AM Best has said it believes Solvency II equivalence in Bermuda, expected to come in force on January 1, 2016, will be a positive development for the market profile of Bermuda-domiciled entities, which is an important element of AM Best’s rating criteria.
A new Best’s Briefing, Bermuda Inching Toward Solvency II Equivalence, notes that a delegated act regarding the equivalence of the supervisory regime for insurance and reinsurance undertakings in force in Bermuda was sent to the European Union (EU) Parliament and Council for a three-month scrutiny period in late November.
The delegated act details Bermuda’s compliance with three articles of Solvency II, namely reinsurance, group solvency and group supervision. Provided the act is accepted, Bermuda’s equivalence with the provisions of Solvency II for insurers and reinsurers, with the exception of captives and special purpose insurers, takes effect retroactively January 1, 2016.
“The achievement of Solvency II equivalence will provide the Bermuda commercial reinsurance sector with confirmation that the EU views them as equivalent to reinsurance companies that are regulated by EU-member states,” said AM Best.
“In addition to the financial benefit of reduced collateral requirements for business ceded by EU companies, equivalence will also confirm that Bermuda will remain a major platform for global reinsurance companies, which can transact business in the EU as easily as an EU-based reinsurer.
“Equivalence is particularly important for Bermuda, where international business is the nation’s largest industry.”
Bermuda had also received qualified jurisdiction status from the National Association of Insurance Commissioners (NAIC), effective January 1, 2015, after a review of the Bermuda Monetary Authority’s regulatory regime. As a result, Bermuda reinsurers have reduced collateral requirements for US claims provided the reinsurer is evaluated and certified, said AM Best.
“While Bermuda’s achievements of qualified jurisdiction status in the US and probable Solvency II equivalence will provide a level playing field for business transacted in the United States and the EU, other regulatory concerns remain, including the high cost of regulatory compliance and the perception of duplicative efforts among regulators, despite advances toward group supervision,” the rating firm added.
Solvency II, AM Best, Bermuda, North America