The Delegated Act for the Solvency II Directive was finally published on 17 January 2015 on the EU Official Journal.
The definition and simplifications for the calculation of provisions for captives have remained constantly the same since the versions of July and October 2014; they are treated in the articles 89, 90, 103, 105 and 106 of the new Delegated Act. Eligible captives are still limited to the type of captives which do not have compulsory third party liability business and which provide cover only to undertakings belonging to the group.
This is a restrictive interpretation of Article 13 of Solvency II (2), which also speaks about the coverage of “group risks” to define the business of a captive and not only the criteria of a strict legal ownership of insured entities by the group to designate captives eligible to simplified treatment. This has been an important subject of discussion within the risk management community for several years and a source of concern regarding the impact of the new regime on captives.
The dialogue between the captive industry and national regulators will continue well beyond the entry into force of the Solvency II regime on 1 January 2016. For FERMA, the combination of the EU Presidency of Luxembourg from June to December 2015 and the FERMA Forum in October 2015 will be the occasion to refresh this dialogue.
The European Commission finally released the Delegated Act on 10 October 2014 with the detailed provisions implementing the principles set in the Solvency II Directive. Both sets of legislators, the European Parliament and the Council, had an initial scrutiny period of three months that could have been doubled if required.
The Delegated Act for Solvency II was the last legal instrument that needed to be approved in order to guarantee a detailed implementation of the Solvency II Directive on 1 January 2016. It empowers the European Commission to add new provisions or modify some non-essential elements of the original Solvency II Directive that was voted in 2009.
It also provides for all the necessary details for the insurance industry to identify more accurately the investments that will match with their risk profile and capital requirements. Olav Jones, Deputy Director General of Insurance Europe, expressed its satisfaction to see the Delegated Act finally published in a statement on 19 January, although he made clear that “further refinements regarding unnecessarily high capital charges for long-term investments” would be necessary in years to come during the review process of the Directive.
However it was adopted without objections by both the Council of the EU (Member States) on 28 November and the European Parliament, despite a last minute blocking motion by the Green Party. A letter sent on 19 December 2015 by the Chair of the Economic and Financial Affairs (ECON), nevertheless, warned the Commission there are still some concerns about the way Solvency II will be implemented through the Delegated Act. These concerns were expressed in a letter rather than in a negative vote that would have put implementation of Solvency II in a very difficult position. Mr. Jonathan Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union, replied on 27 January on each of the issues raised in the Parliament letter.