Europe to build on captive insurance

Updated: Jul 03, 2024 09:09 PM

Angus Scorgie, head of prudential regulation at industry body Insurance Europe, believes a consistent approach is vital for a competitive captive insurance industry in Europe (File photograph)

The European Union is actively revamping captive insurance industry regulations and policies to try to attract more business away from Bermuda and other offshore jurisdictions, according to a new report from Reuters.

The international news agency said a new opinion paper from the European Insurance and Occupational Pensions Authority helped European captives “increasingly compete with each other to attract operators from offshore locations such as Bermuda”.

The new opinion paper sets out a common, proportionate approach to supervising captive insurers, to “create a level playing field within the EU”.

It said: “The aim of this opinion is not to reintroduce new supervisory requirements but to improve the common union supervisory culture and consistent supervisory practices, as well as to ensure uniform procedures and consistent approaches throughout the union.”

The document sets out supervisory expectations in several areas, including intragroup transactions (especially cash pooling), the consistent application of the prudent person principle as well as governance-related aspects in connection with key functions and outsourcing requirements.

Angus Scorgie, head of prudential regulation at industry body Insurance Europe told Reuters a consistent approach was vital to supporting a competitive industry across Europe.

The EIOPA have said that accommodating national specificities was crucial for public authorities and national competent authorities to tailor regulations effectively.

“This nuanced approach does not necessarily translate into regulatory arbitrage,” the report reads.

It reflects the stakeholders’ view that captives play an increasingly important role in today’s business world.

Captives support companies in such cases where other insurance undertakings are not willing to cover risks. They allow companies to increase risk management efficiency.

Last November, a report from ratings agency AM Best forecast growth in European captives this year as more jurisdictions sought captive business.

AM Best saw some impact on the market by new Solvency II amendments in a couple of years and the coming requirements of IFRS 17, where the levels of preparedness varied among captives.

France has adopted new regulation to help captives establish domestically and now has one of the highest number of European captives.

Until recently, most were domiciled abroad, in established captive domiciles.

Between 2020 and 2023, 13 captive insurance companies were approved by the domestic regulator, nine of which were reinsurance companies.