Insurance Regulation – Where Is It Going?

1. Insurance Regulation – Where Is It Going? Wednesday 24th June 2009

2. Insurance Regulation – Where Is It Going? • Panel speakers Charles Collis, (Moderator) Partner Conyers, Dill & Pearman Shelby Weldon, Director, Insurance Licensing & Authorisation Bermuda Monetary Authority Richard Lightowler Partner KPMG Bermuda Guy Soussan Partner Steptoe & Johnson – Paris and Brussels

3. Insurance Regulation in Bermuda • Bermuda Monetary Authority applies a risk-based approach to regulation • Ensures supervisory resources used efficiently and effectively, while placing appropriate amount of regulation on companies • Authority is committed to international regulatory standards, but ensures that Bermuda regulation remains practical for market as well as effective • Most recent Bermuda regulatory enhancements focused on commercial sector, e.g. Bermuda Solvency Capital Requirement – In line with risk-based approach and goals re: mutual recognition (regulatory equivalence) for Bermuda internationally

4. Bermuda Framework Enhancements and Captives • Insurance Manager On-site Programme • Provides efficient means of supervising captive market via evaluation of captive manager compliance/effectiveness re: corporate governance and internal controls • In line with international standards of risk assessment and management • Class 3 Reclassification initiative • Segregation of Class 3 sector based on percentage of unrelated business and NPW; created new Special Purpose Insurer class • Supports effectiveness and further refines application and consistency of risk-based supervision of commercial insurers (Class 3A, Class 3B, Class 4), while maintaining appropriate oversight of captives • Class 3: captives writing >20% but <50% unrelated business NPW • Overall, changes firmly focused on higher risk commercial market - captive regime remains largely unchanged

5. Active Monitoring of International Regulatory Trends – Impact on Captives • IAIS Captives Guidance Paper • Authority was a member of the IAIS Captive Guidance Paper Drafting sub-group, helped to finalise the IAIS Guidance Paper on the Regulation and Supervision of Captive Insurers • Bermuda’s regulation will remain broadly unchanged and not affected by this Guidance Paper • Solvency II Directive • Current proposal: captives writing <€5 million GPW to be within scope • Bermuda recommending that focus remain on commercial sector • Outcome remains to be seen; will seek to ensure that proportionality principles will apply in eventual Bermuda response

6. Looking ahead • Authority considers regime for Bermuda captives to be appropriate for risks inherent to sector - Propose eventual analysis of existing captive regime to benchmark against current and developing international practices when they are clearer • Will continue to actively monitor developing international standards that may impact captives - Goal is to be in position to proactively manage scope and nature of any changes that may be required • Focus for regulatory changes to remain on commercial (re)insurers – in line with global trends • Group supervision • Internal models • Market transparency: public filings, risk disclosure • Limited impact on Class 3 captives • Committed to maintaining right balance for Bermuda, and proportionality in applying regulation of captives

7. Solvency II on the Horizon Impact on EU and Bermuda-domiciled Captives Bermuda Captive Conference June 21-24, 2009 * * * * * * * * * * * * * * * Guy Soussan Avocat (Paris and Brussels)

8. Solvency II and EU-Domiciled Captives • General framework applies to all EU (re)insurers, including captives • Two levels of capital requirements • Risk management • Supervisory reporting and disclosure • Unless annual premium income is less than EUR 5 million

9. The Need to Address Captives Specificity • Lower capital requirements and operational costs  • Applying the principle of proportionality to captives • Technical measures reflecting specificity needed before 2012

10. Solvency II Impact on Bermuda Captives Bermuda captives covering EU risks • Not a Solvency II issue, BUT • Market access subject to individual Member States' approval • Setting up a separate EU captive to cover EU risks?

11. Solvency II Impact on Bermuda Captives Bermuda captives covering EU domiciled cedants • Issue impacted by Solvency II • Cross border reinsurance generally allowed in all Member States • But conditions for reinsurance vary between Member States

12. Gaining Equal Access to EU Market • Subject to recognition process by the EU • Bermuda supervisory and solvency standards for reinsurance must be deemed equivalent to Solvency II standards • Bermuda is actively working toward this recognition