FERMA Approves EU Parliament’s Solvency II Adoption-With Reservations

April 27, 2009

The Federation of European Risk Management Associations (FERMA) has issued a bulletin welcoming the vote of the European Parliament approving the Solvency II Directive, the new supervisory regime for EU insurance companies [See IJ web site – https://www.insurancejournal.com/news/international/2009/04/23/99857.htm].

FERMA said it “believes that Solvency II will improve security for corporate insurance buyers throughout the European Union. At the same time, FERMA does have its reservations on the impact Solvency II could have on the insurance market in general, once the provisions of the Directive take effect.

FERMA’s President, Marie-Gemma Dequae, stated: “FERMA believes that Solvency II will strengthen the financial health of the European insurance industry, however the new capital requirements could have an adverse effect on the price of insurance products and the availability of capacity, in particular for long-tail liability risks and catastrophic risks.”

Peter Den Dekker, Board Member of FERMA responsible for European Affairs, added that FERMA is concerned that “large insurers with more diversified portfolios will have a competitive advantage on the smaller and medium sized insurers, including mutuals and niche insurers. This could lead to a reduced number of insurers, reduced competition, increased insurance costs and an inability to respond to the insurability of emerging risks.”

He indicated that the organization would “continue to closely follow the Level 2 implementing discussions and the developments in the insurance market as the provisions of Solvency II take effect.”

FERMA’s bulletin added that it is “pleased that the principle of proportionality for captive insurance companies is recognized, so that their regulatory regime under Solvency II will reflect their more limited role and potential effect on consumers than other commercial insurance businesses.” FERMA had taken the lead in lobbying for special provisions relevant to captives.

The bulletin noted that the “draft Solvency II Directive initially envisaged the same treatment for all types of insurance and reinsurance companies. It was FERMA which brought the captive issue to the attention of the European Commission in 2007, and worked closely with national supervisors through the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the European Parliament Rapporteur to get an appropriate regulatory regime.

“Some details of the requirements for captives are still under discussion, in particular the development of simplified calculations on their solvency capital requirement. In this respect, FERMA is encouraged by the Commission’s formal statement to both Parliament and Council that it will promote calculations which will not be unduly burdensome for captives.

“CEIOPS will issue various sets of advice on Solvency II as part of the Level 2 implementing measures in the course of this year. FERMA will represent the views of its members, professional risk and insurance managers, in the consultation process that will follow.”

Source: FERMA – www.ferma.eu

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