The Federation of European Risk Management Associations (FERMA) has expressed support for a proposed European reinsurance mechanism focused on natural catastrophe risks.
Put forward by the European Insurance and Occupational Pensions Authority (EIOPA) and the European Central Bank (ECB), the proposal recommends a two-pillar structure at the EU level intended to address the growing protection gap across member states.
The core of the proposal involves creating a public-private reinsurance arrangement, which would help reduce economic exposure linked to the rising frequency and severity of natural disasters.
The initiative aligns with the European Commission’s recent European Preparedness Union Strategy (EPUS), which also emphasizes the need to build a shared catastrophe risk response framework across the region.
FERMA has also backed the proposal and the use of a risk-based funding approach, where premiums would be paid by re/insurers or national insurance systems. According to FERMA, such pricing supports risk awareness, promotes preventative measures, and strengthens practices already in use by insurers and corporate insureds.
FERMA further said that a pan-European reinsurance pool would support pricing sovereignty, limit volatility, and provide more predictable insurance costs for policyholders and carriers.
FERMA president Charlotte Hedemark (pictured above) said its success will depend on collaboration among stakeholders, consistent data practices, and well-defined legal and operational frameworks.
The proposal has received support from everywhere in the industry, with Fitch Ratings noting that the public-private reinsurance scheme could enhance market stability and insurance availability.
Fitch notes that the proposed framework would function alongside existing national insurance schemes rather than replace them. It follows the model of Spain’s Consorcio de Compensación de Seguros (CCS), which has played a role in maintaining insurance market stability by covering extensive losses from natural disasters.
By diversifying risk across the bloc, Fitch says that the EU scheme could help insurers and reinsurers continue providing cover in high-risk areas, where market participation has been declining due to rising climate-related losses.
As part of its endorsement, FERMA outlined several factors it believes are critical to the proposal’s effectiveness.
On the topic of data, the organization stressed the need for reliable and consistent information to support risk assessment, pricing, and claims processing. It noted that current national-level data practices vary widely and called for a standardized methodology, clear definitions, and strong governance across EU jurisdictions.
FERMA also highlighted the importance of managing premium levels. It said a broad, diversified EU pool would be necessary to prevent excessive premium increases.
Additional analysis may be needed to determine the appropriate scale for the program, and FERMA recommended safeguards to ensure robust private sector participation and minimum levels of market engagement.
The group also addressed the need for a stable legal environment to provide clarity on contracts, claims, and disputes. At the same time, it cautioned against introducing regulatory requirements that could lead to inefficiencies or excessive compliance costs.
In its position, FERMA also drew attention to market volatility associated with annual renewals. It proposed that the new mechanism should assess returns over longer timeframes to promote underwriting consistency and capacity retention.
To support implementation, FERMA advocated for an ongoing consultation process involving policymakers, insurers, and risk managers. The organization also called for a clearly defined governance structure that distinguishes responsibilities between EU institutions, national-level programs, and private-sector players, with the goal of avoiding overlap or unintended competition.
FERMA further suggested that the reinsurance framework include incentives and funding for risk mitigation and prevention efforts, creating a longer-term approach to catastrophe damage financing.
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