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Gibraltar regulator shines spotlight on non-European reinsurers

The Financial Services Commission of Gibraltar (FSCG) said it is paying increased attention to the reinsurance arrangements of Gibraltar insurers, especially those that involve significant cessions to reinsurers domiciled outside the European Economic Area (EEA).

The move is part of a wider drive towards compliance under Solvency II and the EU reinsurance directive. However, the focus on reinsurance has intensified since the failure of Lemma Europe and two other Gibraltarian firms in the past year.

Gibraltar-based Lemma Europe collapsed last year due to its sister company in Ukraine failing to honour a reinsurance commitment of around £8mn.

More recently, two other Gibraltar insurers - Hill Insurance and De Vert Insurance - went into liquidation after being subject to major external frauds that eliminated the majority of their capital.

The FSCG's head of insurance supervision, Michael Oliver, told The Insurance Insider: "The FSCG is not seeking to ban reinsurance cessions to non-EEA reinsurers."

However, he added that insurers that make such arrangements are expected to have fully considered the aggregation and credit risk implications and to hold sufficient capital to reflect the risk. They would have to prove that a detailed assessment of the risks had been conducted, Oliver added.

He warned that the FSCG could flex its legal powers to reduce the admissibility of any reinsurance recoverable from the non-EEA reinsurers within an insurer's solvency margin requirement.

Chris Johnson, chairman of the Gibraltar Insurance Association, said that in a worst-case scenario it could be reduced to 0 percent admissibility on solvency under Solvency II.

He said that the watchdog would evaluate each non-EEA reinsurer on a case-by-case basis, considering its balance sheet, rating and how the reinsurance coverage fits into an insurer's programme.

Johnson said that the regulator would also consider whether the reinsurer was regulated by a jurisdiction that closely followed European rules.

He praised the FSCG's regulatory drive and said the robust and tailored supervision was part of the attraction of Gibraltar as an insurance hub: "Rather than a one-size-fits-all regime that you would tend to get in larger domiciles, we do have an on-its-merits approach."

Out of the 66 companies licensed to insure in Gibraltar, which include XL and Brit, 10 entities have been blocked from continuing business. Another eight EEA insurers - including Ace European Group, Aviva, Axa and Eagle Star - can carry out insurance business in the territory.

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