The implementation of Solvency II will have a significant impact on capital requirements for the insurance and reinsurance business in the European Union. The impact of Solvency II on cross-border reinsurance transactions and multinational groups with operations both within and outside of the European Union will depend, in part, upon the equivalence determinations that will be made with respect to non-European Union jurisdictions. Bermuda, Switzerland and the U.S. are likely to be the subjects of the first wave of equivalence determinations, based upon recent recommendations by the Committee of European Insurance and Occupational Pensions Supervisors (“CEIOPS”) to the European Commission.

There are three equivalence assessments to be made under the Solvency II Directive. The relevant articles within the Solvency II Directive under which equivalence assessments will be made are Article 172, Article 227 and Article 260. Article 172 addresses the equivalence of reinsurance supervision; Article 227 addresses the group solvency calculation; and Article 260 addresses the equivalence of third country group supervision.

In June 2010, the European Commission requested that CEIOPS provide recommendations as to which countries should be included in the first wave of third country equivalence assessments. In July 2010, CEIOPS issued its Consultation Paper 81 “Draft CEIOPS Advice to the European Commission – Equivalence assessments to be undertaken in relation to Articles 172, 227 and 260 of the Solvency II Directive”. Bermuda, Switzerland and Japan (in relation to Article 172 only) were included as likely first wave jurisdictions in that draft. Comments to that paper from interested parties were to be provided by 13 August 2010.

CEIOPS issued its final advice to the European Commission on 31 August 2010. When considering the countries to be included in the first wave, CEIOPS focused primarily on the risk- based nature of the third country regulatory regime and the materiality of an equivalence finding to European Union insurance and reinsurance undertakings and their policyholders. CEIOPS recommended that Bermuda and Switzerland be included in the first wave of equivalence assessments in respect of all three articles. Somewhat surprisingly, CEIOPS also recommended that the United States be included in the first wave of assessments in respect of Article 172 (reinsurance supervision) and Article 227 (group solvency calculation). Japan interestingly was not included, reportedly due to reservations expressed by the Japan regulators about being part of the first wave assessments.

The European Commission is expected to decide whether to act on the recommendations of CEIOPS in October 2010. CEIOPS is then expected to start individual assessments of the first wave countries and will consult on its draft advice to the European Commission in March 2011. CEIOPS is scheduled to give its final advice on the individual assessments in July 2011. The European Commission is then expected to make its decision in June 2012. Solvency II is scheduled to become effective on 1 January 2013.