19 February 2013

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

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.

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.

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