Bermudan regulators working on shortfalls to EU solvency rules
Thursday August 18 2011 | 05:38 AM

Bermuda’s insurance regulation regime for big commercial re/insurers is largely equivalent with the new European Solvency II regulations, according to a consultation document published today by European assessors.

However, more enhancements need to be made by the Island’s insurance regulator, the Bermuda Monetary Authority, before the aim of equivalence can be achieved.

Assessors from the European Insurance and Occupational Pensions Authority (EIOPA) visited the Island three months ago to run the rule over the Island’s insurance regulatory regime.

Over recent years, the BMA has been bolstering its regulations to achieve “third-country equivalence” with Solvency II, so Bermuda international re/insurers will not be competitively disadvantaged when they do business in the European Union.

Solvency II, which puts an emphasis on risk-based capital requirements and enhanced corporate governance, will take effect in early 2013.

In a statement released this afternoon, the BMA said: “EIOPA indicates that Bermuda’s regime for commercial insurers, that is Class 3A, 3B and 4 firms, meets the criteria for Solvency II equivalence, with certain caveats.

“In particular, we note the alignment of our regime with Solvency II principles in key areas such as the scope of group supervision and the solvency regime for groups.”

The EIOPA consultation document states there are differences between Solvency II and Bermuda regulatory standards, including that the capital requirements are sometimes not sufficiently risk-based.

“Furthermore, the possibility of carrying out both insurance and non-insurance business in a single company represents a potential risk for reinsurance cedents, and constitutes a significant difference from the provisions under Solvency II,” the EIOPA report stated.

The BMA added: “We also expected, and have under active consideration, EIOPA’s suggestions or caveats on areas for additional regime enhancements.

“Since this assessment is the first phase of a process that will conclude in 2012 with the EU Commission’s final decision on equivalence, in the interim period we can conclude work on these areas and the various work streams already in progress.”

EIOPA has invited comments on its views by September 23.