FERMA WorkshopsMonday 18th November

14.00 – 15.30

Captives’ Challenges and Opportunities ahead:

Is Proportionality the key to succeed?

Manuela Zweimüller

Advisor for International Affairs

European Insurance and

Occupational Pensions

Authority

(EIOPA)

LaurentNihoul

Group Head of Insurance

ArcelorMittal

FERMA Board Member

AnnikaForsgren

CEO

Försäkrings AB Göta Lejon

The City of Gothenburg

FabriceFrère

Managing Director

Aon Global Risk Consulting

Our speakers

CaptivesChallenges and Opportunities ahead:

Is Proportionality the key to succeed?

Solvency II Review in 2020

EIOPA and European Commission -

roles and objectives

Timeline

Key drivers

02Risk Management Community

Regulation and Proportionality

The Quest for Consistency

Food for Thought: A Conceptual

Approach to a Consistent Proportionality

03What Lies Ahead?

The Internal Buy-In

Insurance Market

Regulatory Challenges (SII / BEPS)

01

01

Future Key Challenges and Opportunities for

Risk Managers and Captive Users

What Lies Ahead?

REMINDERCaptives:Impact and BenefitsWhy using a captive?

(Re)insurance Basics Risk Control Finance & Strategy

Reduction or stabilization of insurance premiums at Group level

Direct access to worldwide professional reinsurers

Tailor-made insurance programs

Taking advantage of an organization’s non-correlated risks

Solution to market inadequacies (coverage for non-insurable or overpriced risks)

Improved claims handling

Improved data collection, loss control and prevention measures

Consolidating international programs in line with local needs and risk profiles

Cash flow benefits and investment income

Cash Pooling mechanism and use of assets

Capture of insurance profits

Negotiation tool

Insurance operations enhancement

Insurance Market

New Cycle?

How to Buffer Market Conditions?

New risks?

The Internal Buy-In: Talking to your CFO

Consolidation / IFRS

Frictional Costs

Cost of Risk and Risk Appetite

Cash Out Vs. Cash Exposed

Regulatory Challenges

Transfer Pricing, BEPS and Tax Aspects

Solvency II

Three MainChallenges and Opportunities Ahead

New Skills for Risk Managers?

1

3

2

02

2020Solvency II ReviewAn overview of the European regulatory

landscape, its ongoing topics and what

comes next for the industry.

Who’s who?

Roles and Objectives

The Review Process

European

Commission

NCA’sNational Competent

Authorities

EIOPAEuropean Insurance and

Occupational Pensions

Authority

European

Parliament

The 2020 Solvency II Review

1st Jan. 2016

Solvency II enforced

2019

February: start of the

Solvency II Review, letter

from the European

Commission to EIOPA to

request a technical

advice on the review of

the Solvency II Directive

2020

June: deadline for EIOPA

to submit their technical

advice to the European

Commission25th Nov. 2009

European Directive

2021

January: deadline for the

European Commission to

review the Solvency II

Directive

Timeline

The 2020 Solvency II Review

Request from the European Commission: February 2019

Key Drivers / Key Focus: areas to review

Expected Outcomes

03

The RM profession’s views and opinion about our

need for captives and why Proportionality is a vital

principle for a successful captive strategy.

Risk Management Community

The overall impact of Solvency II has been positive for the European Captive Industry Increased level of professionalism

Better Risk Management processes

Better Governance

Credibility and Maturity of the Industry

Strong basis for better business processes allowing for technical innovation

BUT

The Principle of Proportionality (PoP) is the key

Regulation and ProportionalityThe RM Community’s Objectives

Regulation and ProportionalityThe RM Community’s Objectives

FERMA’s Targets

Ensure efficiency in risk management and financing strategy through appropriate PoP.

Promote a better consistency throughout EU domiciles.

Don’t reduce regulation but focus is on its ultimate objectives and on how risks are actually mitigated and meaningfully reported.

Promote a dynamic global market through PoP.

Privilege substance over form in regulatory actions.

Regulation and ProportionalityThe Quest for Consistency

What has been experienced in the various EU Domiciles? No harmonized approach by NCAs

Reporting and Governance: no consistency in PoP measures.

Very limited PoP for Technical/Actuarial and Capital Requirements.

Common Bias in Applying Proportionality Overweighting the “size” criteria

Disproportionate outcome Vs. Ultimate objective.

Focusing PoP on cost / burden without questioning the outcome (i.e. Doing less Vs. Is the outcome required?)

Treating proportionality criteria (nature, scale and complexity) separately without addressing their intrinsic connections and overall relationship through the lens of the ultimate objective.

FERMA’s messages and findings

+EIOPA’s comments about complementing and strengthening Article 35 by introducing:

Alternative proportionality instruments. Risk-based methodologies not directly dependent on the decision/culture of

the respective NCA.

=FERMA’s Methodology Proposal: Key Principles Consistency in evaluation proportionality

Holistic assessment of Proportionality criteria overall risk profile.

Ultimate Solvency II objectives (i.e. financial stability, consumer protection and market discipline) are intrinsically part of the overall risk profile assessment.

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

Our Starting Point:How to Answer the 3 Fundamental Questions1) How can we link proportionality criteria (size, scale and complexity) into one single risk

profile for any given (re)insurance undertaking?

2) How can we link the said risk profile to the ultimate objectives of the regulation (policyholder protection, financial stability and market discipline)?

3) How can we link that final result to concrete proportionality measures?

Our Response: A Holistic Risk-Based Approach in 4 Steps

STEP 1: Overall Risk Profile Matrix

STEP 2: Four Levels of Applicable Proportionality

STEP 3: List of Applicable Proportionality Measures

STEP 4: Linking Risk Profile and Concrete Proportionality Measures

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

Policyholder protection Systemic risk mitigation Market discipline

Level 1 Level 1 Level 1

Level 2 Level 2 Level 2

Level 3 Level 3 Level 3

Level 1 Level 1 Level 1

Level 2 Level 2 Level 2

Level 3 Level 3 Level 3

Level 1 Level 1 Level 1

Level 2 Level 2 Level 2

Level 3 Level 3 Level 3

Pro

po

rtio

nal

ity

Cri

teri

a

Potential Impact on Regulation Objectives

Complexity

Nature

Scale

STEP 1: Overall Risk Profile Matrix

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

STEP 2: Four Levels of Proportionality

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

STEP 3: List of Applicable Proportionality Measures STEP 4: Linking Risk Profile and Concrete Proportionality Measures

Regulation and ProportionalityFood for Thought: A Conceptual Approach to a Consistent PoP

FERMA’s proposal

Illustration

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attention!

More info on captives

on FERMA website

available at

https://www.ferma.eu

https://www.ferma.eu/