EMEA Captive


Solvency II: engage and differentiate


EMEA Captive examines perceptions of the Solvency II regime in its present form, and asks industry players whether the regime is appropriate to the captive sector.


fully understand the implications of, impending regulatory changes and it seems that there is still considerable opacity regarding how Solvency II will impact the captive sector.


T According to both FERMA (the Federation of European Risk Managers


Association) and ECIROA (the European Captive Insurance and Reinsurance Owners Association), “the standard formulas [set out by Solvency II] are intended to be a conservative calculation of solvency capital requirements and are not appropriate for captives”. Captives are designed to be lean and mean. It seems that proscriptive regulation is likely to rob them of their ability to stay that way. In a joint statement, the associations stated that the data compiled during QIS4 was “not representative of the captive industry”; raising concerns that greater interaction with the regulators and a firmer grasp of the role of captives was needed.


Nevertheless, as Rudolf Flunger, head of regions & specialty for


Swiss Re’s Corporate Solutions unit indicated, the insurance sector has proven itself remarkably resilient in the face of the wider economic environment and regulatory change in recent years. As Flunger outlined, the “challenging economic environment could have been much worse”, with the regulators and direct government intervention helping the world economy “avoid the worst at the cost of high fiscal debt”. The insurance sector, captives included, outperformed much of the wider financial sector, with many captives finding their capital jealously watched by parents looking to repair their balance sheets. Captives avoided the toxic debts


alking with players across the EMEA region and beyond, it is clear that after emerging from a difficult few years, Solvency II continues to dominate industry discussion. Captives, domiciles and regulators are all struggling to respond to, and


and meltdowns that characterised the banks’ difficult few years, although the instabilities in the financial markets—which Flunger characterised as “recovering, but volatile”—have meant that returns on the investment side will likely be muted for a time to come. Despite performing well, the wider crisis nevertheless prompted greater scrutiny of the re/insurance industry and captives find themselves caught in the regulatory dragnet.


Concerning the regulatory threat, Flunger indicated that the economic


crisis had created significant consensus that such crises needed to be avoided in future. Regulation of the financial sector would form a part of this approach—with Solvency II taking a spotlight to the insurance sector. Flunger indicated that it was normal that, post-crisis, “regulatory aspects automatically move to a more prominent position” and it seems that Solvency II is no different. In fact, talking with anyone in the captive sector, it is clear that Solvency II is the issue prompting industry head-scratching across Europe and beyond. The major issue is: where do captives stand in relation to the regulatory regime and is the sector in a positive position? The trouble is, an answer will depend on who you ask.


Gordon Rowell, head of insurance at the Cayman Islands Monetary


Authority, for example, made clear that as “captives do not bear the same risks as commercial carriers, it could be argued that the regulators’ approach to captives is disproportionately aggressive”. Others were in agreement with Rowell—with Guy Soussan, partner at Steptoe and Johnson, arguing that although the principle of proportionality should ease some of the regulatory burden placed on captives, requirements surrounding governance and management did not take into account the size of the re/insurance entity. Instead, smaller players such as captives would be obliged to meet similar standards to those of larger re/insurers better placed to cope with the regulatory burden of Solvency II.


16 emea captive 2011


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