Gearing up for equivalency
The sweeping changes underway in financial regulation as a result of the recent financial crisis are not only reshaping supervisory regimes globally, but regulatory agencies themselves. Supervisors worldwide are faced with a myriad of challenges associated with keeping pace with the regulatory changes that are afoot, including maintaining regulatory frameworks that continue to pass muster with evolving international standards and building resources that effectively support the enhanced supervisory programmes that result from that process.
For the insurance sector, while there are a number of regimes currently in development, the impetus for change is being driven chiefly by Europe’s impending Solvency II Directive. This new exacting regime will fundamentally reform how re/insurers are supervised in Europe and elsewhere, when it becomes law in 2012. Regulators, both in Europe and in non-European ‘third countries’ seeking equivalence with the regime, such as Bermuda, are faced with the challenging task of enhancing their existing standards to meet the demands of the directive, while simultaneously securing the human resources necessary to support successful implementation of the expanded rules. This has resulted in an aggressive recruitment drive on the part of these regulators, as they seek to attract the technical expertise necessary to meet their Solvency II goals.
While the Authority has a strategic resourcing plan to address its Solvency II equivalency objectives, it has long considered operational effectiveness as a key cornerstone in its ability to regulate Bermuda’s financial services sector effectively. Consequently, it has focused on enhancing operational efficiency for some time, and has had success in building the depth of technical skills throughout the organisation over recent years.
For example, over the past three years, the Authority has established a specialist team focused on policy, research and risk assessment (PRRAD). PRRAD provides dedicated resources that address overall regulatory policy development, strategic research and risk analysis for the Authority. The team also assists with the effective execution of the Authority’s risk-based supervisory programmes, by working closely with the supervisory departments. PRRAD also plays a key role in the organisation’s efforts to prepare its insurance framework for regulatory equivalence assessments, by leading various policy development initiatives relating to the Authority’s enhanced regime.
"The authority... has focused on enhancing operational efficiency for some time, and has had success in building the depth of technical skills throughout the organisation over recent years."
The Authority has also established an actuarial team to provide dedicated, in-house actuarial expertise to its supervisory function. This team brings broad technical and market experience to the Authority, enabling less of a reliance on external expertise in these areas. The team also supports the Authority in a wide range of areas, including the execution of supervisory functions and the development of policy. In addition to providing actuarial analysis as required to support the Authority’s supervisory programmes, such as PRRAD, the team hasbeen instrumental in the development of proposals relating to ongoing framework enhancements. A key example of this is leading the development of the Authority’s Internal Capital Models framework, and conducting pilot assessments with selected insurers, which will eventually lead to firms using Authority-approved internal models to determine their regulatory capital.
These resource changes have enabled the Authority to implement key developments in terms of supervisory capabilities. These include a number of Solvency II-related initiatives such as establishing a more robust solvency regime for Bermuda’s commercial insurance sector, which in part consists of the Bermuda Solvency Capital Return, the Authority’s standard capital adequacy model, and work on introducing a group-wide supervision framework for Bermuda-based insurance groups.
In a move to augment the existing senior-level expertise in the organisation, the Authority has also recently established a team of senior advisors. Five positions have been ear-marked to provide the Authority with international strategic input and technical assistance as the organisation seeks to raise its game as a leading risk-based regulator. The senior advisors are highly skilled individuals with extensive industry and regulatory experience, both in Bermuda and in major markets overseas. Although they will primarily support the organisation’s resourcing effort for Solvency II equivalence, they will also be involved in advising senior managers on broader supervisory strategy and development, as well as acting as technical advisors to the Authority’s various units, including the insurance, banking, trust, investment and PRRAD departments.
With regard to Solvency II resourcing, the Authority has established a strategic resourcing plan to address the specific needs associated with meeting the requirements of the directive. This two-year plan, which is an integral part of the organisation’s overall Solvency II strategy, calls for the recruitment of additional highly experienced staff to senior positions to support and execute the new regulatory standards and processes resulting from the framework changes. These additional staff will also provide technical expertise for implementing key regimes, such as the Authority’s group-wide supervision framework.
As the markets that the Authority regulates become increasingly complex and the demands of the international regulatory environment continue to evolve, the Authority as an organisation is also continuing to grow strategically. The changes made to its organisational structure over recent years, and those that are planned in the near future, are designed to address the demands associated with developing and sustaining a leading regulatory framework appropriately. The Authority recognises the importance, particularly in today’s dynamic and challenging regulatory environment, of having the right people with the right skills sets to deliver on its responsibilities as Bermuda’s financial services regulator. Therefore, it is continuing to build on the resources that support its supervisory, policy and risk analysis teams at a high level. The current wave of recruitment being undertaken, while focused on Solvency II equivalence, will not only ensure that the Authority’s short-term resourcing needs are successfully met, but will also position the organisation to sustain its operational effectiveness well into the future. The BMA’s website is: www.bma.bm