On 19 December 2014, the European Insurance & Occupational Pensions Authority (EIOPA) published three Third-Country Equivalence Consultation Papers: A Consultation Paper on EIOPA Advice to the European Commission: Equivalence Assessment of –
- The Swiss supervisory system, in relation to articles 172, 227 and 260 of the Solvency II Directive (the Directive);
- The Bermudian supervisory system, in relation to articles 172, 227 and 260 of the Directive; and
- The Japanese supervisory system, in relation to article 172 of the Directive.
The consultation period in respect of each advice closed on 23 January 2015. EIOPA is now considering the consultation responses, before finalising its advice and giving it to the European Commission.
Although there is no publicly available timetable for these things, EIOPA is expected to finalise its advice and give it to the Commission before the summer, so the Commission has enough time to make its equivalence decisions before the end of this year.
In each instance, the Commission may choose to deem a country’s supervisory system as “Solvency II equivalent” in one or more of up to three different ways:
- Reinsurance (article 172);
- The calculation of group capital (article 227); and
- The supervision of groups (article 260).
If the Commission is not satisfied that a country’s supervisory system is Solvency II equivalent, it may choose to regard it as “solvency II equivalent on a temporary basis”; or it may reject a country’s application for equivalence altogether.
The Commission can only properly and lawfully decide that a third-country’s supervisory system is Solvency II equivalent if its reinsurance, group capital and/or group supervisory system(s) offer a level of policyholder protection, supervisory co-operation and professional secrecy, that is equivalent to that offered by Solvency II. The relevant system must also include (and apply) a proportionality principle, and be in existence. (Equivalence cannot be granted on the basis of a proposed regime; although a regime that’s been made can be taken into account, even if it’s not yet fully in force.)
If EIOPA’s final advice is in the same form as the draft advice in its consultation papers, it will say that:
- Switzerland’s system is equivalent on almost all measures, for all purposes, and that it will be equivalent by the time its amending laws have come into force in July 2015;
- Bermuda’s system is equivalent, or largely equivalent, for all purposes, and that it will probably be equivalent by the time it has implemented the legal changes it is proposing to make this year; and
- Japan’s system is largely equivalent for reinsurance.
There is therefore a clear expectation that the Commission will decide that:
- The Swiss and Bermudian systems are equivalent for group capital and group supervision; and
- The Swiss, Bermudian and Japanese systems are equivalent, or (perhaps, in the case of Japan) temporarily equivalent, for reinsurance.
It’s not yet clear whether EIOPA will prepare an advice on Brazil’s March 2014 application for Solvency II equivalence; or what’s happening (if anything) about the expressions of interest in Solvency II equivalence that were made by Australia, Chile, China, Hong Kong, Israel Mexico, Singapore, South Africa and Turkey between 2011 and 2013.
It is, however, tolerably clear that the systems in the United States, Canada and Guernsey will not be regarded as Solvency II equivalent for any purpose, or on any basis. I say “tolerably clear” because some market participants are still expecting the Commission to find a way of treating the United States’ systems as equivalent, even if that’s all but impossible at this stage.