European Reinsurers May Claim Capital Credit from Guernsey Reinsurers

At a recent Guernsey Finance insurance-linked securities event in Zurich, clarification was provided surrounding the ability for EU-domiciled insurers to take credit in capital calculations for reinsurance under Solvency II regulations.

Jason Noronha, head of actuarial and analytics at Aon, clarified the regulations and noted that there is "still a lot of confusion in the market."

He stated that credit would be granted for reinsurance in firms' capital calculation for European-domiciled insurers who have bought from a nonequivalent regime (also referred to as a third country), such as Guernsey, if the entity is rated triple-B or above or collateralized.

"If a reinsurance contract is fully collateralized, as long as the requirements are met, you can take full credit," he said.

"There is no reason why an EU-domiciled insurance company should not be able to benefit from reinsurance from a [nonequivalent] domicile—that is, one operating in Guernsey. There is no reason why the benefit of that reinsurance should not be recognized under the Solvency II capital calculation.

"Solvency II is complex and open to interpretation so some views won't agree—but there is no real restriction on the use of [nonequivalent] domiciled reinsurance, as long as there is some mitigation in place, such as a credit rating or collateral."

Dominic Wheatley, chief executive of Guernsey Finance, said, "This is welcome confirmation of the island's position with regards to Solvency II and reinsurance.

"Guernsey's diverse insurance industry provides a flexible, responsive regulatory regime outside of the EU, which is quicker, less prescriptive, and more flexible than Solvency II. We distinguish between different classes of insurer and place proportionate regulatory burdens on each."