Amendments to Solvency II will reinvigorate the EU captives markets
Incoming amendments to the European Union’s Solvency II directive will bring some relief to owners of EU-domiciled captives, according to two of the leading members of FERMA that spearheaded the campaign for change.
The changes are also significant in the context of the UK’s move to explore a more captive-friendly regime, having concluded a consultation on the issue earlier this year.
In the EU, after several years of lobbying for recognition of the unique status of captives, amendments to the directive were confirmed earlier this year which introduces the concept of “small and non-complex undertakings” (SNCUs) – a category most EU captives are expected to qualify for.
Laurent Nihoul, chair of FERMA’s captive committee told AIRMIC Today this category would allow EU captives to benefit from additional proportionality measures that reflect the smaller size of most captives. With this would come greater consistency and predictability.
“Where we believe we have achieved a good result is getting the criteria for being recognised as a small and complex entity to meet the captive specificity,” Nihoul, also group head of insurance at ArcelorMittal, said.
“There is still flexibility from the national supervisory authorities in the way they will implement the amended rules, but they all have to follow the directives, and being recognised as a SNCU will be the same for everyone.”
In addition, the reforms reverse the burden of proof, meaning it will be up to national authorities to argue and prove against a captive being deemed a SNCU, not the other way around.
“In the past it was for the captive to convince the authorities that they could access proportionality, but now captives can apply based on the criteria in the directive,” Nihoul added. “It’s important because it is a compliance burden that is being lifted from us.”
With these important regulatory shifts, it could enhance the cost-effectiveness of captives domiciled in EU countries.
FERMA’s ongoing role
But having achieved these amendments, FERMA’s work is far from over. While the legislative reform is complete, implementation across EU member states is ongoing and must be finalised by the end of January 2027.
FERMA CEO Typhaine Beaupérin explained how the association was continuing to monitor national regulations to prevent “gold-plating” – where countries add extra burden beyond the directive which is not required.
“Now it is the time of implementation,” Beaupérin said. “So, we have to be vigilant with the transposition to make sure it doesn't create what we call gold-plating.”
FERMA is also collaborating with EIOPA (European Insurance and Occupational Pensions Association) to ensure practical implementation is manageable and proportionate.
Beyond regulatory advocacy, FERMA is shifting focus toward practical guidance. One of its flagship projects for 2025 is the development of ESG guidelines for captives.
“Captives aren’t ESG tools per se,” said Nihoul, “but they can play a role – whether through underwriting, claims management, or investment strategies. We want to help risk managers tap into that potential.”
UK captive domicile
The UK is among the countries exploring a more captive-friendly regime, having concluded a consultation on the issue earlier this year. Much of the focus has been on whether this would attract UK-based businesses to re-domesticate their captive to the UK, but could it also attract interest from European companies?
“Yes, it's theoretically feasible that a European company will look at the UK market as fitting its needs,” said Nihoul.
But he cautioned that, post-Brexit, the lack of automatic access to the Freedom of Services (FoS) principle for UK insurers could complicate cross-border operations.
“The main burden I would see is how the equivalence with Solvency II and the application of FoS will be, i.e. how a UK captive will be able to operate on an international basis, and mainly in Europe,” he said.
“Maybe it’s not a question that will be overly difficult to answer, but I believe that's the question, as a European risk manager, I would have.
On a more global note, Beaupérin said that more domicile options are always good for captive owners. “Any additional potential choice is always positive as it allows risk managers to compare more alternatives and have more choice for finding the one which is the most relevant for the risk profile and the risk financing strategy of their organisation”.
France’s success in establishing its own domestic captive regime over two years ago, and the subsequent flurry of French firms establishing captives in the country, has provided a useful model. As well as the UK, Italy and Spain are other European countries actively looking into new captive-friendly regulations.
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