Proportionality, it seems, extends only so far. “Until the final legal framework for EU-domiciled captives is known, foreign captive domiciles may well have valid reasons not to engage with an equivalence assessment despite the prospects of a transitional regime,” Soussan concluded.


Dominic Wheatley, chief marketing officer at Willis International Captive Practice went further, stating that “Solvency II isn’t designed for dealing with captives”, despite the potential for proportionality, and argued that “proscriptive regulation is not helpful in a captive context”. Such comments suggest that should the full weight of Solvency II or the demands of equivalency be placed on the shoulders of captives, then many in the industry would struggle to cope with the burden. And this situation is particularly galling considering the relative success of the sector in the recent downturn and its value proposition in managing risk and capital—an integral part of Solvency II’s remit.


Concerns over the possible impact of Solvency II have echoed some


way beyond Europe. While Bermuda and Switzerland have both opted to go down the route of equivalency, Cayman, Guernsey and the Isle of Man are among a number of captive domiciles that are taking a ‘wait and see’ approach to the regime. A significant factor in their decision is likely to have been related to concerns that equivalency might well prove to be excessively burdensome to their captive sectors. As Wheatley explained—“equivalence has a slightly ambiguous value for jurisdictions. There is still significant uncertainty, concerning value, heading and implications.” While admitting that “clearly some constraint is necessary—where the business is too risky or undesirable”, Wheatley said that “captives must be allowed to deliver on the reasons they were established”. Flunger echoed his sentiments, stating that “captives will have a difficult time delivering if the regulatory requirements are too


heavy”. Captives, domiciles and regulators will be weighing up their position in the face of the regime.


Despite the concerns of the captive sector however, commentators


agree that greater regulatory control is inevitable and even desirable, even if a second tier of regulation would be more appropriate for the captive sector. Shanna Lespere, director of insurance at the Bermuda Monetary Authority, made clear that there are significant positives to be drawn from the European regulatory regime. “Solvency II will promote high standards in all jurisdictions and is in the interest of global market stability.” Others echoed Lespere’s sentiments, indicating that Solvency II would help to establish a global benchmark for industry regulation moving forward.


What is clear from the concerns raised is the need for the global


captive industry to continue to engage with ongoing discussions surrounding Solvency II. At present, the captive question has formed a rather marginal part of the regulatory discussion, but it is apparent from captive associations such as the FERMA, ECIROA and the Captive Insurance Companies Association (CICA) that the industry is making great efforts to present the captive case to European and international regulators. As Lespere made clear, “it is important that insurers, regulators and the market feed into the European debate”, and greater interaction with discussions such as QIS5 and the forthcoming QIS6 should be seen as an opportunity for the sector—both to differentiate its offering and to present the case for captive-specific regulatory measures. It is unclear as yet, whether captives will be specifically addressed by future changes to Solvency II, but many will be hoping that exceptions will be made for these invaluable risk and capital management vehicles.


emea captive 2011 17


©iStockphoto.com / Yuri_Arcurs


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