One of the major challenges faced by the Bermuda Monetary Authority is to how to meet the needs of the large Class 4 commercial re/insurers as well as those of captive insurers, according to Marsh IAS Management (Bermuda) managing director David Ezekiel.The regulator’s efforts to achieve third-country equivalency with the new Solvency II rules, due to take effect in the European Union in 2013, which will raise capital requirements and standards of corporate governance, will not affect all insurers the same, he believes.Much uncertainty exists about how the new rules will affect captives, some of whom provide only self-insurance for their corporation parents, while some also insure some third-party risks.As captives who predominantly insure their owners’ businesses, their managers belief their risk profile is lower and so they should not be subject to the same regulation requirements as major commercial re/insurers.Bermuda’s main captive domicile rivals have not pursued Solvency II equivalency.When EU officials came to vet the BMA’s insurance regulation procedures two weeks ago, BMA CEO Jeremy Cox said much of the discussion focused on “proportionality”, the element of Solvency II that is supposed to match the regulatory burden imposed on a company to its risk profile.Speaking at the Insurance Day Summit at the Fairmont Hamiltion Princess, Mr Ezekiel said he believed the new rules would differentiate between Bermuda’s Class 1, 2 and 3 captives, at the lower end of the risk profile, and the Class 4s, 3As and 3Bs, which write third-party business.“I hope and trust that the Class 1,2 and 3 companies will be treated separately from the others,” Mr Ezekiel said. “But my sense is that any general carve-out will probably not sit well.”Some of Bermuda’s life insurers might consider the new rules to be a reason to change domicile, Mr Ezekiel suggested, particularly those whose business came exclusively from outside Europe and who would be loath to accept new regulation emanating from Europe, bringing extra costs and requirements.How Bermuda dealt with Solvency II was its major challenge going forward, he said.Mr Ezekiel also spoke about the new code of conduct for insurers, due to take effect on July 1, which heralded significant changes for captives.“What the code says is that responsibility rests on the board of directors and not with the service providers,” Mr Ezekiel said.“Most captives are managed. Quite often, the management company basically takes over everything and the board shows up a couple of times a year with varying levels of interest and expertise.“The code says that’s not good enough. It puts responsibility on the board.”Selecting directors who understood the risks of their captives and who were mindful of corporate governance would now be essential. While the code did not bring filing requirements, it would allow the regulator to come in and check the code was being complied with, Mr Ezekiel said.“It’s a huge step forward for the industry in the whole area of corporate governance,” he added.