Bermuda Captive


shores, with Bermuda and Japan both opting for equivalency (alongside Switzerland), and its ramifications have been felt well beyond the borders of its initial participants. Europe’s regulatory programme has helped to shape the debate concerning ongoing global regulation, with the countries opting out of the regime nevertheless having to respond to the changing landscape.


T Captives have found themselves caught up in discussions surrounding


the application of Solvency II, and for European captives, it seems that they may yet remain within its remit. Talking with Carlos Montalvo, executive director of the European Insurance and Occupational Pensions Authority (EIOPA), he indicated that captives will be able to benefit from the introduction of “simplification” for the calculation of their solvency capital requirements, and that Europe will seek to apply proportionality—an approach that will be of evident benefit to smaller captive entities. However, Guenter Droese, chairman of the European Captive Insurance and Reinsurance Owners Association (ECIROA), said that concerns remain for European captive owners. Captives continue to be a low priority for EIOPA, Droese said, with confusion regarding the likely application of Solvency II remaining the overriding concern for the industry.


The situation has encouraged places such as Guernsey and Cayman


to either actively opt out of Solvency II or else take a wait-and-see approach to the imminent measures. Not so Bermuda. Opting to be considered in the first wave of equivalency, the Bermuda Monetary Authority (BMA) has taken a pro-active approach to the application of the new regulatory measures that places it at the forefront of international insurance jurisdictions.


There was concern when Bermuda opted to be considered for equivalency that, while an obvious fit for its significant commercial re/ insurance sector, the regime would prove excessively burdensome for the Island’s captive sector. However, following consultations with the Bermuda captive sector—an approach that the BMA can take more readily than EIOPA, which has to deal with a more unwieldy and disparate European captive community—the BMA looks set to take steps to institute a captive ‘carve-out’, which will differentiate captives from larger commercial players under Solvency II.


The anticipated carve-out will involve maintaining current solvency and capital requirements for captives, while strengthening captive reporting requirements, said Lawrence Bird, chairman of the Bermuda Insurance Management Association (BIMA). Efforts at strengthening reporting requirements were already in the pipeline at the BMA, while current solvency and capital requirements applied by the Bermuda regulator would continue to prove adequate for the sector, he said. Bermuda


here has been much discussion in recent years regarding the potential implications of Solvency II for the captive sector. While Solvency II was initially envisaged as a European insurance project, its remit has extended far beyond the continent’s


“FOLLOWING CONSULTATIONS WITH THE BERMUDA CAPTIVE SECTOR … THE BMA LOOKS SET TO TAKE STEPS TO INSTITUTE A CAPTIVE ‘CARVE-OUT’, WHICH WILL DIFFERENTIATE CAPTIVES FROM LARGER COMMERCIAL PLAYERS UNDER SOLVENCY II.”


will now have to convince Europe that such an approach adequately reflects its idea of appropriate risk mitigation.


Although yet to be set in stone—and Bermuda’s play for equivalency


has, similarly, yet to receive approval from Brussels—many in the industry are confident that the new differentiated approach will help to keep Bermuda at the forefront of captive domiciles. Some had worried that an onerous regulatory regime would cause captive owners to shy away from Bermuda. But as Ernest Morrison, director, head of corporate at Cox Hallet Wilkinson (CHW) indicated, the carve-out will enable captives to avoid the significant expense associated with full compliance.


“This is a huge step that will benefit Bermuda for a number of years,


in terms both of credibility and a differentiated approach to regulation,” said Morrison. Bird said that the Island’s classification system had played a significant part in its ability to institute a carve-out. Bermuda’s Class I-IV system had made the task of differentiation and explaining its proposed segmented approach to Europe far simpler, he said, adding that he was “cautiously optimistic” that EIOPA would support the Bermuda approach.


Should Bermuda receive approval for equivalency and its captive carve-out, Bird said that he hoped that other captive domiciles would follow in Bermuda’s footsteps. Such a development would be good for “those domiciles and captives generally”, enabling local regulators to apply a more sensible and less onerous approach to captive regulation. Few would argue that Solvency II is not an appropriate piece of regulation; it is only its application to the captive sector that seems rather over-zealous. By taking a stand and looking to implement a proportionate approach that has, as yet, eluded Europe, Bermuda might just be establishing what could become the appropriate global application of Europe’s regulatory project for the captive sector. l


bermuda captive 2012 17


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68