U.S. Insurance Regulators Seek Solvency II Equivalence Without Major Changes to Current System

Although major reforms aren't likely, the NAIC and the FIO continue to push both sides of the Atlantic to achieve Solvency II equivalence for the U.S. state-based regulatory system.
The United States insurance regulatory system will likely be deemed equivalent to the European Union's Solvency II Directive, according to Therese Vaughan, CEO of the National Association of Insurance Commissioners ("NAIC"). Solvency II, a uniform system of insurance regulatory standards adopted by the EU that is scheduled to go into effect in 2013, requires foreign insurance companies operating in the EU to have "functionally equivalent" regulation. [1]

The U.S. risk-based capital solvency system gives policyholders the same protection as Solvency II, according to experts.
Despite "fundamental differences in the underlying methodologies," the long-established risk-based capital solvency system in the United States gives policyholders the same protection as Solvency II, according to Fitch Ratings Ltd as reported by Business Insurance. U.S. regulators began a solvency modernization initiative in 2008 in response to the development of Solvency II.[2]
Regulatory cooperation already has begun between Europe and the United States. For example, several U.S. states recently relaxed rules on the collateral that overseas reinsurers must post to be able to underwrite reinsurance. This, Fitch said, is a "positive sign that cooperation will lead to an agreement on equivalence." [3]
The European Insurance and Occupational Pensions Authority ("EIOPA") is the body charged with determining Solvency II equivalence, and whether the United States is granted equivalence is a political issue according to Paul Clarke of PricewaterhouseCoopers, L.L.P., in London. There are significant differences between the US insurance regulatory system and Solvency II which could make an equivalence determination difficult, especially since U.S. authorities will likely be reluctant to make widespread changes to the U.S. system just to meet equivalence requirements.[4]
The U.S. continues to have one of the world's most respected regulatory systems, and the NAIC is firm in its view that there is more to equivalence than identical methods, processes and philosophies…[5]
NAIC CEO Vaughan says Solvency II "equivalence should be assessed on an outcomes basis," and on that basis, the U.S. "should be found equivalent." Additionally, Vaughan indicated that the NAIC is not pushing a Solvency II agenda here at home:
We've made it clear we're not going to adopt Solvency II. We have a system. We think our system works. We're engaged in continuous improvement.[6]
Strict Solvency II compliance would not work in the U.S. according to Howard Mills, chief adviser of Deloitte LLP's insurance industry group, as reported by InsuranceNewsNet.com. One of the main reasons is the state-based regulatory system in the U.S. While the newly-created Federal Insurance Office ("FIO") represents the U.S. in international insurance affairs, it currently has very little authority over the regulatory practices of the individual states.[7]

Nevertheless, representatives of the NAIC and the FIO continue to work with European insurance regulatory officials to reach understanding and compromise on insurance industry oversight under both the U.S. and the EU systems.[8]

The NAIC has also been diligently working on the U.S. Own-Risk and Solvency Assessment proposal to close some of the gaps between Solvency II and current U.S. standards. While the proposal has no formal implementation date as yet, the NAIC expects ORSA to be implemented prior to 2014 when the U.S. financial solvency equivalence assessment process review by the EIOPA is expected.[9]



1NAIC CEO: US Will Gain Solvency II Equivalence, Sean P. Carr, A.M. Best Company, Inc., InsuranceNewsNet.com, November 14, 2011.
2Solvency II equivalence likely for U.S., Sarah Veysey, Business Insurance, November 6, 2011.
3Solvency II equivalence likely…, Id.
4Solvency II equivalence likely…, Id.
5NAIC Fall Meeting Highlighted Challenges, Tom Sullivan, PropertyCasualty260.com, November 14, 2011.
6NAIC CEO…, Id.
7NAIC CEO…, Id.
8NAIC CEO…, Id.
9NAIC Fall Meeting…, Id.

No comments:

Post a Comment