The Federation of European Risk Management Associations (FERMA) has published the industry’s first report on captive re/insurance arrangements, in an effort to ensure the implementation of Base Erosion and Profit Shifting (BEPS) as recommended by the Organisation for Economic Co-operation and Development (OECD).
OECD members raised some concerns of the interpretation of BEPS during its implementation stage published in 2015, and the new, first-of-its-kind report, covers commercial rationale, substance and governance, and transfer pricing – premium setting process, the areas of concern highlighted by OECD members, amongst other factors.
“The objective of such guidelines is mainly to avoid creating a patchwork of diverging national legislations inspired by BEPS. Captives serve an important Enterprise Risk Management role with true business purposes for European businesses and other organisations. Although captives are only a very small portion of BEPS, FERMA believes that national authorities should be guided in how to assess captive arrangements according to BEPS recommendations,” said FERMA President, Jo Willaert.
By publishing the report FERMA says it has allowed OECD members to assess the compliance of captive insurance or reinsurance arrangements with the BEPS recommendations, and the study draws on contributions from all 22 members.
For the first time, the report provides complied information and data on premiums, profitability and taxation levels from a broad sample of captives, that are owned by European resident multinational companies.
Carl Leeman, leader of the captive project group and a FERMA Board member, said; “Our document demonstrates that the main financial ratios of the captive insurance industry are in line with the traditional insurance market.
“The paper, enriched and approved by our 22 national associations, represents a strong consensus within the European risk management community on how captives are supporting the operations of their parent organisations.”