The Federation of European Risk Management Associations (FERMA) has argued that European insurance regulation should automatically treat captives as low-risk undertakings unless there are clear reasons to apply the full criteria.
The comments form part of FERMA’s response to the latest consultation exercise on the revision of Solvency II by the European Commission.
FERMA has consistently advocated risk-proportionate regulation of captives, and favours 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.”
But the Federation says there is still room to improve the proportionality of captive regulation.
“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,” FERMA urged.
This amendment, FERMA believes, would further reduce complexity for small and less risky insurers, specifically captives, while also streamlining captive regulation for national supervisory authorities.
Its argument is that the solvency of a captive rarely has any impact in the insurance market, but that they are a valuable part of the risk management strategy of many companies.
“They provide European enterprises with an alternative form of risk transfer, which is crucial in the current hard insurance market conditions,” FERMA explained.
“We are of the firm belief that more should be done to make Solvency II truly risk-based and proportionate,” the Federation continued.
“We say this as insurance buyers but also as users of captives during hard market conditions, and also amid growing questions over the ‘insurability’ of certain risks, such as those linked to climate change. Options for risk transfer are, therefore, more important than ever. FERMA looks forward to contributing our unique expertise to the political discussions on Solvency II.”