The European Parliament has voted overwhelmingly in favour of proposed amendments to the Solvency II directive that would bring some regulatory relief to captives from 2026.
Captive Intelligence reported in March that regulatory concessions for “small and non-complex undertakings”, which should include most captives, had been agreed after lobbying from FERMA and the wider captive industry.
The European Parliament voted overwhelmingly in favour of the amendments on 23 April with 549 in favour, 56 against and nine abstentions.
The final text is expected to be published next month and the changes will come into effect from 1 January, 2026.
Charles Low, head of EU affairs at FERMA, told Captive Intelligence that while the reforms had not quite as far as hoped, they were still viewed positively by the Federation.
“It should lead to a lot of relief for quite a lot of captives, so we view this very positively,” he said.
Captive Intelligence has seen the amendments, although they have yet to be published alongside the existing rules.
FERMA had lobbied and hoped for a new “captive undertaking” to be defined under Solvency II, but the EU has not gone down this route.
It does, however, cite captives under its definition of small and non-complex undertakings: “‘Small and non-complex undertaking’ means an insurance and reinsurance undertaking, including a captive insurance undertaking and a captive reinsurance undertaking, that meets the conditions set out in Article 29a and has been classified as such in accordance with Article 29b.”
It is expected the majority of European-domiciled captives will fall into the new small and non-complex undertakings class, which would benefit from increased proportionality from supervisors.
The amendments state: “Undertakings complying with the risk-based criteria should be able to be classified as small and non-complex undertakings pursuant to a simple notification process.
“… Once classified as small and non-complex undertaking, in principle, it should automatically benefit from identified proportionality measures on reporting, disclosure, governance, revision of written policies, calculation of technical provisions, own-risk and solvency assessment, and liquidity risk management plan.”
The reforms do go on to specifically mention captive insurance and reinsurance undertakings in the context of the new “small and non-complex undertakings”.
“Captive insurance undertakings and captive reinsurance undertakings which only cover risks associated with the industrial or commercial group to which they belong, present a particular risk profile that should be taken into account when defining some requirements, in particular on own-risk and solvency assessment, disclosures and the related empowerments for the Commission to further specify the rules on such requirements,” the text outlines.
“Moreover, captive insurance undertakings and captive reinsurance undertakings should also be able to benefit from the proportionality measures when they are classified as small and non-complex undertakings.”
One of the more significant changes that would impact qualifying captives is an exemption to the requirement for audit of the annual solvency and financial condition report.
“Because of the particular risk profile and specificity of captive insurance undertakings and captive reinsurance undertakings, it is appropriate not to impose on them the audit requirement.”
Another specific example of exemptions from reporting is on climate change risks and scenarios.
“In particular, while the assessment of the materiality of exposure to climate change risks should be required from all insurance and reinsurance undertakings, long-term climate change scenario analyses should not be required for small and non-complex undertakings,” the amendments state.
It is unlikely further changes will be made to the text with vote scheduled for 23 April. If successful, the reforms will come into effect in 2026.
