Montalvo spoke, Thomas Wittbjer, Global Head of Insurance at IKANO, a company jointly owned by IKEA and IKANO in Sweden, and a member of the Captive Insurance Companies Association (CICA), said that it was a ‘great achievement’ that as many as 40-50% of European captives had participated in the QIS 5 assessment.

Many captive insiders have expressed hope in more recent months that a stepped up lobbying process from groups such as ECIROA and FERMA and greater participation in the impact study would deliver a more favourable attitude from CEIOPS towards captives. Mr Wittbjer was still cautious. “The jury is still out on whether we have been successful or not,” he said.

Mr Montalvo said that he was pleased with the higher industry participation in QIS 5 than in the past but still said he hoped for greater input, perhaps fuelling suspicions that QIS 5 may not be the last impact assessment after all. “I am sure the captive industry can do better taking it from 40-50% up to 50-60%. Let’s give it a try. To ensure we do the right thing we need data, data and more data,” he said.

A much clearer idea of the extent to which captives will be able to enjoy the proportional treatment and simplifications outlined in the framework directive will become much clearer when the commission publishes the implementing measures.

Mr Van Hulle said that this part of the process has been delayed but suggested that the captive industry may like what it sees when it is finally published. “Will Solvency II happen? Yes. If you come up with ideas about where we can improve this thing we will listen. We have decided to postpone the presentation of the draft implementing measures to June of next year when we will have for you a text that I hope you will like. You will like it,” he said.

“I believe you will see in the text that we listened. We decided to apply better regulation principles to this and so we go back to stakeholders time and time again. This takes time and is costly but it is the only way. I have learned the hard way in discussions with CEIOPS and the industry that this is not rocket science. We try to find solutions but there are no single mathematical solutions and these things are not necessarily easy which is why QIS 5 is so important,” continued Mr Van Hulle.

On the simplifications question Mr Van Hulle said that he believes and hopes that the commission will ‘strike the right balance’. He said that it is faced with calls for lighter treatment from the captive sector and harsher treatment from the wider insurance sector.

“Some say you don’t go far enough, others say you have gone way too far. I think it is a good balance and you will see in a short time in the QIS 5 results whether we have got that right. We need time to get there. To sum up we are trying to strike a balance. There are equally important captives and insurers and we are trying to get the right balance. When we introduce the implementing measures it will be the end of the beginning or the beginning of the end, whatever you wish,” he said.

And when questioned by Mr Wittbjer about whether the politicians would agree with the commission that captives deserve any special treatment or will simply tar all the financial sector with the same brush and demand much higher capital requirements as some fear, Mr Van Hulle gave a positive response.

“These people [politicians] lead very hectic lives and we get hundreds of business people who think we can tailor everything for everyone and that is just not the way it goes. But the fact is that we have a definition of captives in the directive and the fact is that the proportionality principle is defined and the fact is that we have had simplifications in the document,” he said.

“Will the politicians accept this? The approach has been accepted and you should be happy about this. I remember when the captive lobby came to me and said: ‘Gosh I didn’t realise that we were included in Solvency II’ and I said: ‘Get your act together!’ And you did. This is the last time that we will hold a major information gathering and you should all be very happy,” continued Mr Van Hulle.

The impact of Solvency II on captives will be debated in depth after the QIS 5 results are published at the Malta International Risk & Insurance Congress on November 25 and 26. Registration is free for risk managers. To sign up please click here.