FERMA has called for its member associations to play an active role in developing the detail of Solvency II

The Federation of European Risk Management Associations (FERMA) has called on its member associations to play an active role in developing the detail of Europe’s new prudential regime for insurers, Solvency II, so that captive insurance companies are treated appropriately.

FERMA says the national risk management associations and their members should take part in the official study on the quantitative implications of the Solvency II Framework Directive now underway by the Committee of European Insurance and Occupational Pensions Supervisors (Ceiops). It also suggests they press captive managers to do so, too.

Executive board member Thierry Van Santen has been leading FERMA’s discussions with the European Commission and other organisations involved, such as the European insurance association, CEA.

“The primary purpose of Solvency II is consumer protection. For captives insuring only their parent company’s business, this is not really an issue. The principle of proportionality should apply, but we are concerned that Ceiops may not make that distinction.

“If captives writing only their parents’ business are forced to meet the capital and reporting requirements that Solvency II proposes for commercial insurance companies, some would survive but many would have big problems.”

Ceiops will use the survey, known as QIS4, as the basis of advice to the European Commission. QIS4 is taking place from April to July 2008, and the results are due for publication in November 2008. The Solvency II Framework Directive is scheduled for adoption by the European Parliament in 2009 with transposition into national laws by 2012.

FERMA has also expressed its concern to the European Commission that Solvency II could reduce the choice of insurers available for commercial risks because it would lead to greater consolidation in an already concentrated industry.

“We believe that Solvency II will accelerate the consolidation of the insurance industry, and we have told previous inquiries that the directive should be amended to take into account a need for diversity in the market,” said Van Santen.

FERMA wants all stakeholders to take part in the QIS4 survey to ensure that the regulation of captives, mutuals and small and medium sized insurance businesses is related to the need for consumer protection.

“We strongly recommend that people take part in QIS4 and that they ask their captive managers to do so, too,” said van Santen.

“The law is due to come into effect in 2012, and that gives a captive only three years if it is going to change its capital and underwriting policies.”