The appearance of two leading regulators in the European Union at the regulators’ table during the National Association of Insurance Commissioners’ spring meeting was instructive not only for the update on the financial services framework that is under construction in Europe but also as a barometer for the real day-to-day impact it will have on the domestic market.
The Disney World venue of the meeting sorely tempts one to use an “it’s a small world” analogy for what is going on in the insurance business. But this is no animated song and dance number. Rather it will have a real, measurable impact on the domestic U.S. insurance industry.
Some pretty weighty regulatory points surfaced when Karel Van Hulle, head of the European Commission’s insurance and pensions financial institutions unit, and Alberto Corinti, secretary general of the Committee of European Insurance and Occupational Pensions Supervisors, spoke.
To name a few: new solvency standards, risk assessments from modeling that will use capital more efficiently, and greater regulatory responsibility that comes with internal modeling that better assesses risk.
If these issues sound familiar, it is because they are being discussed as domestic regulators, insurers and actuaries are assiduously pursuing their own regulatory construction project–principle-based reserving.
Some of the EU efforts will not be complete until about 2010. But when they are done, companies operating outside of the U.S. will have to comply with these new standards as well as U.S. regulation. This will not come about without a certain amount of adjustment.
For instance, Steve Broadie of the Property Casualty Insurers Association of America noted that as international and U.S. accounting standards meld, it is likely statutory accounting will change along with U.S. GAAP.
And the American Insurance Association’s Dave Snyder noted concern over the workability of fair value accounting on U.S. property-casualty insurers if it ends up being incorporated into the EU effort. “The business is so complicated and the risks are so uncertain that standard templates from other industries may not fit easily.”
Doug Barnert, president of Barnert Global and executive director of the Group of North American Insurance Enterprises, offered an example. When IASC standards for Hong Kong were implemented, every U.S. company with a subsidiary there had to comply with these standards. The same thing will happen as capital adequacy standards are developed, he adds.
If there is any comfort, it is that the NAIC has been actively participating in international efforts for several years.
The latest evidence is a memo of understanding the NAIC signed with Russia’s Federal Service of Insurance Supervision to strengthen regulatory cooperation. Other memos have been signed with China, Vietnam, Iraq and Brazil.
Ongoing NAIC work with the International Association of Insurance Supervisors and the International Accounting Standards Committee is ensuring a U.S. presence as important decisions are made.
Additionally, Al Iuppa, NAIC president, is making participation with international insurance regulators a priority item during his tenure. Iuppa has a front-row view of what is going on since he also is IAIS chair.
For what it’s worth from the sidelines, the praiseworthy efforts of state insurance regulators have to continue as the need for a U.S. voice on insurance matters becomes more critical. The implication for how U.S. companies will be regulated in the not-too-distant future is a strong impetus to intensify this country’s presence.