services together, some of the frictional cost will be economised under an evolving global standard.
Do you think Bermuda will be ready for equivalence before Europe?
There’s definitely a feeling in the marketplace that because Bermuda is one domicile and they have a very clear vision of what they’re doing, they could be equivalent to something that hasn’t yet been implemented. In Europe it’s different—you have different environments and while everyone is pointing in the same direction, a lot of the details need to be worked out. Bermuda-based firms can act more concisely because they only have to worry about their own environment. Certainly Switzerland and Bermuda have a clear vision of what they want to do and a strong buy-in from the commercial sector.
Any thoughts on proportionality?
By far the biggest question relates to proportionality. There is no issue that Bermuda is going to seek equivalence, adopt it and do well at it, but where do you draw the line? What regulation makes sense and what doesn’t? What size and scope of companies get the light treatment? You can’t just draw a line, and say ‘every company under $20 million doesn’t have to do x and y’, because there can be complexity in a
small company. It is much more a case of the regulators sitting with a particular company and saying ‘this is how we’re going to implement equivalence for you. You have to have this and this, and these other features will be optional, because we know how you operate and they don’t necessarily make sense for you’.
You can’t be dictatorial in your approach to capital models, or just come up with grand statements and they become the rules, because regulation is not a ‘one size fits all’ approach.
You have to implement it on a customised basis. It means Bermuda is going to have to spend some time looking at companies that will struggle with full implementation and decide how they’re going to actually implement Solvency II-light. This is where there should be a detailed discussion and plan. Clearly what doesn’t work is a broad, rules-based approach. It needs to be more of an incisive, customised, reasonable, cost:benefit approach that takes into account each company’s complexity and operating history. l
Steven Chirico is assistant vice president at AM Best. He can be contacted at:
steven.chirico@
ambest.com
bermuda captive 2012 57
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