The Swedish risk management association SWERMA has written to the country’s financial regulator over issues relating to the implementation of the Solvency II regulations and captive companies.
The comments, prepared by me as Chairman of SWERMA, and CEO of ASSA ABLOY Insurance, and two SWERMA board members, Annika Forsgren
CEO Insurance AB Gota Lejon, and Ola Nilsson
CEO SCA Insurance AB, stated that:
There are currently 48 captive companies in Sweden. They are mainly owned by companies in the Swedish export industry, such as Volvo, Vattenfall, Electrolux, ABB and Securitas, but also by the public sector such as the municipalities of Stockholm and Gothenburg.
By reason of certain characteristics, captive companies require particular attention both in implementation of the Solvency II regulations and in their future application.
There is considerable uncertainty over how the captive companies’ justifiable need for special treatment will be incorporated in the Swedish legislation and its application. The Solvency II regulations are to some extent based on principles and are furthermore not entirely clear.
Against this background SWERMA wishes to raise at this stage some key questions regarding captives with the aim of ensuring that the future legislation and applications pay sufficient regard to the their characteristics.
That captives should be and in certain cases will be treated differently within the Solvency II regulatory framework is reflected in, among others, arguments 18-21, articles 13, 29, 41, 111 and 129.
Argument 21 is of particular interest where it says the directive should take into account the special characteristics of captives. It goes on to say that, insofar as captive companies only cover risks linked to the industrial or trading groups to which they belong, ways should be found in accordance with the principle of proportionality to reflect the type, scope and complexity of their operations.
In specific regard to the Swedish implementation of the Solvency II directive, the Swedish public inquiry in 2011 (SOU 2011:68 p. 120-122) proposed that no special regulation should be introducted regarding the application of the proportionality principle on captive companies. At the same time the investigation judged that there were certain characteristics of captives’ operations that could justify application of the proportionality principle.
The special characteristics mentioned in the investigation were that in most cases the captives’ clients were the parent company or other companies in the same group and that in most cases they are a minor part of a more broader, often global system of risk management linked to the organisation’s core activity. The need for transparency can also perhaps look different when it comes to captives.
SWERMA believes that the Solvency II inquiry took an overly cautious view and wants a clearer stance in the forthcoming legislation when it comes to the particular characteristics of captives.
We are prepared to support the Swedish regulators with further documentation as required, and look forward to a continued good dialogue on the formulation of the Solvency II regulations.
For more detail from the SWERMA submission: