It is always interesting when Americans discuss European laws and regulations.
This time, the U.S. Department of the Treasury's Federal Insurance Office (FIO) submitted to Congress a report on how to modernize and improve the system of insurance regulation in the United States.
It covers some interesting parts of the Solvency II directive of the European Union:
"Solvency II includes a provision by which the EC determines whether non-EU regulatory systems provide a similar level of protection to policyholders as would the Solvency II regime, and are therefore "equivalent" to Solvency II
The equivalence assessment would be based on three criteria, two of which relate to group supervision and one of which relates to reinsurance supervision.
Insurers in "equivalent" jurisdictions would be able to access the EU market, and EU-based insurers would be able to access non-EU markets, without the imposition of additional capital requirements or restrictions.
Insurers in non-equivalent jurisdictions would need to undertake structural changes to "ring-fence" European assets from non-EU assets, including, for example, the creation of separate holding companies within EU jurisdictions.
The report continues:
"Solvency II will soon be adopted by the European Parliament as part of an omnibus legislative package, with a scheduled implementation date of 2016.
Notably, despite the previous delays with adoption in the EU, components of Solvency II have been adopted in other countries, including China and Mexico.
Broadly structured around the three pillars of capital, supervision, and disclosure, Solvency II would require adherence to RBC requirements at both the individual regulated entity and group levels, whether pursuant to a standardized formula or based on the insurer's own internal models subject to supervisory review.
As originally formulated, Solvency II would have been particularly consequential for the U.S. insurance sector because of its requirement for unilateral assessments of insurance regulation in other jurisdictions (including the United States) and because it would impose solvency requirements on insurers doing business in the EU to the extent the home jurisdiction's requirements are deemed to be unsatisfactory in comparison to Solvency II.
Through the EU-U.S. Insurance Project, the EU and the United States have committed to a collaborative work plan that will enhance understanding and cooperation and, where appropriate, promote greater consistency between the two jurisdictions.
Thus, the orientation of the discussion has been altered by virtue of the EU-U.S. Insurance Project which will lead, where appropriate, to the increased convergence and compatibility of the two insurance regulatory regimes.
Finally, in the United States, in December 2012, state regulators released a Solvency Modernization Initiative (SMI) Roadmap, which they describe as a critical self-examination designed to update the states' approach to solvency oversight.
Among the areas reviewed are capital requirements, governance and risk management, group supervision, statutory accounting and financial reporting, and reinsurance.
The SMI Roadmap also reports state regulators completed adoption of the Risk Management and Own Risk Solvency Assessment (ORSA) Model Act, which comprises enterprise risk management requirements and standards for insurers, together with the ORSA Guidance Manual."