Another Step in the Right Direction: Bermuda Solvency II Equivalence
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Bermuda has moved closer to equivalence under Solvency II (Directive 2009/138/EC) and the retention of EU market access for Bermuda commercial (re)insurers. The encouraging news follows the recent consultation paper published by the European Insurance and Occupational Pensions Authority (EIOPA) which is focused on the equivalence assessment of the Bermuda supervisory system (EIOPA-CP-14/042). EIOPA has endorsed certain key aspects of Bermuda’s regulatory and supervisory regime subject to certain caveats. A notable area of required improvement includes those rules applicable to the supervision of commercial life (re)insurers. It is, however, acknowledged that the BMA has implemented, or plans to implement, rule changes to address these concerns. EIOPA’s advice is limited to the commercial class of (re)insurer being 3A, 3B, 4, C, D and E and (re)insurance groups. This is significant as it preserves the Bermuda Monetary Authority’s (BMA) risk based and proportionate approach to the regulation of the commercial market as distinct from its captive market.
Solvency II, as amended by Omnibus II (Directive 2014/51/EU), is intended to harmonize and codify EU insurance regulation and introduces economic risk-based capital requirements across all EU Member States. Solvency II replaces the EU’s existing solvency regime known as Solvency I. The Solvency II equivalence criteria are based on the overarching principles of Solvency II and include requirements relating to the system of governance, professional secrecy and the exchange of information, effective risk management, solvency, and powers and responsibilities of supervisory authorities. Bermuda is one of only two non-European Union countries (so called “third countries”) that requested equivalence under all three Articles of the Solvency II Directive being:
- Article 172 (reinsurance supervision) relates to equivalence of the solvency regime applied to the reinsurance activities of (re)insurers with their head office in a third country, where a positive determination would allow reinsurance contracts with (re)insurers in that third country to be treated in the same way as reinsurance contracts with European Economic Area (EEA) (re)insurers.
- Article 227 (group solvency calculation) relates to the third country (re)insurers which are part of EEA groups, where equivalence would allow groups to take into account the local calculation of capital requirements and available capital rather than calculating on a Solvency II basis for the purposes of the deduction and aggregation method.
- Article 260 (group supervision) relates to group supervision of EEA (re)insurers with parents outside of the EEA, where equivalence would mean EEA supervisors would rely on the group supervision of that third country.
EIOPA has invited feedback on the consultation paper ahead of the final report being submitted to EIOPA’s Board of Supervisors and subsequently to the European Commission. The consultation period will end on 23 January 2015. The Solvency II regime will become fully applicable on 1 January 2016.