The Federation of European Risk Management Associations (FERMA) released a bulletin detailing the organization’s position on how captives and “niche insurers” could be adversely affected by Solvency II.
The organization’s President, Jorge Luzzi, said: “The continuing delays to the adoption and implementation of Solvency II are already creating uncertainty for captive owners who do not know what capital and reporting requirements they will have in future.”
While FERMA said it “welcomes a rigorous and consistent prudential regime for European insurance companies,” it has also “repeatedly stressed that the regulations should be proportionate to the risk.”
Luzzi added: “Solvency II should make a clear distinction between insurance companies serving the public and captive insurers whose only business comes from their parent companies.”
“We are also concerned that Solvency II could result in a reduction in the capacity of the market to cover emerging risks and unusual exposures. We fear that some niche insurers, who provide useful specialist capacity, could find their business no longer attractive once they have to meet the new capital requirements of Solvency II.”
Although the bulletin didn’t mention it, many of those niche insurers are small mutual companies, particularly in France and Germany. They anticipate that the costs of complying with all of Solvency II’s reporting and financial requirements will be beyond their means. As a result they will be forced to become part of larger organizations, either through merger or acquisition, or simply go into runoff.