FERMA calls on EU for proportional captive regime in Solvency II revision
The Federation of European Risk Management Associations (FERMA) has published a paper containing its priorities concerning risk and insurance to the European Union as France’s Presidency of the EU begins. Richard Cutcher reports.
The paper is titled Contribution to the French Presidency agenda - A more sovereign Europe and requests policymakers to focus on three key areas – proportional regulation for captive insurers under Solvency II, the insurance protection gap concerning natural catastrophes and other ‘uninsurable’ risks, and corporate governance and risk management maturity concerning cyber security.
“In our paper, we outline the views and concerns of the risk managers on matters that will be debated during the French Presidency,” said Dirk Wegener. “We wish to bring our unique expertise in risk and insurance management to support EU policymakers to respond to the future with confidence and contribute to the transformation and resilience of Europe’s economy.”
The European Union contains four major captive domiciles – Luxembourg, Ireland, Sweden and Malta. Some captives are also domiciled in their home country, such as in Germany, while efforts are being made in France and Italy to introduce captive regulatory regimes.
Captive numbers have increased across Europe as the hard market has pushed insurance buyers to consider more self-insurance and higher retentions, and FERMA sees the ongoing Solvency II Review as an opportunity for a more proportionate approach to captives to be introduced.
Laurent Nihoul, Head of Group Insurances and Operational Risk Management at ArcelorMittal, said: “A growing number of enterprises might find much less value in transferring some of their exposures to the private insurance market and decide that it’s time to self-insure, set up new captives or extend the use of existing captives.”
FERMA’s request to policymakers is for the final text of Solvency II to include regulatory requirements for captives proportionate to their risk profile. “Captives should be designated as low-risk profile undertakings by default,” FERMA states. “This would grant European enterprises more risk management options and so reduce volatility.”
Cyber security and ecological transition
On cyber security, FERMA notes that the pandemic has accelerated Europe’s digital transition and “opened new – and arguably emphasised, existing – vulnerabilities”.
As a result, the federation is calling on the EU to promote corporate governance frameworks on cyber security, develop common European maturity addressing organisational cyber risk management, and improve European companies’ access to information about cyber insurance and the impact of cyber-attacks on companies.
The final priority noted by FERMA is the ecological transition and widening “insurance protection gap” that is preoccupying risk managers as they face both increasing frequency and severity of extreme weather events.
“The concern about lack of options for risk transfer for risks related to the transition is growing among risk managers,” the FERMA paper states. “FERMA is very supportive of the work of EIOPA on the natural catastrophe protection gap dashboard. More information in this area is a vital step towards addressing the shortcomings of the market and to working on a possible solution, be it a public private partnership or otherwise.”