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

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

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

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

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

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

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)

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

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

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?

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

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