The European Commission recently announced the second wave of
countries interested in Solvency II equivalence. However, some
jurisdictions have chosen a different way. Fiona Le Poidevin,
Deputy Chief Executive of Guernsey Finance, explains why the Island
has chosen to say no to equivalence.
The uncertainty surrounding the introduction of Solvency II and
its practical implications for the insurance industry is causing
some angst around Europe. However, in Guernsey, we have opted for
certainty. The Island is not part of the EU so we are not required
to adopt the regulation and our Government and the financial
services regulator issued a joint statement in January 2011 to say
that the Island doesn't have any plans to seek equivalence
under Solvency II.
Solvency II has been designed to address systemic and group
risks within commercial insurance markets but these are risks not
generally faced by Guernsey-based international insurance
companies, where a large proportion of captive insurance companies
are based. Under the current proposals, Solvency II is set to
impose a blanket set of capital requirements. Therefore equivalence
would burden Guernsey insurers with additional costs and render
currently effective captive business plans uneconomic.
The announcement that we have no current plans to seek
equivalence not only provides certainty to our clients and
potential clients but it ensures that we will be able to continue
to offer an alternative set of products and services. Guernsey will
continue to meet the standards of the International Association of
Insurance Supervisors (IAIS) – in January 2011, the IMF
commended the Island for having high levels of compliance with the
28 insurance core principles of the IAIS – however, its
proportionality principles mean that we will provide a more
attractive environment for captive owners and other niche
There has been positive feedback to this decision from captive
owners already using Guernsey, as well as potential clients.
Indeed, figures show that the Guernsey Financial Services
Commission (GFSC) licensed 72 international insurers during 2011
– a 53% increase from the 47 approved during 2010. These
were across the range of entities from conventional captive
insurance companies, PCCs (Protected Cell Companies), ICCs
(Incorporated Cell Companies) and in particular, PCC and ICC
We believe that this growth in new business is the result, at
least in part, of our decision not to seek equivalence with
Solvency II. Indeed, Guernsey's proposition may be attractive
for captive owners and their insurance vehicles currently based
within EU domiciles, especially where they are writing business
outside the EU. This may become increasingly so if the uncertainty
regarding Solvency II continues and/or if the implications for
captives appear particularly onerous.
Other non-EU jurisdictions such as Bermuda, Switzerland and
Japan are adopting a different stance. These countries were in the
first wave of equivalence applications, but were not seeking
equivalence for their captives, but to protect their international
commercial reinsurance industries. Bermuda in particular is seeking
to mitigate the impact on their captive insurance business. We
continue to monitor these developments closely.
At present there is still a degree of uncertainty surrounding
equivalence and what this means for these countries. We
understand that the finalisation of the transitional provisions may
depend on the actions of the European Parliament and the European
Council. Until their position is understood, there will remain
a degree of uncertainty about the equivalence process and how it
will progress. On this basis, Guernsey remains committed to
the policy outlined in January 2011 that it is not currently
seeking equivalence under Solvency II.
This is a position which has so far served us well and we
believe offers captive owners a real alternative that will deliver
them tangible benefits. There is another way.
"New World Harbourview Hotel Company Limited & Ors v. Ace Insurance Limited & Ors" (FAMV6/2011) - Leave to appeal to Court of Final Appeal granted on interpretation of insurance cover.
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