Solvency II will be in operation across EU states by the beginning of January 2013. The Solvency II regime is based upon a three pillar regulatory approach, similar to that applied under Basel II. Insurers and reinsurers across Europe will be subject to a risk-based solvency regime which more closely matches capital and supervisory requirements to the risks which insurers face.

A recent development in the slow process of implementation has been the identification by the European Commission of those non-EU supervisory regimes deemed to be suitable for an equivalence assessment in anticipation of Solvency II. The Solvency II Directive (2009/138/EC) contains provisions relating to the assessment of the equivalence of "third country" (non-EU) supervisory regimes (found in Articles 172, 227 and 260 of the Framework Directive). These articles relate to reinsurance, group solvency and group supervision respectively. In each case, a finding of equivalence can bring significant benefits. For example, where a third country regime is deemed equivalent under Article 172 EU insurers will be able to take credit for reinsurance ceded to undertakings in those countries; similarly, Member States will not be able to demand collateral from those reinsurers. In the absence of any such finding, equivalence will be determined on a case by case basis.

In June of this year, the European Commission wrote to the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) requesting that it provide a list of countries that should be prioritised in terms of an equivalence assessment. As a result of an initial review of suitable third country regimes, it was decided that both Switzerland and Bermuda should be considered in relation to all three articles and Japan should be considered in relation to article 172 (reinsurance) only.

The Commission has accepted that undertaking equivalence assessments will be resource and time intensive and therefore only Switzerland, Bermuda and Japan should be assessed in the first wave. However, the Commission has proposed that transitional measures are introduced that will allow third countries eligible for inclusion to receive the same benefits under Solvency II as if there had been a positive finding of equivalence. The Commission proposes that transitional measures are time limited and any countries considered eligible will need to fully satisfy the equivalence criteria by the end of the transitional period in order for a finding of equivalence to be made permanent.

The Commission proposes that the "Omnibus II Directive" (which will amend several existing financial services legislation) will provide an opportunity to allow for the introduction of these transitional measures in the Level 2 implementing measures for Solvency II.

Although the Commission makes it clear that it is unable to pre-determine the outcome of political discussions on these transitional measures, it states that there is strong support from the insurance industry that the United States should be considered a candidate for the transitional regime.