Bermuda

BMA director: Bermuda moving toward EU equivalency standard despite Solvency II questions


By added on 20/02/2013

Despite some emerging concerns regarding implementation of European Union Solvency II requirements, the Bermuda Monetary Authority will continue efforts to meet an EU equivalency standard that is part of the directive, said Shelby Weldon, BMA director of insurance, licensing and authorisation, reports the Royal Gazette.

Bermuda is one of several nations seeking to meet the equivalency standard for commercial entities under Solvency II, an update of an earlier suite of rules designed to help reduce the risk of insolvency. The equivalency standard states that any non-EU company operating in the Union should come from a domicile whose rules are recognised by EU members as equivalent to those in Solvency II.

European regulators and observers have been seriously questioning whether the EU can implement Solvency II on January 1, 2014 as scheduled. The UK's Financial Services Authority shows signs of "recognition" that "they don't really know when this is going to happen now," said Chris Finney, a partner with London-based law firm Edwards Wildman Palmer UK LLP, who suggested that Solvency II could be issued in a gradual fashion after the start date. Germany's Federal Financial Supervisory Authority has been thinking about the probability of further delays to Solvency II. BaFin's quarterly newsletter for the fourth quarter of 2012 quoted Kurt-Georg Hummel, a department head at the agency, as saying "we expect that Solvency II will not enter into force until 2016, rather than 2014.

But Mr Weldon said Bermuda is not deterred by the apparent uncertainty and will push ahead toward improving its rules and meeting EU equivalency. He said the idea of EU equivalency is not the driving force behind Bermuda’s regulatory regime, but in doing what’s best for its market and ensuring that policyholders are adequately protected. While seeking equivalency with EU standards in supervising commercial classes, Mr Weldon said Bermuda does not seek duplication of those standards. Still, he said US companies should have a higher comfort level that companies located in Bermuda are regulated and supervised according to international standards.

The efforts toward equivalency will not apply to captive insurers in Bermuda, one of the world's largest captive domiciles. The BMA announced on January 29 that it would not make captives meet Solvency II-style requirements, but instead will have captives file risk-return plans as part of a consolidated filing, Mr Weldon said.

When the BMA decided to seek equivalency, it never intended for captives to meet Solvency II requirements, Mr Weldon said. Instead, BMA is closely watching a working group formed by the International Association of Insurance Supervisors regarding appropriative supervision for captives, Mr Weldon said.

Bermuda is not changing its regulatory approach toward captives, Mr Weldon said. But it is embarking on a data collection consolidation programme that will help make sure captives get appropriately licensed and regulated, he said. The effort is designed to provide statistical information about what happens in the captive space and the lines of business being conducted within captives. Ultimately, Mr Weldon said, the information would be used to improve Bermuda’s understanding of captive risk and whether companies should be licensed under Solvency II.

Mr Weldon recommended that US state regulators follow what’s happening at IAIS and its own Solvency Modernisation Initiative. He said US companies would do well to concentrate on what happens at an international level, compared to the more focused regional EU rules that seek equivalency. He said US regulators should review and develop an understanding of their insurance markets and put together regimes based on that information.

In September, the National Association of Insurance Commissioners passed the Own Risk Solvency Assessment model rule as a guide for how states should approach questions about insurer solvency. If adopted by states, the rule would require insurance companies that have annual premiums of more than US$500 million and insurance groups with US$1 billion to submit a report to their state regulator outlining their enterprise risk management processes. The confidential report would include information about the risks the company or group could face going forward and the sufficiency of their capital resources to address those risks. Some in the insurance industry have viewed ORSA as the US answer to the European Union's Solvency II standards.