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VI. Principal Regulatory Developments Affecting Insurance Companies
1. Equivalence
Equivalence refers to the concept whereby the European Commission determines whether the insurance regulatory regime of a non-E.U. country (“third country”) is equivalent to Solvency II for three purposes:
(i) Group Solvency Calculation: This applies to any insurance group that operates in a third country but the ultimate holding company of which is headquartered in the EEA. If an EEA group has an insurance subsidiary in a third country that is deemed equivalent, the EEA group can use the “alternative method” to calculate group solvency. This means that the local capital requirement rules of the third country—rather than Solvency II capital rules—can be applied in respect of insurance subsidiaries operating in that third country.
(ii) Group Supervision: This is relevant where the ultimate holding company of an insurer with EEA activities is headquartered in a third country. If the third country’s rules are deemed equivalent in this area, EEA supervisors can rely on the group supervision by the regulator in that third country rather than apply Solvency II group supervision rules (see Section VI.K.5 below).
(iii) Reinsurance: This applies to third country reinsurers where the solvency regime of a third country is deemed equivalent to the E.U. In these circumstances, the E.U. regulators must treat reinsurance contracts between EEA insurers and reinsurers in the third country in the same way as reinsurance contracts concluded between EEA firms.
A number of countries are in the first “wave” of assessment for equivalence, but some others, including the U.S. and Canada, have chosen not to engage in the formal equivalence assessment process. E.U. institutions have, in the latter half of 2015, made a number of important decisions regarding the equivalence of the regulatory regimes of eight countries.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review
2. Switzerland
On June 5, 2015 the European Commission granted Switzerland full equivalence in all three areas of Solvency II for an indefinite period.8 The Commission’s decision was then passed to the European Council and European Parliament for scrutiny and those institutions confirmed their non-objection in July9 and September,10 respectively.
Switzerland was the first country to be granted full equivalence. The decision to grant Switzerland full equivalence was not surprising given the country’s close relationship with the E.U., its prominent insurance and reinsurance market and the steps taken by Swiss authorities in recent years to align the Swiss regulatory regime with Solvency II.
3. Bermuda and Japan
The European Commission also adopted third country equivalence decisions in respect of Bermuda11 and Japan12 on November 26, 2015. Bermuda had been granted provisional 49 equivalence in June 2015, but following the adoption of new domestic insurance legislation, it was granted full equivalence
in all three areas of Solvency II. However, the Bermudian systems for regulating captive insurers and special purpose insurers were not found to be equivalent.
The decision will come as a relief for the Bermudian lawmakers and regulators who have substantially reformed the Island’s insurance regulation over the past six years, in part to bring it into line with Solvency II. The decision will enable Bermuda’s commercial reinsurers, which cover a significant portion of
8 European Commission. Press Release. Insurance: European Commission adopts a first package of third country equivalence decisions under Solvency II. Web 16 December 2015. http://europa.eu/ rapid/press-release_IP-15-5126_en.htm and 2009/138/EC of the European Parliament and of the Council http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015D1602&fr om=EN
9 Council of the European Union. Outcome of the Council Meeting - 3403rd Council Meeting -Economic and Financial Affairs Brussels, 14 July 2015.
10 The European Parliament updated its procedure file on September 12, 2015 to note that it will not object to the discussion to grant full equivalence to Switzerland. European Parliament procedure file 2015/2741(DEA). Equivalence of the solvency and prudential regime for insurance and reinsurance undertakings in force in Switzerland. Web 16 December 2015. http://www.europarl.europa.eu/ oeil/popups/ficheprocedure.do?reference=2015/2741%28DEA%29&l=en
11 European Commission. Commission Delegated Decision C(2015) 8145 of November 26, 2015 on the equivalence of the supervisory regime for insurance and reinsurance undertakings in force in Bermuda to the regime laid down in Directive 2009/138/EC of the European Parliament and of the Council and amending Delegated Decision C(2015) 3740. Web 16 December 2015. http://ec.europa.eu/finance/insurance/ docs/solvency/international/151126-bermuda_en.pdf
12 European Commission. Commission Delegated Decision C(2015) 8147 of November 26, 2015 on the equivalence of the solvency regime for insurance and reinsurance undertakings in force in Japan to the regime laid down in Directive 2009/138/EC of the European Parliament and of the Council. Web 16 December 2015. http://ec.europa.eu/finance/insurance/docs/solvency/international/151126-japan_en.pdf