FERMA concerned by ‘excessive’ capitalisation

Gavin Bradshaw 17/03/2010

The Federation of European Risk Management Associations (FERMA) has reiterated its concern that ‘excessive levels’ of capitalisation under Solvency II will harm the European insurance industry.

FERMA said it shared the views expressed in a recent report published by the European Insurance Association (CEA) entitled ‘Why excessive capital requirements can harm consumers and the economy’.

“The main goal of Solvency II is to protect policyholders’ interests and we represent the largest policyholders in Europe,” said Peter den Dekker, president of FERMA.

“We have serious concerns that excessive levels of capital requirements as they are currently stated by CEIOPS will affect the availability of insurance cover for medium and large European businesses.”

FERMA said in a statement that although it supports the policyholder protection goals of the Solvency II regime, its members are concerned by the impact of recommendations made by the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) to the European Commission on the insurance market.

“Our main concern is the potential reduction in the number of insurers capable of covering our risks. This could force us to retain more risks on our balance sheet, impacting our ability to invest and remain competitive in a global economy,” said the FERMA statement.

FERMA recommended that a prudent calibration of the Solvency II models should be conducted prior to implementation and added that the specific nature of captive insurers should be adequately recognised in Solvency II.

Further, it said, the formulas for calculation of capital requirements and corporate governance principles need to be simplified and aligned to the captive business models with the proportionality principle being applied to captive undertakings.

The association said it is concerned that under the present CEIOPS project most captives will be excluded from access to these simplification measures which could result in a reduction of the number of captive (re)insurance companies.

“FERMA is in positive discussions with the European Commission and is currently proposing solutions to protect the captive (re)insurance companies’ interests,” said den Dekker.

“We trust that the European Commission will be able to balance Solvency II requirements in a way that the real economy will not be affected and our members will still be able to be competitive.”