Wednesday, July 24, 2024

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EIOPA publishes opinion on European captive regulation

The increasingly competitive European domicile landscape has led the EU’s overarching insurance regulator to publish an opinion which aims to further harmonise the supervision of captive (re)insurers across the economic bloc.

Captive Intelligence has reported extensively on captive developments in France over the past 18 months, while the end of 2023 saw Italy licence its first two reinsurance captives.

All countries within the European Union must follow the Solvency II regime meaning, in theory, captive regulation is harmonised across the continent.

The European Parliament voted in favour of Solvency II reforms in April this year that should bring some regulatory relief to captives from 2026, but the European Insurance and Occupational Pensions Authority (EIOPA) has now published an opinion in an effort to “further harmonise, in the context of creating a level playing field within the EU, supervisory expectations”.

EIOPA published its opinion on 2 July, which it said is based on its mandate to “play an active role in building a common Union supervisory culture and consistent supervisory practices, as well as in ensuring uniform procedures and consistent approaches throughout the Union by providing opinions to competent authorities”.

The opinion touches on specific areas of regulation including governance and the outsourcing of key functions, intercompany loans, cash pooling and the application of the Prudent Person Principle.

EIOPA said in the above areas some “divergences of practices have been found”.

While the emergence of Italy, and particularly France, suggests a more competitive domicile landscape in Europe, the reality is both countries are chiefly concerned with being a suitable option for domestic companies to locate their captive.

Although Solvency II is a common regulatory framework to supervise (re)insurers across the EU, countries do have their own unique features, such as the similar but different equalisation provisions in Luxembourg and France.

EIOPA does not cite specific examples, but notes there are differences between territories and these can be accommodated without leading to regulatory arbitrage.

“Some stakeholders expressed uncertainty about how NCAs [National Competent Authorities] can consider national specificities without promoting supervisory or regulatory arbitrage,” EIOPA stated.

“In this context EIOPA clarified that recognising and accommodating national specificities is crucial for public authorities and national competent authorities to tailor regulations effectively. This nuanced approach does not necessarily translate into regulatory arbitrage.”