Bermuda edges closer to Solvency II equivalency

The Bermuda Monetary Authority (BMA) has welcomed the news that Bermuda’s quest for equivalence with Europe’s Solvency II Directive has moved closer to fruition with the European Insurance and Occupational Pensions Authority (EIOPA) endorsing key aspects of Bermuda’s commercial re/insurance regulatory regime.

EIOPA published its equivalence findings and invited feedback prior to a final report which is to be submitted to EIOPA’s Board of Supervisors before being sent to the European Commission.

The findings in the form of a consultation paper by EIOPA endorsed key aspects of Bermuda’s commercial re/insurance regulatory regime as meeting the criteria of the Directive, with certain caveats. The paper marks a big step towards ensuring Bermuda insurers and reinsurers retain access to European Union (EU) markets when new harmonisation rules come into effect in 2016.

“This milestone is a major development for Bermuda and its well-deserved reputation as the world's risk capital,” said Jeremy Cox, chief executive of the BMA. “Equivalence with the Solvency II Directive is of the utmost importance for Bermuda.

“This designation ensures that Bermuda’s commercial insurers may continue to transact business within the EU. Moreover, equivalence is of benefit to the EU and its citizens, as it enhances the provision of well regulated, stable insurance capacity. Equivalence also substantively strengthens the level of cooperation and trust between international insurance supervisors, as well as the cross-border efficiencies and effectiveness of supervision between jurisdictions.”

Bermuda is one of only two non-EU countries to have so far sought equivalence under all three articles in the Solvency II Directive: Article 172, which relates to Bermudian re/insurance contracts being treated the same as European Economic Area (EEA) insurance contracts; Article 227, which relates to group solvency requirements for Bermuda re/insurers with an EEA parent; and Article 260, which relates to group supervision of EEA insurers with parents outside of the EEA.

EIOPA’s recommendation only addresses Bermuda’s commercial re/insurers: i.e., Bermuda’s insurance groups; Class 3A, 3B and 4 insurers; and Long-Term (life) Classes C, D and E.

“The Authority welcomes the progress that has been made in the Solvency II equivalence process,” Cox said. “We acknowledge the significance of the Solvency II Directive and its goal of codifying and harmonising EU insurance regulation and remain firmly committed to ensuring that the Authority does everything in its power to work towards full equivalence for Bermuda by the implementation date of 1st January, 2016.

“Though a far more aggressive equivalence timetable was applied to Bermuda when compared to EU member states, the Authority has learned a great deal from the experience of being a first mover in this initiative. As we continue to work towards full equivalence, it is my hope that this first mover status earns Bermuda credit as a strong supporter of the EU’s push for greater supervisory harmony and financial stability.”

The EIOPA announcement comes on the heels of an assessment which saw Bermuda recommended for approval as a qualified jurisdiction by a working group of the National Association of Insurance Commissioners (NAIC), the US standard-setting and regulatory support organisation.