(Reuters) – The European Union’s insurance watchdog on Tuesday set out a common, proportionate approach to supervising captive insurers as member states increasingly compete with each other to attract operators from offshore locations such as Bermuda.
In the EU, captives have long been set up in Luxembourg and Ireland.
France has adopted new rules, partly copying Luxembourg’s practices, to welcome captives and help reverse the trend of captives being set up in other domiciles.
Italy is also seeking to attract captives owned by Italian companies.
Faced with these unilateral competing national efforts in what is meant to be a single EU market, the European Insurance and Occupational Pensions Authority on Tuesday published an opinion on supervisory principles for captive insurers, taking into account issues such as staffing.
“The opinion aims at facilitating a risk-based and proportionate supervision of captive (re)insurance undertakings and further support the convergence of supervisory expectations,” EIOPA said.
“The reliance on specific approaches and the potential for regulatory and supervisory arbitrage led EIOPA to issue this opinion,” it added.
Angus Scorgie, head of prudential regulation at industry body Insurance Europe, welcomed a consistent approach to supervising captives without new regulation.
“This is vital to maintaining a level playing ground and supporting a competitive industry across Europe,” Mr. Scrogie said.
EU insurance rules, known as Solvency II, led to some simplifications for calculating capital requirements for captives.
An update to Solvency II agreed by EU states and the European Parliament last December said captives should benefit from ‘proportionality’ or be less burdensome if they are small and non-complex, a category which many in the EU are expected to fall under.
In Britain, now outside the EU, the London Market Group, an insurance industry body, is lobbying the government for the Bank of England to introduce more proportionate rules for captives, but with little change in practice so far.