The European Parliament has voted in favour of proposed amendments to the Solvency II directive that would lower regulatory obligations on captives from 2026.
The legislation, known as the EU's main piece of legislation in the insurance area, cites captives under its definition of ‘small and non-complex undertakings’.
It says: “Small and non-complex undertaking means an insurance and reinsurance undertaking, including a captive insurance undertaking and a captive reinsurance undertaking.”
Once classified as 'small and non-complex’, undertakings should benefit from proportionality measures on reporting, disclosure, governance, revision of written policies, calculation of technical provisions, own risk and solvency assessment, and liquidity risk management plan.
‘Small and non-complex’ undertakings may also use a simplified calculation for a specific risk module or risk sub-module without having to comply with the general conditions for using a simplified approach.
According to AM Best, “Solvency II amendments, expected to come into force in January 2026, should lead to a more streamlined, proportionate and risk-based prudential process for EU-domiciled captive entities.”
“As captives are often small and have lightly staffed operations, this principle of proportionality is of particular importance in ensuring that the regulatory requirements do not become overly burdensome,” the rating agency says.
