Bermuda Meets Key Solvency II Criteria

by Amanda Banks, Tax-News.com, London

23 August 2011

Bermuda’s regime for commercial insurers meets the criteria for Solvency II equivalence, according to the European Insurance and Occupational Pensions Authority.

Solvency II aims to establish a revised set of European Union (EU)-wide capital requirements and risk management standards, which will replace current solvency requirements. The implementation date is set for January, 2013, with Solvency II to be adopted by each of the 27 EU member states, plus three of the European Economic Area countries. It will apply to those insurance firms with gross premium incomes exceeding EUR5m, or with gross technical provisions surpassing EUR25m. In addition, the Bermuda Monetary Authority (BMA) is in the process of implementing measures to ensure equivalence with Solvency II.

News of EIOPA’s preliminary assessment of Bermuda’s regulatory framework was released by the BMA on August 17. The judgment relates to Bermuda’s regime for commercial insurers – namely the Class 3A, 3B and 4 insurers. Class 3A insurers are defined as small commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written, and where the unrelated business net premiums are less than USD50m. The 3B classification relates to large commercial insurers with a percentage of unrelated business representing over 50% of net premiums written, and where the unrelated business net premiums are more than USD50m. Class 4 is populated by insurers and reinsurers capitalized at a minimum of USD100m underwriting direct excess liability and/or property catastrophe reinsurance risk.

According to the BMA, it has spent years proactively focusing its framework changes on the commercial insurance market. As a result, EIOPA’s assessment on this area of the insurance regime was expected by the BMA. However, the BMA admits that it also expected EIOPA’s suggestions on areas for additional enhancement to the system.

The assessment is only the first phase of a process due to conclude in 2012 with the EU Commission’s final decision on equivalence. Therefore, in the interim period, the BMA intends to conclude work on these areas and the various work streams it currently has in progress.

The BMA has also initiated substantive discussions with fellow regulators, designed to foster the high degree of supervisory cooperation that it stresses will be required to support Solvency II equivalence in practical terms. Jurisdictions are currently awaiting the issuing of final Level 2 implementing measures for Solvency II, which the BMA says will bring a further level of clarity to the practical implementation of the Directive. The consultation period on EIOPA’s initial report and the time leading up to finalization of the Level 2 implementing measures will provide the BMA with a further opportunity to ensure EIOPA is fully apprised of Bermuda’s completed and planned framework enhancements.

The BMA intends to continue its dialogue with EIOPA regarding the practical and appropriate application of Bermuda’s regulatory and supervisory regime across the different sectors of its market.

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