Elderfield: Bermuda well placed to achieve Solvency II equivalence

By added on 14/06/2012

Bermuda is on track for achieving equivalency with Solvency II, according to the deputy governor of the Central Bank of Ireland, Matthew Elderfield, reports the Royal Gazette.

Speaking at the Insurance Day Summit in Hamilton yesterday, Mr Elderfield, who was the CEO of the Bermuda Monetary Authority (BMA) between 2007 and the end of 2009, said the Island had made great strides in enhancing its regulatory framework.

He said the first assessment of Bermuda by the European Insurance and Occupational Pensions Authority (EIOPA) had been “largely very positive, albeit with some further work to do in some areas”.

The ultimate decision on whether Bermuda earns “third-country equivalence” with the new EU rules for insurers, due to take effect at the start of 2014, rests with the European Commission.

“My view is that Bermuda is very well placed for this assessment process and is to be commended for the work that Jeremy Cox and his team have undertaken to drive forward enhancements to the Bermuda regulatory framework,” Mr Elderfield said.

“These are by no means insignificant and have included the development of a risk-based solvency framework and the introduction of group solvency requirements. This is a significant accomplishment, although clearly more still needs to be done.”

The BMA started its moves toward equivalence under Mr Elderfield’s leadership and the process and continued under his successor as CEO, Jeremy Cox.

“It may seem odd that Europe has proposed a transitional equivalence regime which will allow the benefits of the directive to be enjoyed on an interim basis, allowing other jurisdictions to take a longer route to reforming their regulatory frameworks,” Mr Elderfield added.

“I wouldn’t be too distracted by those developments. By being in the first wave of the equivalence assessment process, and by hopefully gaining a favourable outcome, Bermuda will be in the enviable position of having definitively cleared the EU process before many other competitor jurisdictions are able to do likewise.

“That provides absolute certainty to the Bermuda market as to the treatment they will receive under the EU rule book, and it means that, unlike some other countries, the risk of adverse regulatory developments will not be hanging in the background.

“Moreover, full equivalence recognition will cement Bermuda’s reputation as a financial centre that is committed to high standards of regulation.”

Bermuda still needed to finalise its life insurance solvency framework and the actual implementation of the enhanced regulations would be a challenge, he added. The BMA would need to beef up resources to deal with the significant number of groups under its supervision.

“Group supervision is a major task and requires high-quality, dedicated supervisors, who understand the business models of the firms they supervise, are periodically able to test governance and control frameworks, have a good understanding of complex inter-company transactions, can oversee the assessment of group solvency requirements, closely monitor the performance of internal models and ensure effective coordination and information flow between all relevant supervisors with an interest in their group.

“It’s important that the Bermuda market continues to provide support to the BMA, and it builds up its capacity to undertake group supervision in practice, as the various tasks come online and need to be executed.”