The Federation of European Risk Management Associations (FERMA) has come out in support of the European Insurance and Occupational Pensions Authority (EIOPA)’s draft opinion on sustainability within Solvency II.
The draft opinion aims at combining sustainability risks, in particular, those related to climate change, in the investment and underwriting practices of (re)insurers.
With a membership formed of 37 percent of European captive insurance users, FERMA is the only representative organisation in Brussels of the smallest type of insurance entities regulated under Solvency II.
In its formal response, FERMA said that captive (re)insurance companies are “first and foremost a risk management tool for their parent and group entities”.
“As such, they benefit from sustainability risks management from two main stakeholders”
It continued: “Most of captives’ sustainability risks are addressed by their parent or sister companies. The sustainability exposure to physical and transition risks from climate change of the group they belong to is already included in the global risk management framework, the captive risk tolerance limits and pricing, and its investment policies of their parent company.”
FERMA added: “Then captive (re)insurance companies (re)insure or (retro)cede risks from or to the (re)insurance market, the third-party risk carriers they are dealing with already take into account sustainability risks in their pricing, underwriting and investment strategy.”
FERMA shares EIOPA’s opinion that the current design of Solvency II capital requirements: should remain risk-based and on a 1-year time horizon; stay neutral to different types of risks and not impose sustainable investment incentives; and should not introduce a separate risk module for sustainability risks as they already materialise through existing risk categories.
