A Move Toward Global Solvency Rules Scheme Seen

There is increasing momentum for global alignment of solvency rules among nations, according to an international consulting firm.

That assessment came from Ernst & Young, which took note of the National Association of Insurance Commissioners’ latest move to assess international solvency regulations and make adaptations to the U.S. regulatory structure. The firm said it is endorsing the Solvency Modernization Work Plan, which NAIC adopted this month.

"We applaud the work of the NAIC on this initiative,” said Philipp Keller, head of the Ernst & Young Global Solvency II Task Force. "NAIC’s goal to upgrade the current framework is entirely in line with the organization’s historical commitment to be at the forefront of regulation and supervision."

According to the Ernst & Young analysis, the NAIC plan will compare the U.S. risk-based solvency system with Europe’s proposed solvency directives, known as Solvency II, and analyze the effect that Solvency II might have on U.S. insurers.

In particular it will address capital requirements, accounting standards, group supervision, valuation issues and reinsurance. The overhaul of Europe’s solvency framework is scheduled for implementation across the continent beginning in 2012.

Mr. Keller said, “Modernizing U.S. regulations will lead to a more level playing field between U.S. and European insurers and to a convergence of regulatory requirements. This will also reduce opportunities for regulatory arbitrage and create a more transparent and competitive financial market.”

Matthew Clark, another member of the Ernst & Young Global Solvency II Task Force, said adaptation of the U.S. insurance solvency system will benefit both the world’s largest insurance market and the global industry. “An economic- and risk-based regulatory framework in the U.S. might well create efficiency gains not only for U.S. insurers, but also for the many foreign insurance groups that have business in the U.S.,” he remarked.

Ernst & Young said it is maintaining a comprehensive Solvency II Web site, www.ey.com/solvencyII, providing current information on the proposed regulations and commentary on the potential impact of this new framework.