Guernsey: on the outside over Solvency II equivalency

Guernsey’s announcement that it has no plans to seek Solvency II equivalency rears the perplexing head of equivalence once again.

The implications of the decision for reinsurers, and those who deal with them, remains uncertain but some market insiders believe it might not be all bad news.

The timing of the announcement crucially coincides with last week’s publication of the long-awaited EU Omnibus II directive.

Omnibus II gives more time

Omnibus II gives the European Commission the ability to fast track changes to some areas of insurance supervision and regulation without the need to go through the European parliament.

More importantly, Omnibus II has provided transition provisions around the concept of equivalence, giving the industry breathing space to decide what works best for business.

Reinsurers in Guernsey have been given the invaluable gift of time, says Aon Benfield’s head of analytics for EMEA, Marc Becker.

“Solvency II is going to be a 10-year process now according to Omnibus II, and so reinsurers have some time. Why would Guernsey be so keen to jump on this bandwagon?”

Double regulation - double trouble

One of the biggest problems for EU-owned reinsurers will be the effects of double regulation – both on Guernsey and within the EU Solvency II regime.

PricewaterhouseCoopers Solvency II partner Paul Clarke believes this could be a cumbersome inconvenience for reinsurers. “This will mean far more work. Where it gets complicated is for those reinsurers on the island owned by European parents, those European parents will now have to restate the capital requirements from the local basis to the full Solvency II basis.”

Benefiting from simplicity

But for Guernsey-based Barbican Reinsurance, the simplicity of the Guernsey regime also has many benefits.

Barbican chief executive David Reeves says: “It’s not extremely elaborate - the modelling demands are less, the regulations are easier to understand and it makes sense for smaller insurers and captives. We will be a beneficiary of this.”

Will EU-based reinsurers flee?

Guernsey’s decision beggars the question of whether twice the regulation workload will see EU-owned reinsurers fleeing in haste.

Clarke believes such haste will make waste of good opportunities. “For those reinsurers owned outside of the EU, the fact that they don’t have to comply with Solvency II rules could mean they stay where they are.

"I suspect that is colouring the decision of the Guernsey regulator not to pursue this regulation.”