Based on Solvency II requirements, the Central Bank of Ireland has changed its policy of exempting low-risk and medium-low-risk captives from quarterly investment reporting. The new regulatory framework took effect with the implementation of EU Solvency II on January 1, 2016, and applies to (re)insurers, captive insurers and captive domiciles in EU member states.
The Central Bank of Ireland is also the local insurance regulator. Previously, regulated entities rated as low or medium-low risk were not required to file "quarterly aggregate investment undertaking" or "derivative transaction" reports. In a policy notice issued this month, it was decided that this disclosure exemption would be removed effective January 1, 2017.
The Central Bank of Ireland has re-examined its prudential supervisory stance and believes these disclosures help the regulator understand the purpose of these investment transactions. Under the original exemption policy, in practice only a limited number of institutions benefited.
During the delayed design phase of European Solvency II, the captive industry lobbied for the addition of the proportionality principle, under which smaller insurers would not face the same regulatory burden as large commercial insurers. Some aggressive European regulators can still be seen applying this principle today.
Ciarán Healy, Dublin-based director and global captive practice consultant at Willis Towers Watson, said that in practice essentially all captives fall into the "low" or "medium-low" risk categories, so this news will have an impact on the captive market. A large number of captives still invest in relatively simple portfolios, so under the new rules their actual investment reports will not contain much additional content.
Clearly, the few companies with complex investment portfolios will not welcome this news, and investment managers will also need to confirm that the relevant information can be obtained within the reporting deadlines, which will increase costs to a certain extent.