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.”