Bermuda moves a step nearer Solvency II equivalency but still work to do
Bermuda’s insurance regulation regime for big commercial re/insurers is largely equivalent with the new European Solvency II regulations, according to a consultation document published yesterday by European assessors.
However, more enhancements need to be made by the Island’s insurance regulator, the Bermuda Monetary Authority (BMA), before the aim of equivalence can be achieved.
The Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 major international insurance companies, welcomed the report yesterday and said the BMA had “crossed an important milestone”. The BMA also welcomed the assessors’ findings and conceded there was still work to be done.
Assessors from the European Insurance and Occupational Pensions Authority (EIOPA) visited the Island three months ago to run the rule over the Island’s insurance regulatory regime.
Over recent years, the BMA has been bolstering its regulations to achieve “third-country equivalence” with Solvency II, so Bermuda international re/insurers will not be competitively disadvantaged when they do business in the European Union.
Solvency II, which puts an emphasis on risk-based capital requirements and enhanced corporate governance, will take effect in early 2013.
In a statement released yesterday, the BMA said: “EIOPA indicates that Bermuda’s regime for commercial insurers, that is Class 3A, 3B and 4 firms, meets the criteria for Solvency II equivalence, with certain caveats.
“In particular, we note the alignment of our regime with Solvency II principles in key areas such as the scope of group supervision and the solvency regime for groups.”
The EIOPA consultation document states there are differences between Solvency II and Bermuda regulatory standards.
“EIOPA cannot positively conclude on the current valuation framework, given the variety of different valuation standards available, or on the proposed valuation standards, given the material uncertainties which remain around the economic balance sheet framework being developed. Furthermore for some risks, including currency, concentration and counterparty risks, the higher capital requirement lacks risk sensitivity compared to the SCR.”
The report also states that “the possibility of carrying out both insurance and non-insurance business in a single company represents a potential risk for reinsurance cedents, and constitutes a significant difference from the provisions under Solvency II”.
But for the most part, the document indicates that Bermuda’s regulatory regime for the major commercial re/insurers is largely equivalent with Solvency II.
The BMA added: “We also expected, and have under active consideration, EIOPA’s suggestions or caveats on areas for additional regime enhancements.
“Since this assessment is the first phase of a process that will conclude in 2012 with the EU Commission’s final decision on equivalence, in the interim period we can conclude work on these areas and the various work streams already in progress.”
Brad Kading, ABIR’s president and executive director, said: “The BMA has crossed an important milestone as it was found to be largely equivalent to Solvency II with regard to the prudential regulatory requirements applied to the internationally active insurance groups.
“The EIOPA report was particularly important with its findings on substantial equivalence for the Bermuda Solvency Capital Requirement (BSCR) and with the new group supervision regime.
“We recognise much work remains to be done some technical, some substantive but we are confident that the BMA will reach its goal with regard to equivalence for the internationally active insurance group sector which represents a major source of re/insurance capacity that helps makes global insurance markets more competitive providing real value to consumers.
ABIR members are important sources of capital for the Lloyd’s of London market, for European insurers buying property catastrophe reinsurance and for commercial insurance markets throughout the EU.
EIOPA has invited comments on its views by September 23.