Solvency II is the updated set of regulatory requirements for insurance firms that operate in the European Union. It is scheduled to come into effect on 1 January 2013.
The rationale for European Union insurance legislation is to facilitate the development of a Single Market in insurance services in Europe, whilst at the same time securing an adequate level of consumer protection. The third-generation Insurance Directives established an "EU passport" (single licence) for insurers based on the concept of minimum harmonisation and mutual recognition. Many Member States have concluded that the current EU minimum requirements are not sufficient and have implemented their own reforms, thus leading to a situation where there is a patchwork of regulatory requirements across the EU.
However, many find Solvency II requirements to be excessive, and Guernsey, one of the leading captive insurance registrators decided that it will not require its insurance companies to follow Solvency II rules.
Guernsey expects that the number of registered captive insurance companies registered in the jurisdiction will increase significantly as the implications of compliance with Solvency II become better understood.
Analysts suggest that while the capital requirements of Solvency II may be appropriate for commercial insurers dealing with the general public, many captive managers and owners believe the International Association of Insurance Supervisors’ (IAIS) international regulatory standards will be sufficient for most traditional captives. This might differentiate Guernsey from other domiciles.
Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups, but they sometimes also insure risks of the group's customers as well. Using a captive insurer is a risk management technique by which a business forms its own insurance company subsidiary to finance its retained losses in a formal structure. Often captive insurance companies allow both protection from business risks and ability to manage tax exposure of the group.
For additional information on captive insurance companies, contact specialists of ABLV Corporate Services Asset Structuring Department.