Website’s Critical Analysis Of EIOPA Report
While Japan and Switzerland meet the equivalence criteria for Europe’s Solvency II regime “with caveats” , Bermuda still has considerable work to do before it’s likely to be granted equivalency according to an analysis by the financial news website Risk.net.
Risk.net said today [Oct. 31] the European Insurance and Occupational Pensions Authority’s [EIOPA] final reports to the European Commission on the equivalence assessment of the Bermudian, Japanese and Swiss supervisory systems indicated the island was still lagging behind in important regulatory areas when it comes to meeting Solvency II benchmarks.
The equivalence assessment was set to ensure that the third country regulatory and supervisory regimes provide a similar level of policyholder/beneficiary protection as the one provided under the Solvency II Directive.
Last week EIOPA found that the Japan Financial Services Agency [JFSA] and the Swiss Financial Markets Authority [Finma] met “the criteria set out in EIOPA’s methodology for equivalence assessments under Solvency II, but with certain caveats.”
However, EIOPA found that while certain insurance classes within the Bermuda Monetary Authority [BMA] meet the criteria, others did not, reported Rish.net.
“According to EIOPA’s report, the BMA was only ‘partly equivalent’ with regard to both its authorisation of insurers and governance and public disclosure requirements. The BMA was also considered ‘not equivalent’ with regard to requirements on changes in business, management and qualifying holdings.
“EIOPA has identified a number of areas where the BMA regime would have to be strengthened or addressed in order to be considered equivalent to Solvency II: stricter provisions around the requirements for key functions, independence of internal audit, outsourcing and public disclosure.” .
The report also raised concerns over the registration process for insurers within the country, said Risk.net.
“There is no legal requirement to ensure that an insurer has its head office situated in the same country as its registered office,” the business and financial website quoted the report as saying.
EIOPA also highlighted the overlap between the insurance and non-insurance business undertaken by financial service providers within Bermuda. “The possibility of carrying out both insurance and non-insurance business in a single company represents a potential risk for reinsurance cedents,” the report said. “And [this] constitutes a significant difference from the provisions under Solvency II.”
Further issues surrounding the limited regulatory requirements regarding changes in business type were also raised.
“Although the Insurance Act [IA] requires that insurers’ shareholder controllers be assessed, neither the IA nor any other law requires insurers to provide the BMA with details of changes to their scheme of operation,” said the report. “Therefore only few critical changes in business, including engaging in non-insurance business, require BMA approval. To be equivalent, legally binding criteria would need to be developed to achieve a clear set of business change situations [...].”
The European Insurance and Occupational Pensions Authority is a European Union financial regulatory institution that replaced the Committee of European Insurance and Occupational Pensions Supervisors [CEIOPS]. It is established under European Union regulations.
One of three European supervisory authorities, the BMA has said it’s generally bullish on the EIOPA report detailing how Bermuda stands to reach Solvency II equivalency.
“We feel quite good about the report as it stands today,” Jeremy Cox [pictured], chief executive officer of the Bermuda Monetary Authority, said last week. “Effectively, what they said is Bermuda, for its commercial insurance sector, is equivalent, with some caveats.
“We have reviewed those caveats and I don’t think there are many things there that we would feel uncomfortable further evolving our position on,” Mr. Cox added. “We should be in a very good position for a formal decision on equivalency by the end of next year.”
Achieving equivalency with Solvency II, the new regulatory scheme being rolled out in the European Union, is important for Bermuda’s continued high standing as a re/insurance domicile, Mr. Cox said.
If Bermuda’s regime fails to win EIOPA’s approval, European insurers would have been unable to count the full value of Bermudian reinsurance contracts towards their capital, potentially deterring them from doing business on the island.
ok so the saying is true that “Self-praise is no recommendation at all”?
Minor, my thoughts exactly!