Page 17

Bermuda:Re+ILS Spring 2016

The true importance of Bermuda’s securing Solvency II equivalence might not become completely apparent for several years, but in the long term it will be significant, Mike Van Slooten at Aon Benfield tells Bermuda:Re+ILS. for Bermuda. Van Slooten argues that it gives the domicile even more legitimacy at an important time, on several fronts. He notes that Bermuda has been under attack from certain political factions within the US of late. The Internal Revenue Service has also been looking very closely at hedge funds. “Such investigations and the subsequent press creates uncertainty,” he says. “Securing Solvency II equivalence is a great endorsement of Bermuda’s regulatory regime and its long-term importance to risk transfer globally. “It carries a lot of weight. Bermuda is one of just a handful of jurisdictions globally which have achieved this. It was a lot of work but it should bring big competitive advantages in the long term. Capital moves very quickly these days and this places Bermuda in a good position to capitalise.” A question of reputation Bearing all this in mind, it is no coincidence that the Island has become more attractive as a domicile. XL Catlin recently announced it was redomiciling from Dublin, while Qatar Insurance Company selected Bermuda as the home of its reinsurance operations last year. Other carriers including Hiscox have also extolled the virtues of Bermuda in recent months. “The commentary has been very positive of late and there is no doubt that securing Solvency II equivalence has a part to play in that,” Van Slooten says. “It has reduced any perceived uncertainty around Bermuda’s future as a risk transfer hub and it is benefiting as a result.” He notes that it also protects and legitimises Bermuda’s growing market for insurance-linked securities (ILS). Van Slooten stresses that there remains some way to go in terms of the market truly understanding Solvency II, and the ability of reinsurers and buyers to adjust to its consequences. 17 Spring 2016 Bermuda:Re/insurance+ILS ORANGECRUSH / SHUTTERSTOCK.COM “Now that the first results have been published, buyers are asking what Solvency II capital ratios really mean and to what extent they can be relied upon.” Some players have had internal models either partially or fully signed off, for example, often at great cost. The extent to which this will give them an advantage remains to be seen, although the bigger players should benefit more. “For very big and diverse companies it is probably worth the investment,” he says. He also stresses that differences are already emerging, first in the transparency of different regulators in the way they approve internal capital models and some interpretations of how elements of Solvency II should be applied. “Solvency II was meant to represent a harmonisation of regulation across the EU, so that apples could be compared with apples, but it is clear that there is a still a lot of work to be done,” he says. “It would be nice to see a true comparison of solvency ratios, but in truth there is variability in the way models work and regulators are interpreting the rules in different ways. We expect things to improve over time, though. “There is a lot to think about. Now that the first results have been published, buyers are asking what Solvency II capital ratios really mean and to what extent they can be relied upon. These questions are inevitable, as the new regime represents a very major change from what went before.” �� Mike Van Slooten is co-head of Market Analysis at Aon Benfield. He can be contacted at: mike.vanslooten@aonbenfield.com


Bermuda:Re+ILS Spring 2016
To see the actual publication please follow the link above