Lexology (reg req.) sums up:
The European Union’s Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has recommended to the European Commission that Bermuda, Switzerland and Japan be the first countries assessed for equivalence with EU insurance regulations under Solvency II. Solvency II is scheduled to become effective on December 31, 2012. The most noteworthy omission from the recommended first wave of countries to be assessed is the United States.
Equivalence is important mainly for reinsurers. Companies from equivalent regimes have easier collateral requirements, driving down the companies cost of capital.
The U.S. gets left off the list because its state-based system is too cumbersome to be in the first wave. The EU also believes state regulators focus too much on individual companies and not on insurance groups.
Other points of note:
- While Solvency II will put US reinsurers at a disadvantage, some states (New York, New Jersey) are considering loosening capital requirements for non-US reinsurers. Florida has already done so.
- The US case for equivalency may be helped by the financial reform Congress recently passed. It created a Federal Insurance Office, though the office faces a couple of barriers. First, it may not be able to get up and running quickly enough to address Solvency II issues. Second, it’s not clear that it has standing to negotiate.
Personally, I like the US regulatory mechanism. Having myriad regulators means some will be innovators and some will be cautious. Having to please both types means companies will still be able to innovate, but not so quickly that the industry gets ahead of itself and stumbles into a systemic problem.
That’s part of the reason insurers needed much less help in 2008 than banks. (Recall AIG suffered because of losses in a division untouched by insurance regulation.)
Even so, it’s clear the US (and the NAIC) have to change to grapple with international regulation.