27 June 2013

ECIROA comments on forward-looking assessment of the undertaking's own risks

The European Captive Insurance and Reinsurance Owners' Association (ECIROA) commented on EIOPA's Consultation Paper on the Proposal for Guidelines on Forward-Looking assessment of the undertaking's own risks.

ECIROA emphasises its commitment to implement Solvency II recognising that it is more sophisticated than Solvency I. ECIROA advises again to consider that the more descriptive the requirements are, the less room is left to the application of the Proportionality Principle because NCAs will implement even more tough and challenging rules which may reduce the opportunity and ability to apply guidelines in an appropriate way. EIOPA should determine haircuts to avoid a competition between the NCAs with the potential consequence of a flight to arbitrage advantages by choosing the “perfect” NCA.

Captives are simple structures and therefore there are a limited number of persons involved in their daily management as well as in their strategic decision‐making processes. This is consistent with the needs and the risks inherent to their middle/long term business issues and day‐to‐day operations.

Solvency II in general and Pillar 2 in particular provides captives with the opportunity to formalise and develop their organisational structure and daily operations, thus enhancing their existing controls.

A key function, a control measure, and a report whether addressed to internal or external stakeholders, must be justified by the scale and complexity of the business. The materiality of the overall governance structure must be aligned with the materiality of the business.

Comments on the ORSA for captives

As per governance issues, although ECIROA understands the necessity to address risk issues in a qualitative and quantitative manner over a certain period of time, one shall preserve the possibility for captives to treat qualitative and quantitative aspects of their risks in a way that is adapted to their culture and business. This means avoiding the imposition of strong and wide requirements at the European level. Based on the principle of proportionality and the inherent major differences between the types of undertakings on the insurance and reinsurance markets (from single‐risk captives to multinational and highly‐diversified insurance companies), the ORSA shall cover a wide range of approaches. And questioning the relevancy of the ORSA shall focus more on the quality of the justification than on the complexity of the chosen approach. This would both encourage all undertakings to play an active role in the implementation of the Directive and enable them to define along with local regulators a coherent and flexible model whose materiality is ‐ once again ‐ adjusted to the materiality of their respective business.

Guideline 3 in combination with Guideline 5‐7 of CP‐13‐010 will allow local NCAs to accept that captives can wait with reports until the official start of Sol II because the volume of the captive business underwritten in the member countries is part of the last 20 per cent percentile per country (looking at the size and ranking).

Full comments

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