Team effort behind Bermuda’s Solvency II joy
Six years of hard work by the Bermuda Monetary Authority, insurance industry figures and politicians have paid off with the final confirmation that Bermuda has won Solvency II equivalence.
The news became official last Thursday after a consultation period expired following the European Commission's decision that the island's insurance regulation standard is equal to the tough new rules being adopted across the 28-country bloc.
Jeremy Cox, chief executive of financial-services regulator the BMA, said this was a major achievement and he paid tribute to the efforts of his “tenacious team” in realising this lofty goal.
“Regulation changed and Bermuda had to change,” Mr Cox said in an interview. “We have grown up considerably. We had to relearn, retool and rebrand this organisation and we've had the capacity to do that.
“It's amazing that this group of people have been able to handle the extent of the changes that have been imposed on them.”
He said the commitment of his team to overcome the numerous challenges on the way to equivalence was borne out of their ability to see “the bigger picture”.
“They recognise that this is not a private company with a bottom-line focus, what we do can aid Bermuda's survival or cause Bermuda's death,” Mr Cox said. “I feel very lucky to lead people of this calibre.”
On March 4, the EC's delegated decision on Bermuda's equivalence with Solvency II was laid out in detail in the Official Journal of the European Union. The decision is considered final 20 days after the date of publication in the Journal.
Solvency II equivalence means that commercial insurers and reinsurers based in Bermuda will not be competitively disadvantaged when they do business in the European Union.
The enhanced level of regulation will not apply to the island's captive insurers, nor to its special purpose insurers, which are considered to have lower risk profiles.
Already, the benefits of the island's new international status are becoming apparent. In February global insurer XL Group plc, which last year acquired Catlin, announced it planned to move its corporate home from Ireland to Bermuda — and equivalency was a major factor in the decision.
“Following the Catlin transaction, and with the recent determination of full Solvency II equivalence for Bermuda, it has been concluded that the BMA is best situated to serve as XL's group-wide supervisor and to approve XL's internal capital model,” XL's press release stated.
Mr Cox said: “Such a significant firm recommitting to Bermuda is a wonderful story for the jurisdiction.
“I think the best thing about the XL decision was the endorsement from some of the other regulators.”
When other national regulators were confident in the BMA's ability to be group supervisor of an international firm like XL, it was greatly encouraging, especially so early in the BMA's new era as a Solvency II-equivalent regulator, he said.
The preamble on Bermuda's journey to equivalence started in 2008, when Matthew Elderfield, Mr Cox's predecessor as CEO, led efforts to explore its feasibility and desirability. But when Mr Cox took over as CEO at the start of 2010, he said there was no fleshed-out plan in place as to how to achieve it.
His first aim was to ensure that Bermuda was in the “first wave” of countries to be considered for equivalence. From discussions with the EU bureaucrats at the Committee of European Insurance and Occupational Pensions Supervisors, now known as the European Insurance and Occupational Pensions Authority, Mr Cox learnt that Bermuda needed group supervisory capabilities in its repertoire to have a chance of making the first wave. The BMA was able to draft the necessary legislation within months to make that happen.
He recalled a meeting with Ceiops officials in Frankfurt, along with BMA colleagues Craig Swan and Roger Scotton. “We had to deliver a presentation that was two or three hours long, on what our regulatory framework was like and how Bermuda was relevant as a market to Europe,” Mr Cox recalled.
The upshot was a visit to Bermuda in 2011 by officials from the newly titled Eiopa. Their draft report on the island's regulatory regime helped the BMA identify and address areas that needed work to achieve equivalence.
Repeated delays in the publication of the full report as the implementation date for Solvency II was pushed back caused some frustration, but this had been a help rather than a hindrance, Mr Cox said.
“The delay allowed us not only to see their draft report and address the caveats, but also gave us more time to adjust our framework and also gave the industry more time to adapt to those changes,” Mr Cox said. “So the delays helped Bermuda. It's funny how things work out.”
There were still caveats in the final Eiopa report and Bermuda was being given significant hurdles to clear.
“The Commissioners understood that this involved treating a country from outside the EU as if it were a member — and you can't give that kind of privilege away easily,” Mr Cox said. “There was a gold standard that third countries had to meet.”
Mr Cox recalled a “lightbulb moment” after EU caveats remained in a 2014 report.
“I knew we had to start thinking about regulation like the Europeans do,” he said. “Bermuda has always presented itself as having a stratified regulatory system. We wanted people to see the varying standards for the different classes of insurer.
“That was a technical problem for the Europeans when they were looking at Bermuda.
“We needed to show the application of a framework that was equivalent to Solvency II across the board. We could not have different elements for class 3A and class 4 insurers and long-term insurers. We had to show consistency across the different classes. That was the lightbulb moment.”
Given the short timeframe for the changes to be made, Mr Cox knew it was imperative to consult the industry, to hear business leaders' views on the practical implications and to ensure that they considered such regulatory upheaval to be a price worth paying for Solvency II equivalency.
He met with organisations including the Association of Bermuda Insurers and Reinsurers, the Bermuda Insurance Management Association and the Bermuda International Long Term Insurers and Reinsurers Association.
“The wonderful thing was that there was not a better moment for us than when we had those difficult conversations, face to face, and understanding that this was a larger goal that Team Bermuda must achieve,” Mr Cox said.
“The message was that we will find a way to do it. And it required a lot of trust and belief in the BMA.”
The new regime was built and the necessary legislation drafted and passed by Parliament and the rest is history.
Mr Cox felt that amid the team effort, some outstanding individual contributions should be recognised.
Craig Swan, the BMA's managing director, supervision, and Shauna MacKenzie, director, policy, legal and enforcement, were key in figuring out how to put together legislation and rules that would be accepted as equivalent. Yvette Pierre, assistant director, policy, was “a tireless worker who did whatever it took to accomplish this”, while Dina Wilson, assistant director, legal services, had worked long hours to draft the necessary legislation.
Bradley Kading, president of Abir, won plaudits from Mr Cox as leading the effort to convince the EU that Bermuda was a relevant market to Europe, spreading that message through literally hundreds of meetings and industry conferences. Leila Madeiros, Abir's deputy director had been “phenomenal” in gathering feedback from industry on each regulatory move.
Mr Cox paid tribute to Paula Cox, the former Premier and Minister of Finance, as well as being his sister, and her successor as finance minister, Bob Richards, both of whom had taken the time to understand the issues around equivalence and had made frequent trips to Europe to support efforts to achieve it.
Sir Richard Gozney, the former Governor, had supported that effort in gaining whatever help was needed from the UK authorities and by accompanying Ms Cox for talks with members of the European Parliament, he added.
In his introduction to the BMA's 2016 Business Plan, Mr Cox emphasises that there is more work to be done.
“Securing equivalence was clearly a major achievement, a powerful example of what can be accomplished with a strong, tenacious team that embarked on the road to equivalence in 2010,” he wrote. “But equivalence is an interim objective, rather than an end in itself, and should be viewed in the wider context of our vision and strategic goals.”