Swedish risk managers have been reassured by their national financial supervisor that captives will receive proportional treatment after the introduction of Solvency II.
They were also assured that national supervisors across Europe will carry out regular peer reviews of each other to ensure that, given the harmonised nature of the new rules, the interpretation of the principle is as consistent as possible across the European Union.
"Proportionality is a fundamental principle of Solvency II. In general, no specific rules exist for captives but captives should expect a proportional treatment in line with the nature, scale and complexity of their business", Edward Akhras, Head of Division, Financial Analysis, Insurance Supervision Department at Finansinspektionen, told delegates at this week's Risk Frontiers seminar in Stockholm.
The Swedish, Danish and Finnish risk managers who gathered in Stockholm were warned that they should not expect an exact blueprint of how proportionality will be applied in practice. The clear message is that captive owners will have to take the initiative, approach their national supervisors directly and work out how to apply Solvency II in partnership with the regulator. This will be commensurate with the unique risks facing each undertaking, with no one-size-fits-all approach for captives.
Risk managers in Sweden and throughout Europe have called for greater clarity from their national supervisors and the pan-European supervisory body EIOPA on how the principle of proportionality for captives will work when Solvency II is finally implemented.
From the dialogue during the event, an expectation gap evidently exists on how to interpret proportionality in Solvency II - will it be expressed as a rules-based framework, or remain a principles-based approach to supervision?
Many risk managers would welcome clear, unambiguous and written guidance from their national supervisors about how the rather vague principle of proportionality will be applied once the new directive finally arrives.
As proportionality is a principle enshrining the entire Directive to be applied to all articles of the framework, this is unlikely. EIOPA has over the years provided guidance and clarification of the proportionality principle, but has not provided detailed rules on how it should be interpreted.
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