Jeremy Cox, chief executive officer of the Bermuda Monetary Authority, outlines the positive and differentiating results of EIOPA’s recent equivalency assessment.
The market is aware by now that on 17 August 2011, the European Insurance and Occupational Pensions Authority (EIOPA), published preliminary recommendations based on its Solvency II equivalence assessment of Bermuda.
EIOPA concluded that Bermuda’s supervisory regime for commercial insurers—that is Class 4, 3B and 3A firms—is broadly equivalent with Solvency II principles with some caveats, which we anticipated.
EIOPA advised that Bermuda met the criteria as set out in its methodology for equivalence for group supervision (based on a regime that the Bermuda Monetary Authority [BMA] will implement before the end of 2011) as well as the solvency regime for groups.
EIOPA also found Bermuda’s framework to be fully equivalent with regard to its professional secrecy and information exchange obligations under all three articles of the Solvency II directive for which Bermuda is seeking equivalence (articles 172, 227 and 260).
In its report, EIOPA also made a distinction between the commercial sector regime and supervision of the captive sector—in this instance finding the captives’ regime non-equivalent with Solvency II principles. Given the vastly different risk profiles of the commercial and captive sectors, in the BMA’s view this was anticipated and appropriate.
Bermuda: still on course
So what does this outcome mean for Bermuda? In practical terms, it means there will be no change to the general direction and plans the BMA has already shared with the market on regime enhancements for Class 4, 3B and 3A firms.
Also, we have not drastically changed the timelines set for developing and rolling out these initiatives. So our original timetable for completing the major regime changes for the commercial market by the end of 2012 remains in place. We are, however, monitoring developments in Europe and internationally, and will build in more flexibility to our timeline, if and when it becomes appropriate to do so.
Overall, the EIOPA report validates the work the BMA had already identified for action. The report was also helpful in identifying specific areas for further enhancement in the Bermuda regime. Given that some of the work streams were still in progress at the time of the assessment, the BMA recognises that our work-plan, while well advanced, must continue to move forward. Therefore, we are actively developing proposals to address the caveats, and our existing plans to develop the Bermuda framework remain on track. As always, the BMA will conduct this work in full consultation with industry.
"The final decision about Bermuda's status rests with the EU Commission, which is not expected to reach a conclusion until the end of 2012."
Since this is a preliminary assessment, there will be another opportunity for EIOPA to review the results of this work and the completion of our remaining enhancements. In terms of next steps, EIOPA has pledged to review its preliminary assessments after the Level 2 implementing measures for Solvency II are finalised. The issueof the final Level 2 implementation measures will help provide clarity to all parties about practical application of the directive. Currently, this is planned to take place in the second half of 2012, after which EIOPA will send its final advice to the EU Commission. The final decision about Bermuda’s Solvency II equivalence status rests with the EU Commission, which is not expected to reach a conclusion until the end of 2012.
Bermuda is the first non-European jurisdiction to undergo a comprehensive equivalence assessment under all three articles of the Solvency II directive. This is, therefore, somewhat uncharted territory, which adds to the significance of the assessment outcome as a positive first step in the equivalence process for Bermuda. As we continue to progress our regulatory agenda, we remain focused on ensuring Bermuda correctly balances workable supervisory regimes with international expectations.
We also remain mindful of EIOPA’s position regarding its Solvency II assessments: that all applicable criteria under the directive need to be met for a positive equivalence assessment, but a positive assessment does not require that every indicator be fulfilled. The preliminary results from EIOPA’s Solvency II equivalence assessment of Bermuda support this position.
In conclusion, while we recognise there is still work to do on our regulatory change programme, we are well advanced within this process. The BMA will continue its dialogue with EIOPA regarding the practical and appropriate application of Bermuda’s regulatory and supervisory regime across the different sectors of our market. We appreciate the support we have received from the industry thus far and will continue to consult with the market as we move forward and remain focused on doing what is right for Bermuda.
For information on the Bermuda Monetary Authority visit www.bma.bm
Bermuda, Solvency II, equivalency, EIOPA