Bermuda Welcomes Report On Solvency II Equivalence
by Jason Gorringe, Lowtax.net, London
29 December, 2014
The European Union's "Solvency II" directive has been challenging for non-EU insurance locations, and particularly those such as Bermuda and Labuan which have used low-tax regimes to attract the "captive" reinsurance subsidiaries of mainstream EU insurers and corporates. While not as blatantly "anti offshore" as such pieces of legislation as the AIFMD (Alternative Investment Fund Managers' Directive), Solvency II certainly comes from the same stable.
As regards reinsurance, Solvency II requires that the solvency regime applied to reinsurance activities of third country undertakings such as Bermuda is equivalent to that laid down in the Solvency II Directive.
A finding of equivalence for reinsurance supervision means that reinsurance contracts between EU insurers and third country reinsurers are treated in the same manner as those concluded with EU reinsurers. In particular, member states cannot require pledging of assets to cover unearned premiums and outstanding claims provisions in relation to such reinsurance contracts.
Bermuda's quest for equivalence with Solvency II moved a step closer to fruition last week when EIOPA, the European Union's leading insurance regulatory body, published its equivalence findings and invited feedback prior to a final report which is to be submitted to EIOPA's Board of Supervisors before being sent to the European Commission.
The findings in the form of a consultation paper by EIOPA, the European Insurance and Occupational Pensions Authority, endorsed key aspects of Bermuda's commercial (re)insurance regulatory regime as meeting the criteria of the Directive, with certain caveats. The paper marks a big step towards ensuring that Bermudan insurers and reinsurers retain access to European Union (EU) markets when new harmonization rules come into effect in 2016.
"This milestone is a major development for Bermuda and its well-deserved reputation as the world's risk capital," said Jeremy Cox, Chief Executive Officer of the Bermuda Monetary Authority (the Authority), which has spearheaded efforts to secure EIOPA's endorsement.
"Equivalence with the Solvency II Directive is of the utmost importance for Bermuda," Cox said. "This designation ensures that Bermuda's commercial insurers may continue to transact business within the EU. Moreover, equivalence is of benefit to the EU and its citizens, as it enhances the provision of well regulated, stable insurance capacity. Equivalence also substantively strengthens the level of cooperation and trust between international insurance supervisors, as well as the cross-border efficiencies and effectiveness of supervision between jurisdictions."
Bermuda is one of only two non-EU countries to have so far sought equivalence for its commercial reinsurers under all three articles in the Solvency II Directive: Article 172, which relates to Bermudian (re)insurance contracts being treated the same as European Economic Area (EEA) insurance contracts; Article 227, which relates to group solvency requirements for Bermuda (re)insurers with an EEA parent; and Article 260, which relates to group supervision of EEA insurers with parents outside of the EEA.
"The Authority welcomes the progress that has been made in the Solvency II equivalence process," Cox said. "We acknowledge the significance of the Solvency II Directive and its goal of codifying and harmonizing EU insurance regulation and remain firmly committed to ensuring that the Authority does everything in its power to work towards full equivalence for Bermuda by the implementation date of January 1st, 2016".
"Though a far more aggressive equivalence timetable was applied to Bermuda when compared to EU-member states, the Authority has learned a great deal from the experience of being a first mover in this initiative," Cox said. "As we continue to work towards full equivalence, it is my hope that this first-mover status earns Bermuda credit as a strong supporter of the EU's push for greater supervisory harmony and financial stability."
In another recent favorable development for the jurisdiction, Bermuda was recommended for approval as a qualified jurisdiction by a working group of the National Association of Insurance Commissioners (NAIC), the US standard-setting and regulatory support organisation.
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