The Bermuda Monetary Authority has unveiled significant enhancements to Bermuda's solvency and disclosure regulations for insurance.

These changes will help ensure the Island is recognised as having equivalent regulatory standards to those in Europe's Solvency II Directive.

The Authority has also announced new measures to provide for special purpose vehicles (SPVs).

"I'm pleased to say that the developments announced today mean we're well on track to achieving our objective of achieving equivalence, or mutual recognition status, in Europe and elsewhere," said Matthew Elderfield, chief executive officer of the Authority. "Bermuda is now one of the countries at the front of the pack in terms of preparing for Solvency II."

With the passing of the Insurance Amendment Act 2008, the BMA will now introduce, among other new and expanded regulatory initiatives, the Bermuda Solvency Capital Requirement (BSCR), an enhanced solvency regime that it will apply to Bermuda's Class 4 re/insurers.

"The BSCR will assist us to build on Bermuda's existing solvency regime by establishing risk-based capital adequacy standards for high impact insurers," said Mr. Elderfield. "This will allow for a more risk-sensitive approach to setting solvency requirements for Bermuda's insurers, in line with international developments regarding capital adequacy such as Solvency II.

"Implementing the BSCR will also help with the Authority's transition to recognising companies' internal economic capital models.

"Permitting the use of internal models for our (re)insurance companies to determine appropriate capital levels for their business, subject to review and approval of each model by the Authority, is again consistent with developments in international insurance regulation."

Other initiatives facilitated by the new provisions in the amended legislation, include the publication of financial statements submitted to the Authority by Class 4 companies, under new reporting requirements for these high impact insurers, using Generally Accepted Accounting Principles (GAAP).

"These new provisions enable us to publish GAAP financial statements, which will result in enhanced standards for disclosure for Bermuda's Class 4 insurers, in line with international standards relating to transparency in the industry," Mr. Elderfield said.

The legislation also facilitates the re-classification Bermuda's Class 3 insurance sector, which includes a large number of firms, with a wide range of characteristics, from captives writing a limited amount of third-party business to large purely commercial re/insurers.

"This means we're establishing further sub-categories within the Class 3 group, based on their respective risk profiles.

"We will be able to refine our application of risk-based supervision to these firms further, to ensure they receive the level of oversight that is appropriate to the nature of their business."

He added that the reclassification also introduces a new category of 'Special Purpose Insurer', focused on these fully collateralised SPVs that are set up to carry out specific insurance transactions. The new classification will make it less costly for SPVs to be established in Bermuda.