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BMA: No Solvency II-type regulation for captives

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The Bermuda Monetary Authority (BMA) will not apply Solvency II-type regulation to the Island’s captive insurers, the financial regulator stated definitively yesterday.

At its annual meeting, the BMA put to rest any question about how its pursuit of the European regulatory scheme for the commercial sector would impact captives.

“We will not be implementing a Solvency II-like framework for the captive sector,” said Jeremy Cox, CEO of the BMA. “I had thought we had made that clear but … that message hasn’t gotten out as clearly as it needed it to.”

Solvency II is intended to establish a uniform standard of capital adequacy for insurers and reinsurers in the European Union. It originally had been set to take effect in October 2012, but delays have pushed back the expected start date to January 1, 2016, at the earliest, two years later than the most recent target.

Adding to further delays is the recent launch of the nine-week long-term guarantee impact study by the European Insurance and Occupational Pensions Authority (EIOPA). This study will test the application of Solvency II on life assurance and general insurance products with long-term guarantees.

Bermuda has been enhancing its own insurance regulation in the pursuit of “third-country equivalence” with Solvency II to ensure its global re/insurers will not be competitively disadvantaged when they write business in Europe.

Mr Cox said the local captive industry was looking for the BMA to make a “definitive statement” about captives and the BMA’s position on Solvency II.

However, the BMA will apply a new “risk-return” initiative to the captive sector, which means the formalisation of information processes already happening voluntarily.

Mr Cox said that BMA would not change anything regarding capital requirements or change any regulatory features.

“What we did think we needed to do was embed in the legislation the facility to gather the additional information that we were getting on a voluntary basis,” he said. “What the risk return embodies is something that allows the regulator to get that key (risk) information and I think it is something the industry will be quite happy to see in place given that they were volunteering so much of this information (already) for six or seven years.”

Mr Cox added that the BMA will continue on its current path of achieving group supervision for the insurance industry here, but in its own way.

“In my view, we’re not introducing a Solvency II like framework for any sector,” he said. “What we’re doing on the commercial side is what we think we need to do to facilitate group supervision, which has nothing really to do with Solvency II. What we hope to achieve is equivalence through that process meaning that they (EU) would accept what we have done for Bermuda and say there is no need for overarching supervision from the EU.”

Mr Cox explained that to wait for the EU to arrive at a consensus and not press forward forging Bermuda’s own path, the BMA would be “making a major mistake”.

“What we need to be doing is having our own independent views of what needs to be done for our Bermuda market recognising that there are companies here that have a global footprint,” he said. “We are strong enough, we are credible enough, we are skilled enough as a jurisdiction and as a regulator to make our own independent views on how we should be positioning the regulatory and supervisory framework here in Bermuda.”

Clarity on captives: BMA CEO Jeremy Cox lays out the financial regulator’s 2013 business plan (Photo by Mark Tatem)
Jeremy Cox BMA CEO at today’s annual meeting (Photo by Mark Tatem)

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Published January 30, 2013 at 11:21 am (Updated January 30, 2013 at 11:20 am)

BMA: No Solvency II-type regulation for captives

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